Subcommittee Chairman Rejects More Employees for Retirement Investment Commission

January 23, 2013

Investigative Reports

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Pension CalculatorThe chairman of a House Ways and Means subcommittee rejected a plan Tuesday afternoon to authorize an increase of $4 million in 2013-14 to the state entity that manages the more than $25 billion in assets for South Carolina’s public retirement system.

Rep. Jim Merrill, R-Berkeley, said with one top agency vacancy there are too many people who haven’t worked together long enough to grant the South Carolina Retirement System Investment Commission (RSIC) its requested additional 12 employees.

RSIC Chief Investment Officer Hershel Harper presented the agency’s request to the House budget-writing panel’s Legislative, Executive and Local Government Subcommittee. Harper has been on board since July, and there’s a vacancy for a director of operations, who would oversee the agency’s daily operations.

“On a personal level, I’d like to see you get through a year of continuity and performance before we go with more FTEs (full-time equivalent employees),” Merrill said.

Harper said RSIC seeks 12 more staff members for fiscal year 2014 in response to a report by Deloitte and Touche that focused on improving the agency.

“What you see in this budget is a genesis of that (report),” Harper said. “We believe this is a modest ask and we can get the greatest bang for the buck.”

The RSIC proposes to increase its fiscal year 2014 budget to $14 million from $10.1 million, a 38.6 percent hike. This also would spike the number of agency employees to 47 from 35, or 34 percent.

Created by state law more than seven years ago, the RSIC’s seven-member commission manages the retirement system’s investments. Some have questioned the RSIC’s rising operating costs, which has more than doubled since fiscal year 2008.

Harper earns $424,152 in managing a portfolio of more than $25 billion. By comparison, Britt Harris, the chief investment officer for the Teacher’s Retirement System of Texas, earns a base salary of $480,000 in managing a portfolio of more than $110 billion.

As The Nerve reported last fall, the RSIC budget plan includes a seven-member “investment team” made up of a director who would be paid $140,000 annually, three “officers” making $80,000 to $120,000 yearly, and three analysts earning $50,000 to $70,000 per year.

A separate five-member “operations team” would be created, comprised of three “officers in reporting and investment analytics” making $60,000 to $80,000 yearly, an IT staffer who would be paid $70,000 annually, and a budget analyst whose annual salary would be $60,000, according to the proposal.

Harper explained to the subcommittee $2.1 million would be spent on technology, with the remainder on payroll for the 12 positions. However, Merrill also launched into questions on the proposed incentive-compensation plan. Harper said the plan for fiscal year 2013 would extend to 2014.

The incentive-compensation plan The Nerve received later Tuesday has four key points:

  • A higher degree of performance to earn maximum payout;
  • A  sliding scale over five years of performance above the policy benchmark;
  • A weighted system in favor of long-term investment results; and
  • A formula to determine payout.

The plan shows as a percentage of base salary, incentive maximums would vary by position, up to 100 percent of pay for top investment staff. One example in a three-page document shows an investment staff member with a salary of $83,300 and a 60 percent incentive opportunity, thus potentially resulting in a maximum additional payout of $50,000.

Merrill said lawmakers get “a lot of blow back” on the incentive pay for RSIC’s investment team. He questioned if RSIC leaders could place a greater balance between base salary and incentive compensation. Harper said that incentive pay for the investment team is weighted heavily to higher pay based on incentives.

Harper said incentive pay doesn’t go to everyone at RSIC, just the investment team. Merrill questioned where investment performance stands now in the current fiscal year. Harper said RSIC investments are up 12 percent for the calendar year and 8 percent for the fiscal year. The RSIC investment team targets annual growth at 7.5 percent.

Merrill recognized state Treasurer Curtis Loftis, who is a commissioner of the RSIC based on his position, and Loftis also has been a frequent RSIC critic. Loftis had nothing to add to the budget discussion.

Olson can be reached at (803) 254-4411 or curt@thenerve.org. He is on Twitter @thenerve_curt and @olson_curt.