There is an argument, advocated by Ontario Teachers’ Pension Plan (OTPP), that to get upper-quartile performance, you need upper-quartile people. To get upper-quartile people you have to pay them upper-quartile salaries.

OTPP is the best-performing fund in the world, by many measures. So some attention should be paid to this argument.

OTPP is a 25-year-old defined benefit fund for the teachers of Ontario, Canada. It has 311,000 members, 129,000 of whom are pensioners (including 135 people over the age of 100). It employs 1109 staff in multiple countries, and manages around 80 per cent of its $C 154 billion in-house. Talent management is one of the organisation’s driving tenets. It knows that its people are its best asset.

The fund is around 104 per cent funded, the first measure of success when contrasted with the average 80 per cent funded level of the 131-state sponsored US defined benefit pension plans, as measured by Wilshire.

Another measure of its success is its consistent high performance. In 2014 OTPP returned 11.8 per cent, and since inception the annualised return is 10.2 per cent.

But perhaps even more astounding, and a real measure of success, is its tight g rip on costs. In 2014, the most recent calendar year figure, its total costs – including all investment costs, expenditures for salaries, benefits, fees and research – was $409 million, or 28 cents per $100 of average net assets.

This figure is particularly startling because 38 per cent of its portfolio is in the traditionally high-cost investments of natural resources, real assets and absolute return strategies, and the 45 per cent in equities is split between public and private markets.

This is a neat little story. OTPP returns consistent high performance through sophisticated risk management and investment prowess. It achieves this by employing upper-quartile people to manage assets and oversee external providers. And it pays them well.

In 2014, OTPP paid its 1109 staff $C 300.5 million. In 2014, chief executive Ron Mock was paid a total salary of $C 3,783,039; and chief investment officer, Neil Petrov, received $C 4,481,846.

It benchmarks pay against peers – which it defines as other major Canadian pension plans but also banks, insurance companies and investment managers.

The fund’s compensation framework has been developed on a foundation of pay for performance, and consists of base salary, annual incentives and long-term incentives.

For the chief executive and chief investment officer, about 75 per cent of total compensation is variable.

These incentive compensation frameworks are managed and monitored relative to the risk budget to ensure compensation programs do not encourage excessive risk taking. Particular focus is paid to ensuring direct alignment between the OTPP total fund net value added (after expenses) and the compensation paid to senior management.

One interesting feature of the performance pay, and another reason for employees to have skin in the game, is they can choose to allocate their annual incentive plan to the fund for up to two years and realise the actual rates of return of the plan.

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The fund’s mission is to provide outstanding service and retirement security to members, today and tomorrow. With this in mind, it evaluates four areas of performance that will drive the short-, medium- and long-term goals. “People”, including initiatives to attract and retain the best talent, is one of those four areas.

Interestingly, one of the fund’s values is “humility” – this doesn’t usually sit alongside paying high salaries to investment executives. (The other values are integrity, innovation, performance and partnership.)

There are many reasons for the success of OTPP – but paying salaries that attract the best in the business could be one of them.

Just throw in a bit of humility for good luck.

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