Jack Ehnes, Christopher Ailman, Ted Eliopoulos, and Marcie Frost have all just received bonuses totaling $902,000.
Why should you care? Well, maybe it’s because they are essentially state employees.
They are the top honchos in the California State Teachers’ Retirement System (CalSTRS) and the California Public Employee Retirement System. (CalPERS). CalSTRS is part of the State of California Government Operations Agency as is CalPERS.
There are also the two state-controlled entities destined to crush taxpayers, lay ruin to municipal services, and destroy public education as we know if given projections of unfunded retirement liabilities for state, school, county, and city employees coming due over the next 20 years are correct. Granted, a lot of that liability is the doing of political decisions basically rooted either in elected leaders’ attempt to curry favor with government employee groups to grease campaign funds, their irresponsible desire to play Santa Claus with public resources, or good old-fashioned incompetence. Whatever reason it is clear their generosity with taxpayer dollars isn’t sustainable.
Keep in mind that not all of the payment into the retirement funds comes from taxpayers per se. A chunk comes from the salaries paid public employees ranging from teachers and firefighters to solid waste crews and office staff.
The argument to justify such bonuses to the public employees that oversee the largest public pension fund (CalPERS) in the United States as well as the largest teachers’ pension fund (CalSTRS) in the nation sounds like an old broken low-tech record — they have to pay salaries and compensation to be competitive with the private sector and that incentives encourage more productivity (better returns).
Gov. Jerry Brown is paid $173,981 annually and receives no bonuses. Ailman — the chief investment officer for CalSTRS has a base annual pay of $510,000. The bonus he just received came to $273,000.The maximum bonus he is eligible for is $510,000 or double his salary.
Ailman received his $273,000 bonus because CalSTRS investments for the last fiscal year generated a return of 13.4 percent. The target was 7 percent.
A reasonable person might think he exceeded his goal, so he earned it.
Ailman, we assume, is being rewarded because of his genius in implementing the CalSTRS board general guidelines for investment strategies to the point it not only worked but exceeded expectations. But let’s be honest here. How much of that result came from the software programs CalSTRS invests in as opposed to Ailman’s financial acumen?
If he is such a genius why didn’t CalSTRS under his leadership of its 117 member investment staff do better since he was first employed by the agency in 2000?
And if we are rewarding public employees if they exceed a target, then why don’t we claw back part of their compensation when they spectacularly miss their targets?
The truth is the world of investment has been changed by tech just like the rest of the world. Yet it is the only old school industry still compensated like its 1977 and not 2017.
Isn’t it time we disrupted the bureaucracy especially since those who benefit the most based on the “we’ve got to compete with the private sector for talent” compensation mentality enjoy a monopoly?
The Ailmans of the public pension fund management world don’t have to worry about clients pulling out such as the Los Angeles Unified School District due to poor returns. The penalties put in place make it impossible to leave.
So basically, government agencies such as CalPERS sits on one of the biggest piles of money in the investing world and don’t even have to lift a finger to attract or retain clients which happens to be half of the compensation equation for many of their private sector peers. And now with computer models taking over many trading decisions with built in positions that dictate when to sell or buy, the amount of work on the part of public pension funds’ top management is less today by far than it was in 1979.
Yes, Ailman has a daunting task. There are currently 900,000 teachers and retirees counting on CalSTRS for retirement benefits. And yes there is almost a $100 billion gap between assets and liabilities. But then again there are 39.8 million California’s depending on Brown to cover overall asset and liabilities gaps that make the CalSTRS problem seem like its nickel and dime stuff. And unlike CalSTRS, there is no computer model that can neatly deal with all of the variables and minute-to-minute changes that Brown deals with whether it is the legislature, the bureaucracy or the overall private and public sectors that make up the economic fabric of California.
The odds are there probably aren’t a lot of people who could do much better than Ailman given the dynamics of the market.
But the odds are there are a significant number of people in the financial world that could do as good as Ailman who could be lured by a $510,000 annual salary without bonuses.
The idea that you have to dangle additional carrots in front of a talented employee to get them to go beyond expectations is a myth perpetuated by those who need to justify fat bonuses not based on increased sales but rather on increased returns which are not the same thing.
If you doubt that go ask someone whose life had been changed by a teacher or a peace officer who went above beyond the call of duty all for base pay.
This column is the opinion of Dennis Wyatt and does not necessarily represent the opinion of The Journal or Morris Newspaper Corp. of CA. He can be contacted at firstname.lastname@example.org or 209.249.3519.