Canada Pension Fund Managers Highest paid in World – Pension pay dilemma becomes acute

February 8, 2015
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Financial Times -0 UK

February 8, 2015 1:57 am

Quote:

Bill Tufts, founder of Fair Pensions for All, a Canadian organisation that campaigns on public sector pension and compensation issues, says: “It is kind of ironic for these pension plans to call out against obscene compensation in corporations and criticise their chief executives, but at the same time pay their managers at [a similar] level.”

 

ARTICLE TEXT

Pension funds are in a conundrum when it comes to deciding how much to pay their top executives. Many are torn between wanting to hire the best staff — paying salaries and bonuses private sector professionals are used to — and meeting budget restraints.

This dilemma has become more acute, given that many of the world’s largest public pension funds want to hire more in-house investment professionals to reduce the fees paid to external asset managers and improve returns for savers.

Belonging to this group is Australia’s largest pension scheme, the $70bn Australian Super fund, the UK’s Railpen, which oversees £20bn of assets, and the £10bn London Pension Funds Authority.

Pension trustees are also wary of adopting private sector-like salaries for new recruits in case this triggers a backlash from trade unions, social interest groups and savers.

The UK’s largest pension fund, the Universities Superannuation Scheme, drew criticism last year when raised the remuneration of its highest-paid employee, believed to be Roger Gray, its chief investment officer, from £600,000 to £900,000. The pay increase came while the fund was debating a reduction in benefits for its members, prompting condemnation from its union.

Amin Rajan, chief executive of Create Research, the consultancy, says: “Having long derided asset managers’ pay model, many trustees will find it hard to bite the bullet on pay.”

Chris Roberts, director of social and economic policy at the Canadian Labour Congress, is already concerned by the level of pay at some of Canada’s largest pension schemes.

FTfm research looking at chief executive salaries at 14 of the biggest pension plans globally shows that Canadian pension schemes are by far the most generous, a fact Mr Roberts describes as “alarming”.

He says: “Canada is beginning to be an outlier — that is a special concern. I am not convinced that these salary levels are warranted in a climate when public sector budgets are being squeezed and public sector workers are being told to tighten their belts.”

Jim Leech, the former chief executive of the independent C$140bn Ontario Teachers’ Pension Plan, was paid $7.4m in 2013, while his eventual successor, Ron Mock, was paid $2.5m in his role as vice-president of fixed income and alternatives.

The $175bn Canada Pension Plan Investment Board paid its chief executive, Mark Wiseman, $3.1m in 2013.

Canadian pay also far exceeds executive salaries at the remaining pension schemes in the FTfm sample.

The highest-paid executive at the Australian Super fund received $1.04m last year; the chief executive of Denmark’s ATP, Carsten Stendevad, received $903,000; and Dick Sluimers, the chief executive of APG, which manages the assets of a number of Dutch pension schemes, was paid $795,000.

Mr Roberts says: “That sort of remuneration is not required to attract and retain [the best] talent for positions that have a great deal of attractiveness to anyone wanting to do public service. We do not need Wall Street levels [of pay] to retain [the best staff].”

Executive pay at the CPPIB has become particularly contentious in recent months after the pension fund drew criticism for failing to reign in high costs relating to its external investments

Mr Roberts says: “People are looking at the salaries and wondering just how rigorous cost control is at the CPPIB. The chief executive’s [salary] has caused a lot of eyebrows to go up as this is a public pension fund and these positions are meant to be about public service. I know for a fact that pressure is felt keenly inside the board. It is extremely sensitive politically.” CPPIB declined to comment.

There is also concern that handing out big salaries reduces a pension fund’s credibility when fighting excessive pay at the companies they invest in. CPPIB and Ontario voted against pay proposals at companies including Coca-Cola, the beverage company, and Barrick Gold, the Canadian miner, last year.

Bill Tufts, founder of Fair Pensions for All, a Canadian organisation that campaigns on public sector pension and compensation issues, says: “It is kind of ironic for these pension plans to call out against obscene compensation in corporations and criticise their chief executives, but at the same time pay their managers at [a similar] level.”

Other parties believe increased pay in the pension sector is necessary. The Rotman International Centre for Pension Management published a report in January concluding that pension fund governance and returns are being held back by “uncompetitive compensation structures” for senior management and investment talent.

“It will require a concerted, ongoing joint effort by pension-plan stakeholders, pension organisation boards and legislators to change the current situation,” the report found.

Keith Ambachtsheer, director of the ICPM, believes high salaries could be money well spent. He estimates that a $20bn pension fund could save a large chunk of the $800m a year typically spent on fees to external managers by hiring expensive but talented in-house investment personnel.

“Research has shown [pension funds that do this] end up winning by a lot,” he says.

The consensus is that pay for top executives and investment staff at pension schemes beyond Canada will begin creeping towards those in the private sector as well.

Scott Cornfoot, director of consultant relationships at Australia’s Queensland Investment Corporation, says: “I have heard very senior pension fund managers in Australia demand the same amount of money as a fund manager gets. Attitudes are changing.”

Mr Rajan adds: “Pay relativity [between the pension market and asset management industry] is grossly uneven. Adjustments will take time.

“It will start with investment professionals before spreading to senior business executives. An increasing number of pension boards now recognise that they are competing in an international market place.”