State of Wisconsin Investment Board, Madison, approved $11.1 million in staff incentive awards based on generating $1.2 billion in investments earnings above market returns and net of costs over the last five years.
“We are in a war for talent, and the incentive compensation plan is working as intended with payments directly tied to performance,” said Michael Williamson, executive director, in a news release.
The 2015 incentive compensation payments decreased 9.2% from 2014, “based on the flat performance of the core fund last year … the second consecutive year incentive compensation payments have decreased,” Mr. Williamson added. The core fund returned -0.4% last year.
Some 85% of the incentive awards program is based on the five-year return of the Wisconsin Retirement System’s $85.2 billion core fund, whose diversified allocation includes domestic and international equities, fixed income, real estate, private equity and hedge funds, said Vicki Hearing, communications manager, in an interview.
SWIB oversees a total of $99.1 billion in assets, including the Wisconsin Retirement System’s $92 billion in assets.
The core fund returned an annualized 6.7% for the five years ended Dec. 31, outperforming the benchmark’s 6.2% return.
The other 15% of the incentive awards is based on qualitative and other quantitative measures, such as performance of other SWIB portfolios.
In all, 150 of SWIB’s 160 total staff will share in the awards, Ms. Hearing said. The investment management staff, which totals 77, will receive the bulk of the total awards, while the investment support staff, with 83 employees, including in trading, accounting and technology, will share in the incentive payments, Ms. Hearing added.
The incentives awards, which are considered annually by the board, are based on a program SWIB restructured in 2000, Ms. Hearing said. Before then, “we had difficulty retaining staff,” she said. Since the restructuring, “we have not had any turnover other than retirements.”
The board, along with McLagan, SWIB’s performance award consulting firm and a unit of Aon PLC, reviews the program annually, Ms. Hearing said.
The program is designed to be competitive with the median pay of investment and financial companies, except on the West Coast and East Coast, whose pay level would be difficult for a public entity to reach, Ms. Hearing said.
For the three and 10 years ended Dec. 31, the core fund’s investments returned an annualized 6.2% and 5.8%, respectively, outperforming its benchmark’s returns of 5.9% and 5.6%, Ms. Hearing said. For the 20 years ended Dec. 31, the core fund returned an annualized 7.5%, outperforming the 7% benchmark return and 7.2% assumed rate of return, the news release said.
SWIB’s investment performance has generated 76% of the pension fund’s income since 1985, compared to an average 64% for peer public pension funds, Ms. Hearing added.