TRS: Incentive Pay Or ‘Risky Business’?
September 18th, 2007 at 10:15 am
The board of trustees over at the Teacher Retirement System of Texas voted last week to institute a new salary plan for its chief investment officers, despite the fact that the current plan was less than a year old. The move will make TRS’ chief investing officer, Britt Harris, eligible for a 125 percent bonus that could bring his annual salary to just over $900,000. Before the new plan, Harris was already the highest-paid state employee.
The two superintendents on the board (the only educators with any say) cast the only two ‘no’ votes. Another board member abstained. One has to wonder about the merits of such a pay increase. Sure, investment professionals need incentives. And as Harris has pointed out, a big fund requires a lot of attention.
But as a recent Austin American-Statesman article notes, a similar fund in California pays its chief officer significantly less (and still seems to be performing for its teachers).
Rep. Tommy Merritt (R-Longview) has been out front against the bonus plan. Merritt says he’s received a strong response from teachers and others in his northeast Texas district and from across the state thanking him for speaking out against the plan. But Merritt says the conversations usually do not end there.
“Then they lit into me about the type of investments,” Merritt says. “All these risky opportunities.”
TRS is undergoing an overhaul. It will move 29 percent of its $111 billion fund from safer investments like stocks and bonds into hedge funds, purchasing real estate, and providing money for venture capital. In short, the overhaul will make the huge amount of money managed by TRS more like the cash being tossed around by big, private equity firms. TRS is making this change just as the real estate and hedge fund markets are tanking.
The new annual salary for the investment chief can’t help but rub many retired teachers the wrong way — particularly when the fund provides the majority of their retirement income.
Merritt says there’s got to be a better way of handling the fund — and he noted that he doesn’t just want to be picking on Mr. Harris — but “the teachers are still suffering.” In the last legislative session lawmakers chose to borrow money to help fund the system, when “we could have put more money in the fund. You don’t go borrowing money to gamble.”
According to its current ‘Strategic Plan’ the TRS Mission includes the responsibility:
…to prudently invest and manage the assets held in trust for members and beneficiaries in an actuarially sound system administered in accordance with applicable fiduciary principles.
I’m not sure if prudence is in any way legislatively enforceable, but it seems that the new investment overhaul and top-heavy incentive pay plan are running afoul of the system’s mission. Maybe they’ll pull a rabbit from the hat and surprise us all with miraculous and quick growth, but with the way the market is currently it seems unlikely.
As Merritt says, “We need to step up as a state and find a way to fund TRS without taking all these risks.”
September 25th, 2007 at 11:26 pm
[…] finding the best return on their investment. In fact, Texas pays TRS investment professionals a hefty annual salary, plus bonuses to do just that. And the return on the casino investment for TRS is expected to be a whopping 19 […]