Oregon Treasurer's fund managers get thousands in bonuses

by Michelle Cole
September 30, 2009

Eleven employees in the Oregon treasurer's office received bonuses in February ranging from $9,860 to $57,006.

The money was paid as a performance reward to investment managers who oversee the Oregon Public Employees Retirement Fund, the Common Schools Fund and other portfolios totaling about $60 billion.

. . . Last year, with the nation mired in recession, the Public Employees Retirement Fund was down 27 percent, which was not comforting to thousands of retirees but in line with other public pension systems. Based on the performance of the fund and other state funds, 11 of the 14 investment managers in the treasurer's office were paid a total of $475,000 in bonuses and related costs.

The bonuses pale in comparison to multimillion-dollar payouts to Wall Street managers. But they caught the attention of Oregon legislators, who asked Treasurer Ben Westlund to review whether they're appropriate, especially given the economic meltdown and the state's precarious budget.

Today, the Legislature's Joint Ways and Means Committee will discuss the bonuses along with a private consultant's report that finds they are the best way to recruit and keep highly skilled employees.

It's not unheard of for a state employee to receive a bonus on top of regular pay. The Department of Administrative Services reports that 11 state agencies paid out some form of bonus to workers in the past 12 months. The treasurer's office accounted for some of the largest bonuses awarded.

At Oregon's public universities, some athletic coaches may have contracts that include a bonus if, for example, the team goes to a bowl game, says Jay Kenton, vice chancellor of finance and administration for the Oregon University System. And instructors at nonunionized campuses receive merit pay based on excellent teaching or research.

Fund managers at the state treasurer's office have had the opportunity to earn bonuses in addition to their regular pay since 1997. Three years ago, former Treasurer Randall Edwards increased the maximum possible payout from 10 percent to 30 percent of salary.

State investment managers earn a base salary that averages about $160,000 a year. They qualify for a bonus only if the funds they manage perform better than at least 55 percent of comparable funds, based on a five-year average. The amount is determined on a sliding scale -- bonuses might still be paid even if a fund loses money.

Last year, with the nation mired in recession, the Public Employees Retirement Fund was down 27 percent, which was not comforting to thousands of retirees but in line with other public pension systems. Based on the performance of the fund and other state funds, 11 of the 14 investment managers in the treasurer's office were paid a total of $475,000 in bonuses and related costs.

An analysis by the Legislative Fiscal Office notes an almost tenfold increase in bonus compensation payments to investment managers between 2005 and 2008. Part of the rise is attributed to the 2006 increase in maximum payout. The number of people eligible to receive bonuses also grew from four to 14.

The analysis warns that the state payout could balloon to more than $800,000 in 2010.

"I'm concerned about escalation in costs," Rep. Dennis Richardson, R-Medford, said Wednesday.

Richardson met with Westlund last week to talk about the bonuses and said the new treasurer inherited a program that's difficult to take away.

Still, Richardson said, the bonuses are difficult to defend to his constituents.

"There's been no improvement in Oregon's economy and certainly not in my district, where the unemployment rate exceeds 15 percent," he said.

The study by McLagan Partners, a consulting firm hired by the treasurer's office to answer legislators' questions, endorses the bonuses.

It finds Oregon's state investment managers' total compensation last year was 56 percent below the median paid to private sector fund managers and 16 percent below the median paid to government fund managers in other states.

This spring, lawmakers budgeted enough money to pay the bonuses for one year. They will decide in February's special session whether to continue to pay the incentives.

In a letter to the budget committee, Westlund urged lawmakers to keep the program: "Even with below-average compensation," he wrote, "Oregon's investment officers still manage one of, if not the, best-funded retirement systems in the country."

--Michelle Cole