Madison, WI (April 10, 2015) – The State of Wisconsin Investment Board (SWIB) Trustees Wednesday approved incentive compensation to employees based on investment performance above market returns over the past five years.
SWIB manages over $106 billion in assets, a majority of which includes the Wisconsin Retirement System (WRS). The investment performance has generated approximately 80 percent of the WRS’s income over the past 10 years. Over the past five years, staff’s investment performance above market returns has added $1.4 billion after costs to the WRS, which benefits over 590,000 participants and 1,500 state and local government employers. Total incentive compensation for the five-year performance ending Dec.31, 2014, is $11.9 million awarded to 142 employees. The amount is down 10.4 percent from 2013.
Incentive compensation must be earned. The plan rewards higher performing staff only when they add value to the trust funds because the incentives are based on performance compared to benchmarks, a practice used industry wide. The pay for performance plan has allowed SWIB to hire and retain well-trained and dedicated experts needed to maintain the retirement system and manage investment risk.
“SWIB operates in a highly competitive industry and seeks to hire and retain talented professionals, then compensates them based on their ability to meet aggressive targets and add value to the trust funds,” Michael Williamson, SWIB’s executive director said. “Because 80 percent of the retirement system income over the past 10 years has come from investment returns, we must hire and compensate staff who perform. That performance, above market returns, has benefited employers, participants and the state economy.”
SWIB mirrored the one-year benchmark and beat its, three-, five- and ten-year benchmarks for Core Fund as of Dec. 31, 2014. The 20-year annualized return of the Core Trust Fund, as of Dec. 31, 2014, was 8.6 percent, above both the 7.2 percent WRS assumed rate of return and the 8.2 percent benchmark.
Internal management of the trust funds by SWIB staff keeps costs low. Spending money on internal staff saves about $57 million a year that otherwise would be paid to external investment managers and is more than SWIB’s entire operating budget. Wisconsin has one of the top-funded and best managed public pension systems in the country, in part, because SWIB has hired highly qualified staff and put an internal management structure in place to manage the trust funds.
“SWIB’s compensation plan has allowed it to reduce its reliance on outside money managers, which has allowed for greater efficiency and cut costs and a dollar saved is as good as a dollar earned,” Williamson said. “SWIB has adopted a cost management strategy that uses internal staff to manage assets whenever it is cost effective to do so.”
The current compensation plan recognizes that investment management is a specialized skill. Competition for talent comes largely from the private sector. The plan is competitive with the average compensation paid by firms such as banks and insurance companies, but well below that paid by east and west coast money managers.
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