Are Pension Fiduciaries Liable for How Much Others Make?
In a May 16 interview with investment banker John Whitehead, Bloomberg journalist Christine Harper clearly pushed a button when she asked about Wall Street compensation. Said the former chairman of Goldman Sachs "I am appalled" and then described current levels as "shocking." Click here to read the interview.
On May 3, EFinancialCareers.com summarized an Alpha Magazine piece about the top twenty-five beneficiaries of the hedge fund boom, noting that disproportionate goodies that accrue to the fund's leaders encourage turnover. Hedge fund analysts have little incentive to remain beyond a few years, driving up costs and creating a drag on performance. Click here to read "Hedge Fund Compensation: Too Top-Heavy?"
From the pension fiduciary perspective, how does this news square in Peoria? Are investment committee members, trustees and/or board members on the hook for having selected money managers who are deemed to make "too much?"
Let me quickly add that what constitutes "too much" requires a systematic and thorough analysis of benefits netted against costs and that performance-linked pay is far from a bad thing under certain circumstances. For those fund professionals who are delivering "excess" returns (and that evaluation likewise requires care and diligence), current compensation may look like a bargain.
What's important is the process in determining how managers' compensation reconciles with projected risk-adjusted performance, at the outset when a selection is made and on an regular basis thereafter.
As a plan sponsor (regardless of plan type), how much attention do you give to this issue and how comfortable are you in explaining your decisions to plan beneficiaries?
