A pay-for-performance measure in the US shows that paying more for chief investment officers does not lead to better performance. Amanda White reports.
Developed by executive recruitment firm, Charles Skorina & Company, the index is calculated by assessing an institution’s investment returns over the past five years and measuring it against the salary of the chief investment officer (CIO).
A basis points earned per $100,000 of compensation figure is derived and then the CIOs are ranked by this measure of “performance for pay”.
Using this method, John Hull, CIO of the Andrew W Mellon Foundation, was the best performing CIO, with 105 basis points per $100,000 of salary.
Hull manages $5.1 billion and earns $620,000, ranking him 46 out of 50 on Skorina’s list of highest paid CIOs in the US.
The highest paid CIO on this top-50 list is Harvard endowment’s Jane Mendillo, earning around $4.7 million in total compensation, followed by Yale’s David Swensen, with around $3.7 million.
Endowments dominate the list, with Texas Teachers’ CIO Britt Harris the only pension fund CIO featuring on the list, earning just over $1 million, according to the Skorina data.
Applying the performance-for-pay calculation reveals that Harris generated 29 basis points per $100,000 of salary, Swensen 16 and Mendillo 10.
Skorina says institutional investment boards have been asking him for years to develop a measure of performance for pay and so his aim was to develop a basic, objective and consistent measure.
“Chief investment officers and asset managers measure their service providers every day but have excuses for why it doesn’t apply to them,” he says. “We wanted to create a simple measure to create a management expense ratio (MER) for CIOs. If they think a measure such as basis points per dollar of their salary shouldn’t be used then earnings per share shouldn’t be used, and the S&P and Dow Jones would be defunct.
“You can say that each fund has different benchmarks and measures, but what it gets down to is how much money was made for the institution. An institution will forget about all the other things if you have a negative return.”
CIO remuneration: value for money?
The remuneration of pension fund investment executives is a sticking point in the industry.
To compete with the open market, attract and retain high calibre executives and compensate them for the peculiarities of being a fiduciary, a certain minimum offering is required. This has to be balanced with communication to stakeholders about what is fair, often within tight budget constraints.