How Much Should Pension Funds Pay Their Own People?

Keith Ambachtsheer looks at the compensation conundrum.

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1260396_black_walletCanadian Investment Review founder, Keith Ambachtsheer, is asking one question that is on the pension industry’s mind right now: how much should pension staff get paid? Compensation is a key question today as pension funds seek to attract the best and brightest investment talent in a highly competitive salary environment. Ambachtsheer’s paper, “How Should Pension Funds Pay Their Own People” tackles the tricky subject of compensation strategies among pension funds,  drawing parallels between the corporate say on pay debate and the internal compensation question for pension funds.

For pension funds, the most difficult part is the design of an effective pay-for-performance scheme in the investment function. Ambachtsheer looks at how the Canada Pension Plan Investment Board has handled this challenge, and comments on a number of issues requiring further study and resolution. Download the full paper here.

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Mr. Ambachtsheer commends the CPPIB for its compensation system, while pointing out several unintended outcomes and potential areas for improvement. In my opinion, there is a significant weakness in the execution of a 4-year average LTIP. When times are good, the average receives little scrutiny. When negative aberrations in performance occur at an organizational level, however, the consequences can be dire. Staff at the pension fund will recognize that LTIP expectations have reverted to nil or extremely low values for the coming 4 years and may choose to leave the fund. In order to stem the tide of actual or potential staff loss, the board may be pushed into overlooking negative performance for that year. In such a situation the 4 year average does not work; it actually reinforces the idea that finance professionals are long calls from a compensation point-of-view or becomes the basis for a staff exodus.

Transcontinental Media G.P.