The Florida State Board of Administration, Tallahassee, and California Public Employees Retirement System, Sacramento, could be competing against each other to attract candidates to fill top openings at their funds, and California is likely to win.
Thats because CalPERS compensation package is more flexible than that proposed by the Florida SBA. Still, neither is competitive enough attract top investment talent based on compensation alone.
The Florida SBA, which initiated its search for the combined position of executive director/chief investment officer before Christianna Wood announced her departure from CalPERS Jan. 28, took an important step in trying to rebuild credibility, confidence and investment capability in its oversight of its $187.5 billion fund, as well as improve its position to compete for staff.
In January, trustees raised the base pay for the position, recognizing the current level was too low to attract high-quality talent. But they should have done a lot more to better ensure a pool of highly qualified applicants, from base pay to incentives. They likely will face a tough competitive challenge to fill the position, even from other public funds, a number of which pay better.
Adequate or not, the increased pay points to the need for other pension funds public, corporate and union as well as endowments and foundations to evaluate their own compensation levels, including incentives.
In the changing world order of investing, pension and other fund sponsors must have staffs with the knowledge and skills to evaluate and understand new and complex investment products, and an array of money management firms that range from conventional to alternative in terms of their portfolios and fee structures.
We cannot expect to see confidence restored to our pension funds if we cannot pay for the quality leadership that we deserve in this state, Florida Attorney General Bill McCollum, a trustee, said at a meeting in January, endorsing the recommendation by interim Executive Director Robert F. Milligan to increase the pay.
The Florida SBAs new base pay, ranging from of $250,000 to $350,000, would be similar to comparable funds, trustees noted. Coleman Stipanovich, who resigned in December amid subprime credit investment problems, earned about $182,000 in base salary and received a bonus of about 8% in 2006, his last full year on the job.
But Mr. Milligan didnt recommend increasing the bonus, which ranges from only 5% to 8% of pay, and trustees made no commitment to consider doing so.
Even with the raise, the base pay is, at best, at the low end of expectations for highly qualified applicants. According to one highly regarded executive search firm, salaries under $300k are not likely to attract top-tier candidates unless they have a strong desire to locate to Tallahassee, Mr. Milligan reported to the trustees. Even his own research of six large public funds all smaller than the Florida SBA shows the Florida board would still underpay its top executive after the pay raise.
Keith Brainard, research director at the National Association of State Retirement Administrators, remarked about the Florida pay: On its face, that salary would appear to be significantly below people in positions of similar responsibilities outside the public sector would be able to earn.
The pay range of Ms. Wood, who is leaving as a senior investment officer at CalPERS to become CEO of Capital Z Asset Management LLC, far exceeded that of the Florida position. At CalPERS, Ms. Wood, who oversees $127 billion in global equities, likely receives the top of her positions $249,000 to $361,000 base pay range. Plus her bonus is as much as 75% of her pay, for a possible total compensation of $632,000. Russell Read, CalPERS CIO, has a base pay of $555,360, plus a bonus of up to 75%, for a total of close to $1 million.
Florida trustees noted they have the money for a raise, but chose to limit it. That could be a big mistake.
But Mr. Milligan and the trustees have at least made an effort to recognize the value of higher compensation. Now they and other public fund trustees must do a better job of communicating the need for higher compensation to attract investment talent, and the importance of that talent to taxpayers and beneficiaries, so increases wont be greeted with shock and disapproval.