Are the CalPERS’s Bonuses Legit?
Sep 29th, 2010 by Carlos
Last week the AP ran a story on the California Public Employees’ Retirement System (CalPERS) and how they were issuing bonuses to their employees despite the fund losing so much of its value. The first paragraph set the tone right away, as any good piece of journalism should:
As its investment portfolio was losing nearly a quarter of its value, the country’s largest public pension fund doled out six-figure bonuses and substantial raises to its top employees, an analysis by The Associated Press has found.
That tone I was talking about? It’s trying to rile readers up by implying bonuses were handed out improperly because some people were getting paid while the fund lost “a quarter of its value.”
I’ll be honest: when I read that first line, I was ready to shake my head and start wagging my finger at yet another group of people that are getting paid even when they don’t deserve it. I was fired up. A few graphs down, the fire is stoked:
Virtually all of CalPERS’ investment managers were awarded bonuses of more than $10,000 each, with several earning bonuses of more than $100,000 during the 2008-09 fiscal year. The cash awards were distributed as the fund lost $59 billion.
But read the rest of the article and you’ll realize there isn’t much to get indignant over—the way CalPERS doles out bonuses is actually really smart and really fair. Another quote:
CalPERS spokesman Brad Pacheco said bonuses are based on the fund’s performance over five years, not just the year immediately preceding the bonus, in order to encourage managers to seek long-term investments rather than short-term gains.
Brilliant! This is one of those major criticisms of certain investment funds: they’re so focused on the short term that eventually they crash and burn because they were only paying attention to making the numbers for the next quarter, not the next five years.
And in this case it means they get decent bonuses because the performance of the fund over the past five years was pretty good, despite the recent meltdown. Seems fair to me, especially when the fund outperformed the S&P during that time:
The Standard & Poor’s 500 index declined by 14.8 percent in 2007-08 and 28.2 percent in 2008-09, while CalPERS’ overall value dropped by 5.1 percent and 24.8 percent respectively.
Give them their bonuses and stop complaining—they earned them!
P.S. This reminds me of the ING bonuses and how I felt they shouldn’t have to give them backAfter all, a contract is a contract, right?
