N.B. pension fund managers reap higher bonuses

New Brunswick government pension managers have had their annual salary bonuses boosted substantially for several years by a small adjustment made annually in their investment results, a CBC News review shows.

Employees of the New Brunswick Investment Management Corp., the provincial Crown agency that manages more than $8 billion in public pension funds belonging to teachers, judges and civil servants, are paid annual bonuses on top of their salaries when the funds they invest outperform the market. 

Over the last four years the group of about 20 investment managers and their support staff have been paid $3.8 million in bonuses based on their investment performance, placing them among the highest paid employees in government.

'We're not exaggerating management's results. We're actually fairly attributing management's results.' — John Sinclair, NBIMC president

But according to a review of that bonus program by CBC News, the actual value added by NBIMC employees to generate those bonuses has been less than half that claimed in the organization's annual reports.

Instead, the employees qualified for most of the extra money only through the removal of a group of under performing funds from their bonus calculations. 

John Sinclair, the president of the NBIMC, said the practice of not counting employees' entire investment record when calculating bonus pay and said it is done to make the system more accurate, not richer.

"We're not exaggerating management's results. We're actually fairly attributing management's results," Sinclair said in an interview.

The NBIMC has operated a bonus, or incentive, pay system for several years.  It's complex and pays annual amounts to employees partly on the organization's single year results and partly on rolling results covering a longer period of four years.

Bonus pay is triggered when total investment returns achieved by managers beat independent market benchmarks and then cover the organization's operating costs. All amounts earned above that count toward bonus pay.

The payment of $3.8 million in bonuses over the past four years was based on managers adding  $122 million in net value over and above market gains and operational expenses during those four years and three prior years according to the organization's annual reports. (It takes seven years of results to fully account for four years worth of bonus payments).

Separate audit

But, according to a separate audit of the NBIMC's actual investment results by KPMG, managers actually added only about $57 million in net value during that period when the poorly performing investments, something the NBIMC calls private equity investments, were fully added in. 

Sinclair said no private equity investments, which include investments in real estate developments, private companies and some hedge funds, are counted in employees bonus calculations until the investment is four years old.

He said that is because those investments tend to grow slowly in early years and are hard to value accurately.

"In our case, we feel that first four years of private equity is beyond the control of management and would be inappropriate to have that as part of the compensation program," he said.

He acknowledged the exclusion has inflated bonus payments to employees overall but said in at least one year — 2009 — it had the opposite affect and there was every reason to believe the adjustment's effect on bonus payments would even out over time.

"That system has been in place since 2001, we're stuck with that and as time goes on that will balance out over cycles," he said.