Maryland trustees get flexibility from legislators to set compensation for investment staff

The board of trustees of the Maryland State Retirement & Pension System, Baltimore, won approval from state lawmakers to set compensation levels and financial incentives for the investment staff at the $51.9 billion pension fund.

The legislation passed April 5 but still has to be signed by the governor, which has not been scheduled.

Once signed, "over time, it will enable the Maryland retirement pension system to be competitive with peers and the market in terms of how we compensate our investment professionals," Executive Director R. Dean Kenderdine said in an interview. Mr. Kenderdine emphasized that the change is particularly critical for retention. "It will make for a stronger, more consistently performing investment program going forward. This is a major step forward," he said.

Pension fund officials had previously won from the Maryland General Assembly the authority to set compensation for the chief investment officer, deputy chief investment officer and managing directors within certain limits, but they were not able to provide for any incentive compensation for anyone except the chief investment officer. Despite further changes in 2012, "the existing overall compensation structure has not proven effective in supporting retention and recruitment of qualified staff within the investment department," Mr. Kenderdine and CIO Andrew Palmer said in joint testimony about the legislation in February.

At the General Assembly's request, pension fund officials conducted a compensation review of 24 public pension funds with assets of $40 billion or more, and found that 19 gave the boards salary authority, and two boards have competitive legislated salary structures.

The legislation also creates an advisory committee that will provide recommendations to the pension board regarding the criteria for salaries and measuring incentives by December. Two committee members will come from the state House and Senate. Legislators do not currently sit on any of the committees.