Wednesday, December 19, 2012

The Battle for Public Pension Plan Compensation North Carolina Style


The Battle for Public Pension Plan Compensation

When I became the Chief Investment Officer for the State of North Carolina in 2001, the job paid $90,000.  Aside from managing some $65 billion in investments, my goal was reform.  My biggest priority was improving the compensation for the existing employees.  I should have known that this was going to be a problem because the State Treasurer Richard Moore had already been attacked for proposing a few new positions and higher salaries for the Investment Division.

For about eight months, I battled the State Department of Administration to get salary increases for the staff, including my position.  As I mentioned in a previous post, some of my employees had to take second jobs in order to make ends meet, and we were at great risk of losing key members of our tiny team.  I vividly remember a meeting during the summer of 2002 with a group of folks from the Department of Administration.  After once again making my case, one of the senior officers said, “I’m not trying to be mean, but you’ll be long gone before there are any major changes in the staff or compensation.  It just ain’t going to happen.”

Splitting Shares (1999)

The Treasurer still wanted to do something to help the staff and send a signal to the General Assembly and Department of Administration that we were serious about funding staff positions.  So we decided to abolish the position of Chief Investment Officer in the fall of 2002, and use the funds from that position (known as lapsed salary) to slightly increase the pay of the rest of the staff.  It was a nice little trick and paved the way for me to receive higher compensation.  I signed a new contract with the State Treasurer and became the Chief Investment Advisor at a rate of $170,000 per year with a potential 30% bonus.

Within days my contract was leaked to the press, and the State Treasurer was forced to defend paying me more than he was paid.  The substance of the articles was nearly identical to the Bloomberg report I wrote about yesterday.  I didn’t enjoy the publicity or some of the letters to the editor in the local paper.  On the day of the press reports, I went to lunch with Jeremy Coller, the founder of Coller Capital, a London-based private equity secondaries manager.[1]  We dined at the Armadillo Grill, and after consuming a beef burrito and Diet Dr. Pepper, Jeremy gave me a ride back to the Albemarle Building.  When I walked into the reception area outside my office, Dana Rosenberg, the head of private equity, was anxiously waiting.  Without taking a breath he said,

“Andy, you need to call the State Treasurer right away.  He saw you getting out of the car.  He’s royally pissed.  He wants to know how you could ride in a chauffeured limo in front of hundreds of state employees on the same day that your contract was on the front page of the newspaper.  He’s really disappointed in your lack of judgment.  He sounds really upset.”

I ran into my office, quickly rehearsing my apology to the State Treasurer.  I dialed his number, and as it started to ring, I heard Dana and couple of other staff members laughing.  Just as Stephanie Scott, the Treasurer’s assistant picked up, I realized I was the victim of a prank.  I told Stephanie to ignore the call, and hung up.  By the time Dana walked into my office, I was cracking up (and plotting to get even with Dana).  I told Jeremy the story a few days later, and he had a cartoon made of me stepping out of his car amidst the press and state employees. 

We submitted our salary data to the National Association of State Investment Officers (NASIO).  The database was used to help gauge how people should be paid as analysts, directors, and CIOs.  A week later, I got a call the woman managing the database.  She said that a number of CIOs wanted me to withdraw North Carolina’s data because it dramatically pulled down the averages.  We were, in just about every job category, the lowest data point by a huge margin.  I pulled our data.

The woman from the Department of Administration turned out to be right.  I resigned before there was any material improvement in the salaries of the Investment Division.  In fact, I resigned in order to get the salaries and positions straightened-out.  This time there wasn’t a leak.  I wrote to the newspapers about my decision, and the lack of proper funding.  I am pleased to report that progress has been made over the year.  Our merry band of 13 employees earning the princely and collective sum of $850,000 is now much larger and far better compensated.  Unfortunately, the changes didn’t come soon enough, and the State lost the talents and humor of Dana Rosenberg to an endowment.



[1] Coller Capital is in the business of buying existing private equity interests from investors, hence the term “secondaries.”  Private equity investments are illiquid, and some investors suddenly find that they need to sell their investments.  Coller Capital and a number of other firms are in the business of buying up these interests (at a discount).   

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