Wednesday, April 29, 2009

Hey! CPPIB already allowed ITSELF to be politicized !!!

Here we have the Globe reporting that the CPPIB is at risk of being “politicized”, if MP’s roll back some of the bonuses paid to CPPIB executives. This ignore the fact that the CPPIIB already allowed itself to be politicized by Ottawa/Flaherty on their reaction to Flaherty’s income trust tax, which the CPPIB came out an spoke in favor of. Perhaps those favourable statements by the CPPIB on November 1, 2006 are tied to very these rich private sector type bonus schemes at CPPIB?

Why would the CPPIB have spoken in favour of the income trust tax, if it caused them to lose $300 million from their IT holdings? Why would I have received 3 incoming calls from ever more senior people from the CPPIB to remove the statement that scrolled across the “news ticker” of the site that made note of the losses by CPP from Harper/Flaherty’s income trusts tax?

If that ain’t political then I don’t know what is? They have allowed themselves TO BE POLITICAL. Therefore Andy Willis’ arguments are AGAIN, the obverse of reality.

See: Canada Pension Plan Investment Board: Dabbling in cover-ups at the behest of Harper/Flaherty

Politics threaten CPP Investment Board integrity

Andrew Willis
Globe and Mail
April 29, 2009

Canada runs a pension plan that's the envy of the world, crowned by a well-funded, professionally staffed, independent fund manager in the CPP Investment Board.

The integrity of that fund manager is in danger.

The problem is money – bonus money. CPPIB recruited top executives on the strength of two promises: They could make their own investment decisions, free from political interference, and their compensation would be comparable to peers in the private sector. On the basis of those guarantees, professionals left lucrative private sector jobs to run the country's retirements savings.

There is now pressure to break that second promise.

Grandstanding Liberal, NDP and Bloc members of Parliament grilled CPPIB executives yesterday over the bonus payments they will likely receive, despite expected losses at the fund this year. The $109-billion CPPIB fund was down 13.7 per cent or $13.8-billion in the first nine months of the year ended March 31, 2009.

The strongly-worded advice from a few MPs was to turn down long term bonus payments.

Bad idea, on every level.

The populist posturing from MPs could derail a very good thing for the Canadian people.

First, the CPPIB board worked long and hard to set up a compensation system that is largely focused on long-term performance – a big chunk of paycheques reflect the fund's results over four years. That encourages the long-term investment thinking a pension fund demands – managers have no incentive to swing for the fences to make short-term targets.

Second, the comp structure was set out in employment contracts. Companies don't tear up these contracts with employees without suffering grave consequences. Sticking with the swinging-for-the-fences analogy, a big league slugger with big-time guaranteed money still gets paid, even if the team doesn't win the World Series.

Compensation is a matter to be decided by the CPPIB's board, not by an MP in Ottawa.

And what seems lost on the MPs, who have their own gold-plated pension plan, is that CPPIB is likely going to outperform benchmarks. Yes, they will have lost money last year. Welcome to the club. But the team likely lost less than peers, or their performance standards.

If CPPIB executives are forced to turn down bonus payments, despite meeting performance goals, the best people on this team should quit, and some will quit. The fund's ability to recruit will be destroyed. That would be an enormous setback for Canada.

Why is it MPs can't step back from Parliament's partisan poison, and recognize that CPPIB fund managers did a decent job in a lousy market? Is everything in Ottawa about scoring points?

If you're wondering, here's how compensation broke for CPPIB chief executive officer David Denison in 2008: $475,000 salary, $1.2-million annual bonus, $1.9-million LTIP.

1 comment:

Dr Mike said...

This has nothing to do with politics anyway.

Paying these clowns bonuses is like tipping at a restaurant for bad service---it should never happen.

In my practice , the bonus was commensurate on the overall production & return at the end of the year--it was not just a bonus because you showed up for work.

Dr Mike.