State of Wisconsin Investment Board, Madison, cut staff incentive compensation earned for 2008, reduced the number of staffers eligible for the program for the year and deferred the bonus payment at least until 2011, said Vicki Hearing, public information officer for SWIB, which has $67 billion in assets.
The deferred bonuses total $1.7 million, Ms. Hearing said. They will be put into a trust fund that will be managed by U.S. Bank and invested in short-term securities, said Kenneth W. Johnson, SWIB chief operating officer.
The move was done by the board on Wednesday in recognition of the severe negative impact of the investment return for the year on retirement plan participants but also reconciling the need to retain talented staff, Ms. Hearing said.
Keith S. Bozarth, executive director, Gail L. Hanson, deputy executive director, and David Villa, CIO, all declined their incentive bonus for 2008, Ms. Hearing said.
Any year's bonus normally would be paid out in March of the following year, but the board delayed the payment “as it struggled through a decision in the face of difficult circumstances,” Ms. Hearing said.
The bonus is based primarily by the investment performance of SWIB's core fund, which is diversified in a board variety of investment classes. The core fund had $62.5 billion in assets as of July 31.
The core fund returned -26.2% in 2008, underperforming its customized benchmark of -24.8%, Ms. Hearing said. But the SWIB staff added $340.6 million in value during 2008 in internal portfolios against their customized benchmarks, she added.
“The staff met their expectations, and it's hard not to follow through with the incentive promised,” even though the board recognized the difficult year for plan participants, Ms. Hearing said.
“Because 2008 was such an unprecedented time, it called for a departure from the normal” structure, Ms. Hearing said.
For the 2008 bonus, the board eliminated the part of the criteria that was not based on investment performance that would amount to 10% of the bonus formula and, as a result, eliminated people who would have been considered for that part of the bonus, Ms. Hearing said.
The earliest the 2008 bonus can be paid out is 2011, Ms. Hearing said. It can be paid out only two years after a calendar year of positive investment performance for SWIB, such as 2009. In addition, an employee has to remain in active employment with SWIB or be retired from SWIB to remain eligible for the 2008 bonus.
The changes affect only the 2008 bonus, although SWIB permanently instituted a two-year deferral for any incentive compensation that occurs in a year when investment performance is negative. The bonus for a negative year would be paid only after a year of positive investment performance, followed by a two-year deferral, similar to the new 2008 structure.