Bonus pay stokes anger

The staffers earned “incentive pay” because, while the system’s fund lost 13 percent in fiscal 2009 and 3 percent in fiscal 2008, it beat the market averages. The fund has since recovered part of its losses, and retirement system officials say such “incentive pay” is common in the public and private sectors.

Some state retirement systems around the country have done away with bonuses under political pressure in recent years. And retirees and a teacher group say the incentives suggest system officials are out-of-touch at a time when educators and other state employees are going without raises and being furloughed.

“This issue reminds me of Wall Street financial investors giving themselves outlandish bonuses while the people they are basically working for suffer,” said Carol Brown, a Kennesaw retiree who taught for 30 years in Marietta and Cherokee County schools.

In total, 28 investment staffers received $435,000 in incentive pay in fiscal 2009, which ended June 30. The top investment staffers are among the best-paid employees in state government.

Tim Callahan, spokesman for the Professional Association of Georgia Educators, said the increases were out of line.

“When you’re giving somebody a bonus that is five times the annual retirement that some teachers who retired in the ’70s and ’80s receive, it just makes your jaw drop. I’m really shocked,” he said.

Dan Ebersole, director of the state’s treasury office and a member of the boards of the Teachers and Employees’ Retirement Systems, said the incentive pay helps the state recruit and keep top investment staffers. That, he said, helps the approximately 400,000 members of the system by keeping the $48 billion fund on solid financial footing.

“We have to pay competitive salaries and have an incentive plan that targets performance that’s in the best interest of our retired teachers,” Ebersole said.

Incentive pay, or bonuses, paid out by the Georgia Lottery have been a hot topic for several years. Top lawmakers have filed bills aimed at getting more legislative control over lottery spending and, in particular, the incentive payouts. Those bills have stalled in the General Assembly.

Two staffers listed as investment chiefs for the system each saw their total pay increase in fiscal 2009 by about $14,000, from $427,480 to $441,680, according to a state auditor’s report.

Two directors of equity in the system each saw their pay rise from $335,733 to $350,399. And a senior equities staffer, who has since retired, saw his pay increase from $255,020 to $363,317.

State and industry officials say top investment staffers in private industry typically make far more money.

In the same fiscal year the TRS staffers got the incentive pay, other state employees had their salaries frozen as Gov. Sonny Perdue and lawmakers began slashing state spending.

The bonuses for the investment staffers also came during the same year the Perdue administration proposed ending twice-annual 1.5 percent cost-of-living increases for system retirees. The plan was abandoned after teachers and retired educators protested.

Taxpayers have a big stake in the retirement system. State government and local school districts contributed about $1 billion to the fund last year. Jeffrey Ezell, the system’s executive director, said the retirement system spends about $24 million a year administering the program.

The stock market crash of 2008 caused the system to lose billions of dollars. However, the fund didn’t do as poorly, on average, as many other sectors of the market.

State retirement systems are, by law, limited in where they can put their money. They can’t, for instance, invest in some of the higher-risk financial products such as subprime mortgage securities. The retirement fund typically doesn’t make as much as some investment funds in boom years, and it loses less in down years.

Ebersole chairs the system’s investment committee, which sets the benchmarks investment staffers have to meet to receive incentive pay. He said each year’s award is paid out over three years as an incentive for the employees to remain with the system. So the portion of the incentive pay employees received during fiscal 2009 was earned over three years.

“It’s designed to keep staff here and not looking elsewhere,” Ebersole said. “It is designed to enhance investment performance, to make more money for the system.”

Ebersole said the system saves money by having most of its investing done by state staffers instead of outside firms. A report by the Commission for a New Georgia — a group made up of top-level business and professional executives — estimated last year that the state’s two retirement systems save $87 million a year in fees and other expenses by having an in-house investment team.

Some states have eliminated bonuses in recent years. The board of the Pennsylvania Public School Employees’ Retirement System voted to end its investment staff bonuses in late 2008 under pressure from Gov. Ed Rendell and others. Its portfolio was slightly larger than Georgia’s system. Including his bonus, the chief investment officer for the system was paid about $75,000 less than Georgia’s at the time.

The Missouri State Employees Retirement System board voted this month to end its bonuses following a $1.8 billion portfolio loss.

Ruth Cowan, who retired from Gwinnett County schools in 1995 after more than 30 years as a gifted-program teacher and coordinator, said she has no problem with the notion of merit pay for good performance.

“But even then, it should be a common-sense bonus and reflect the total economic picture,” she said.

“There should be equal ownership in the decline of the economy for those at the top of the scale,” she said. “I find it a slap in the face to retired educators who gave not only their time but their resources to TRS to invest for them.”

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Top dollar for top officials

Below are the total salaries in the past three fiscal years for five of the top investment officials with the Teachers Retirement System.

Nancie H. Boedy

Co-chief investment officer

2007 $326,200

2008 $427,480

2009 $441,680

Charles W. Cary

Chief investment officer

2007 $328,700

2008 $427,480

2009 $441,680

Michael K. Majure

Director of equities

2007 $267,333

2008 $335,733

2009 $350,399

Thomas A. Horkan

Director of equities

2007 $267,333

2008 $335,733

2009 $350,399

Donald P. Haroz

Senior equity portfolio (now retired)

2007 $224,666

2008 $255,020

2009 $363,317

Source: Georgia Department of Audits

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How we got the story

A reporter who previously had written about incentive pay awarded to staffers of the Georgia Lottery looked through Department of Audits reports listing the salaries paid to staffers of the Georgia Teachers Retirement System. The reporter compared salaries for fiscal 2007, 2008 and 2009 for the highest-paid staffers in the investment division, which has an incentive pay program. The reporter interviewed retirement system officials, a retirement board member, an industry consultant, educators and retired teachers.

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