A pay-for-performance measure of chief investment officers in the US has revealed paying more for an executive does not translate to better performance.
Developed by executive recruitment firm, Charles Skorina & Company, the index is calculated by assessing an institution’s investment returns over the past five years, and measuring it against the salary of the CIO.
A basis points earned per $100,000 of compensation is derived and then the CIO’s are ranked by this measure of “performance for pay”.
By this calculation, John Hull, chief investment officer of the Andrew W. Mellon Foundation was the highest performing CIO, with 105 basis points per $100,000 of salary.
Hull manages $5.1 billion and earns $620,000, ranking him 46 out of 50 on Skorina’s list of highest paid CIOs in the US.
The highest paid CIO on this top 50 list is Harvard endowment’s Jane Mendillo earning around $4.7 million in total compensation, followed by Yale’s David Swensen with around $3.7 million.
Endowments dominate the list, with Texas Teachers’ CIO, Britt Harris the only pension fund chief investment officer featuring on the list, earning just over $1 million according to the Skorina data.
Applying the performance for pay calculation reveals Harris generated 29 basis points per $100,000 of salary; Swensen 16, and Mendillo 10.
Skorina says institutional investment boards have been asking him for years to develop a measure of performance for pay and so his aim was to develop a basic, objective and consistent measure.
“Chief investment officers and asset managers measure their service providers every day, but have excuses for why it doesn’t apply to them,” he says. “We wanted to create a simple measure, to create an MER for CIOs. If they think a measure such as basis points per dollar of their salary shouldn’t be used then earnings per share shouldn’t be used, and the S&P and Dow Jones would be defunct.
“You can say that each fund has different benchmarks and measures, but what it gets down to is how much money was made for the institution. An institution will forget about all the other things if you have a negative return.”
David Villa and Charles Cary are both with Public Funds.
While you point out people will always disagree, one does have to ask if the CIO had full discretion over Asset Allocation and risk appetite. It certainly isn’t level across these funds. I realize it’s the most recent time period, but would you ever use the data from 1928 to 1932 to measure someone’s performance?
Thanks for your comment Chris.
Clearly it is more complicated than a simple basis points/$ figure, particularly at fiduciaries where the board sets strategy and the role of the investment team is to implement.
I also take your point about time frames. One of the enduring challenges for the industry across the globe is to think, and act, with only long term goals in mind. I’d welcome ideas on how we can challenge the industry, in particular service providers and stakeholders, to think like that – long-term mandates perhaps?