University of Michigan discloses CIO pay details for first time

The University of Michigan's chief investment officer was recently rewarded with a salary increase and a higher target bonus to ensure that he was being paid on par with peers, the school said as it revealed for the first time how it determined his compensation.

Erik Lundberg, manager of the $11 billion endowment, receives a salary of $720,000 and target bonus of 150% of base pay, the school said Tuesday. He previously got $690,000 a year and had a target of 130%. He was compensated more than $2 million in 2016.

The university disclosed the pay practices after the Detroit Free Press sued to gain access to the records. A state judge ruled that the school had improperly withheld the information. Bloomberg News also filed a freedom of information request for the data.

Half of Mr. Lundberg's remuneration is computed using a three-year average of the endowment's performance and how it stacks up against more than 100 peer schools, according to a copy of the Investment Office Incentive Plan dated May 2017 obtained by Bloomberg.

"Despite the court's ruling, we believe disclosure of the U-M Investment Office Incentive Plan will put U-M at a competitive disadvantage," Rick Fitzgerald, a spokesman for the Ann Arbor-based school, said in an email. "Because there are very few public universities in our endowment peer group, virtually no comparison schools will ever have to make their plans public. These are the employers against which the university competes for talent recruitment and retention."

Investment managers at the largest college endowments often earn millions of dollars each year, sometimes making more than the university president. Pay at non-profit institutions has also attracted interest from Congress, which last year slapped an excise tax on annual compensation of more than $1 million. The tax will affect not only investment managers, but coaches at some schools.

Mr. Lundberg has worked at the endowment since 1999. Michigan, the third wealthiest public school, has previously disclosed the total amount he was paid. But it has withheld the incentives or other metrics that have been used to determine his compensation.

Michigan's endowment posted a 13.8% investment gain for the year ended June 30, aided by a bull market in public equities. The average return for about 450 endowments and foundations was 12.7%, according to data collected by Cambridge Associates.

Mr. Lundberg's base pay was increased after a review by consultant Mercer found it was below the $750,000 average of the market median, according to Mr. Fitzgerald. "It is now at $720,000, and his target incentive opportunity has increased from 130% of his base salary, to 150%," Mr. Fitzgerald said. "Others in the office have also seen increases in their target incentive opportunity."

Mr. Lundberg's incentive is paid out over a three-year period to help with retention. He receives 50% of his incentive immediately, 25% one year later and 25% two years later, Mr. Fitzgerald said.