One of the problems facing public employee retirement systems today is compensation-based competition for talent.
While significant progress has been made in recent years in this regard, governmental plans still have obstacles to overcome in order to be truly competitive.
One unexpected impediment is the salary survey article in the Oct. 4 issue of Pensions & Investments. It was somewhat disheartening in that it appears to have dramatically understated the already relatively low pay levels in the public sector -- at least with regard to statewide retirement plans.
Such a report by the industry's leading publication could easily lead policy-makers to incorrect conclusions regarding what they must do in order to be competitive. In that survey, under "government" as the "business type," base salaries for pension managers and chief investment officers were reported as $68,328 and $78,954, respectively.
Legislators and other policy makers may view the pay levels in that survey as the standard and regard the higher pay their own public pension fund officials receive as generous. Thus, they may be lulled into false sense of security and see no need to worry about competition for talent.
A survey I sent out afterward found a far different level of compensation. I surveyed 70 statewide public employee retirement systems and generated responses from 37, with $733 billion in assets. This survey I believe provides a more comprehensive and balanced view of compensation arrangements among the state pension systems.
The accompanying tables from my survey are revealing with regard to base salaries. Also, five of the chief executive officers are eligible for incentive compensation ranging from 3% to 30% of base pay and six of the chief investment officers are eligible for incentive compensation ranging from 10% to 75% of base pay.
So the reality is, at least for state systems, the competitive standard of compensation is far higher.
Perhaps most revealing from my survey is the differential that exists depending on the body responsible for budget control.
In most cases, administrative expenses are paid from the retirement trust fund. In some cases the board of trustees has ultimate budget control, while in others final budget approval rests with the state legislatures. The accompanying table shows average current base pay depending on ultimate budget control. (For 16 of the plans replying to the survey, the board of trustees controls the budget. In the other 21 plans, the legislature controls the budget.)
Under board control, public pension officials tend to receive higher levels of compensation than those under legislative control. Why? It might be boards are closer to the marketplace and understand better the competitive needs to attract talented people.
The legislature is more removed from the market. Legislators often tend to seek comparisons with equivalent positions in state government. But there aren't equivalent positions to pension officials.
I can't think of any position in state government where a board member is personally liable for, say, $5 billion in assets.