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The TRS Compensation Committee and the full board of trustees considered a revised compensation plan for the TRS investment staff, the second such proposal within a year. The proposed package has made headlines in some newspapers across the state because of the significant potential bonuses included for top investment employees.
The goal of the plan is to attract and retain high quality investment personnel and to provide financial incentives for increasing the investment returns of the fund. TRS employees noted that the agency has had relatively high turnover in its investment personnel – including seven chief investment officers in the last 10 years – which is at least partially attributed to higher compensation available at both public and private sector funds.
The current chief investment officer, in conjunction with a controversial revised asset allocation plan approved by the board earlier this year, proposed a new compensation structure that would reward employees if the TRS fund outperforms expectations and other public funds. The media attention came about largely because of projections that the CIO could potentially earn over $900,000, if all targets were met.
The chief investment officer pointed out at the committee meeting that the maximum bonuses under the proposed plan are substantially harder to achieve than under the current compensation structure. However, more employees would be eligible for the bonuses, and the potential payouts would be higher, under the new plan.
According to information provided at the meeting, the highest possible total payout under the fund would be $9.4 million divided among 105 employees (with upper-level employees earning the bulk of that). In order for that maximum payout to occur, the fund would have to earn at least $1.1 billion more than industry benchmarks, and TRS would have to outperform every other public pension fund in the nation. The CIO commented, as an aside, that the millions of dollars under discussion are considerably less than the amount of money the fund would earn in one hour if the investors were to perform as assumed (assumptions would have the fund earning $8 billion to $10 billion per year, or around $40 million/day).
Trustees Greg Poole (a representative of active school employees and current superintendent of Barbers Hill ISD) and Philip Mullins (representing higher education) expressed concerns about the content and timing of the plan, noting in particular the negative perception that could be created by approving this plan before it is known whether retirees will receive a modest increase in benefits (their first in six years). Trustees hinted at the likelihood that active member contributions would have to be increased in order for the TRS fund to afford a 13th check benefit increase for retirees, though actual figures to be used in making that decision will not be available until the board’s November meeting.
At the urging of TRS staff, the committee and board agreed to move forward with the plan, citing concern about the need to continue current recruitment efforts that have been stalled in the absence of an improved compensation plan.
The compensation plan was adopted by the full board September 13.. The first bonuses under the new plan would be paid in February 2009.
Web posted: 09/14/07
