Cbus is to be applauded for showing the way in transparency, with its latest annual report disclosing more information about the fund’s investments, director and executive remuneration than ever before. It’s clearly a leader and should be recognised for this; it takes courage to jump ahead of the pack when there is no compulsion to do so.
However, when it comes to pay, Cbus raises some interesting questions about what the Australian industry is benchmarking itself against.
The Cbus board members got paid between $23,852 and $82,553. The chair and independent director get paid $107,183. This compares to the Future Fund’s annual salaries for directors of $91,280 and $182,530 for the chair.
As chief executive of Cbus, which looks after $18.6 million for 689,000 members, David Atkin gets paid $500,000 a year, which he tells me is somewhere near the fiftieth percentile when compared to his peers.
Take your marks
But what is that peer group benchmarking itself against?
Jane Mendillo, chief executive of Harvard Management Corporation, which manages the $32-billion Harvard University endowment, was reportedly paid $3.5 million for 2010 and the head of the external managers’ platform, Andy Wiltshire, earned $5.5 million. The president of the United States gets paid just under $400,000.
But perhaps more than the crude number – an analysis of what you are getting against what hurdles for the money you are paying – is relevant.
Cbus doesn’t pay performance fees to its executives. Almost every other fund I’ve come across offshore does.
Based on performance
In February this year it was announced that Mark Wiseman will succeed the retiring David Denison as president and CEO of the $165-billion Canadian Pension Plan Investment Board.
Wiseman’s salary will be $490,000 for fiscal 2013 and his incentive-compensation targets as a percentage of salary remain unchanged.
The CPPIB compensation elements include base salaries, a two-tiered short-term incentive plan made up of an annual individual objective and a value-added investment performance over a four-year period. There is also a long-term incentive plan, payable after four years, which is a percentage of salary to which a multiplier is added at the end of the four-year vesting period.
As CEO of the CPPIB, Denison’s long-term incentive awards and estimated future payouts will be $254,800 in 2015.
As executive vice president of investments, Wiseman’s 2015 incentive payout will be $498,000.
Similarly, the executives at CalPERS, including chief investment officer Joe Dear and chief executive Anne Stausboll, have performance-based pay. The rather elaborate measurement system for its executive pay structure is overseen by a performance and compensation committee.
The chief investment officer is measured against a variety of short and long-term investment and organisational issues: 70 per cent of his performance compensation in quantitative measures calculated on a sliding scale of performance above a series of basis points hurdles for the total fund; 20 per cent will depend on qualitative factors such as leadership, succession planning, risk management and teamwork. The remaining 10 per cent will be decided by performance in enterprise-wide initiatives during the fiscal year.
For the portfolio managers at Harvard Management Corporation, more than 90 per cent of their pay is variable and is tied to investment performance. Trish Donohue, executive manager of investments at Cbus got a total remuneration package of $379,800 for 2011-12, but it’s not calculated in such a way.
Slow train coming
For pension funds around the globe paying their executive appropriately should be top of mind.
Keith Ambachtsheer, director of the Rotman International Centre for Pension Management, identifies executive remuneration as one of five critical pieces of the puzzle if a pension fund is to satisfy its tasks of investing productively, administering efficiently and advising wisely.
To do these well, he says, requires aligned interests with stakeholders, good governance, sensible investment beliefs, effective use of scale and competitive compensation.
For Australian funds, where transparency is like a slow train coming, being able to articulate what they are paying for, and how that compares to international peers is of paramount importance.