sign uplog in
Want to go ad-free? Find out how, here.

BusinessDesk: English gets heads-up on NZ Super Fund’s bumper year for staff bonuses

BusinessDesk: English gets heads-up on NZ Super Fund’s bumper year for staff bonuses

By Paul McBeth

Finance Minister Bill English was given advance warning there may be some curly questions over the level of staff bonuses at the Guardians of New Zealand Superannuation after its best investment year ever.

Senior managers and executives received NZ$1.39 million from their incentive scheme in the 12 months ended June 30, up by more than a $1 million from the year before as staff enjoyed the rewards from the best annual return by the New Zealand Superannuation Fund. The biggest beneficiary, presumably chief executive Adrian Orr, saw his base salary band of between NZ$470,000 to NZ$480,000 rise to between NZ$710,000 to NZ$720,000 with the bonus.

That increase prompted chairman David May to write to English on Sept. 29 to explain the incentive scheme, which has the board’s backing, and warn “we expect this to gain media attention.”

“What has caused the large increase is an exceptional one-off payment caused by the improvement in the long-term performance of the fund,” May said in a letter released to BusinessDesk under the Official Information Act.

“It is achieving what was intended – to reward investment performance over four years rather than one.”

The scheme is based on a four-year performance period and is only realised if the average return exceeds its target over the time. It also allows for ‘catch up’ payments if poor years are followed by exceptionally good years.

May said the ‘catch up’ component bolstered this year’s bonus after the 2008 and 2009 financial years didn’t meet the targets, though the latest year, when the Super Fund made a 25% return after fees, compensated for those weak years and amounted to 36% of salary for all staff.

That was the best year for the Cullen Fund, so-called for its architect former Finance Minister Michael Cullen, since its inception in 2003, outstripping the 19% return in 2005/06. That strong performance saw external fund managers clip the ticket, with a NZ$35.1 million expense on performance-based managers’ fees, up from NZ$1.4 million a year earlier. Base fees slipped to NZ$34.7 million from NZ$36.3 million.

Since the reporting period, the fund reported monthly declines of 2.8% and 5% in July and August as financial markets sank, wiping NZ$2.17 billion from its balance. As at Aug. 31, the fund was worth $17.36 billion. The fund was set up by the previous Labour-led government to help pre-fund the pension bill of an ageing population, and won’t start making payments until 2030.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

34 Comments

 “we expect this to gain media attention.”...no shit...why might that be?

But how would this compare to standard large fund managers fees of 2% and 20%?

My guess is it is pretty cheap

Here's the thing Goldenfox....if they get fat bonuses when the returns rise, do they have to repay the money when returns drop? ..............You bet your arse they don't.

They are already well paid............... There should be no bonus payments.

Actually Wolly, they do. As per D May's note the bonus is based over 4yrs so for the numbers being quoted only 1/4 would be paid out this year with the remainder dependant on on the funds performance for 2012/13/14. If the fund tanks then the rest of the bonus won't get paid.

I used to work at the fund. I'll admit the numbers look big but you have some very intelligent people running one of NZs most important assets and getting paid much less than what they would if they worked outside of the public sector.

The following would suggest that they (and a lot of other highly paid people) don't deserve/earn what they are getting - in large part because the better results they sometimes deliver are largely beyond their control i.e. due to good luck and other people or factors:

http://www.radionz.co.nz/national/programmes/saturday/audio/2499292/dunc...

 

The Fund has out-performed the market and other funds. To do it one year might be luck or other factors as you suggest CR but to do it for four years demonstrates skill. 

When you say 'other people' they have bet the other people. The have wisely invested to generate returns better than the market. Its like saying Soros and Buffet are just lucky. There performance is many standard deviations from the mean.  

Market Out-Performance is a skill and should be rewarded. Otherwise someone in the market is probably willing to pay the manager much more to manage their money.

NB: I don't work or never have worked for the Superfund.

Listen to the audio, then respond coherently to the case made - if you care to.

Market Out-Performance is not a skill, but a result. One influenced by many skills plus a wide range of factors including luck.

Thats interesting, thanks Aj

Are you:

(a)  against the idea of a bonus as part of a salary package?

(b)  against the idea of performance linked salary?

Thanks Wolly

It is called aligning goals within a workplace.

Giving an incentive bonus to employees aligns objectives within an organisation.

Or else employees just get there salary and dont work any harder than they have to.

@ Wolly: Totally agree with your sentiments.

May's actions are those of a misbehaving child seeking forgiveness while continuing to do so. 

The fund by it's own admission has made 1.04% over the risk free rate since it's inception with a long term objective of beating it by 2.5% -  Well they haven't.

And they hardly raised the bar using the rolling yield on 90 day government treasury bills as a bench mark - 5.53% annualised since inception.

At least the GSFA have the moral decency to use the NZX New Zealand Government Stock Gross Index return (after tax) - which has returned 7.1% annualised since October 2001. 

So they: Cullen Fund & GSFA would both have been better off in government debt.  

Why pay bonuses for 'fund managers' lacking common sense - the stockmarket has proven to be a casino driven by Wall street inspired algorithms. 

If these guys and gals want excitment let them move to Goldman Sachs - where the bonuses are better but dismissal is guaranteed in the bad years. 1.04% above t bills is abject failure on Wall Street.         

@UK_Based

I am unable to dispute your claims - please quote the source:

Notably the author, Paul McBeth claims:

"The biggest beneficiary, presumably chief executive Adrian Orr, saw his base salary band of between NZ$470,000 to NZ$480,000 rise to between NZ$710,000 to NZ$720,000 with the bonus. "

Hi Stephen

If you take a look at page 57 of the annual report you'll see how the incentives vest over a 4yr period. Given the start to this year I'm guessing the incetive hit on the p&l for 2012 will likely be negative.

Absolutely NO bonuses should be paid unless they can quantify very special decisions that have made extraordinary gains.

Agree NO bonuses. Their real bonus is their secure job tenure.

If you want chimpanzees managing your money then have no bonus.

They would all be picked up with other funds that reward outperformance.

You would end up with salary monkey’s from Treasury running the money - they did so well with the Gov't Guarantee!!

OK. Point taken.

Now explain bonuses still paid for underperfromance as is so often the case.

i presume that is for keeping the seat warm.

 

They get them then because otherwise it would look bad for the bosses what hand them out.

That concept has already been test out GoldenF and the Monkey outperformed the majority of fund managers..or was it a rat...?

Following your logic, Bollard, Treasury Secretary Gabriel Makhlouf, English, etc. must be chimpanzees.

I was in Eastern Europe just after the wall came down I had dinner with some 'officials' the best steak, I had a rather nice red wine while they demolished an expensive bottle of single malt  Scots Whisky Each, the car par had a few BMW's merc's Ferrari, the odd Porshe and Bently.

 The next day I was with a company manager I had dinner with his family, no car no meat, old Vegitables and full of apogogy, they had gone out of their way for me and I feel guilt to this day. They had nothing and only ate one decent meal a day.

 Have we gone too far for us to return? History is going have trouble picking the biggest asshole out of this bunch of morons. What a disgrace to the hard working amonst us, those putting in 12 hours a day only to be knee capped by taxes, people like my shearers working themselves to exhaustion every day for 50k a year then to get taxed to bits.

 Look at landcorp making a %2 return in the best farming year ever, while the manager makes off like a robbers dog, shit I could do his job for half and do it just as well. Let alone a discussion about the State control of so much farmland and its continued expansion. 

 Only a revolution will do.

I agree the system is now too corrupt to fix itself, and will need firm 'guidance' from outside before it may be improved.

Well said  AJ, 100+

The system is too corrupt to be fixed now, I agree with that by in large. IMO it needs to be a process of bringing the critical issues out into the light, and shining it squarely on those who are in the direct line of causing those problems, and those who have been complicit. The media is unlikely to play its part, and any sort of revolution will be hijacked by those who have caused the problems. See Obama, Soros et al being used as red herrings for the owned media to take the wind out of the message. The electorate needs to stop behaing like children, and see through the fake left right paradigm which narrows the thought process and allows this disaster to continue. It is time people worked together for the betterment of our country, not for selfish individual purposes, what have we as a country been turned into? Well folks its time to grow up and work in a coherant fashion, because time is ticking by!

 

I will be interested to see the narrative the media is going to feed the electorate in the lead up. Getting some remnant of truth out into the media sphere is going to be critical for any change..

 

Anyone know what is required to get some sort of press pass accreditation to be able to get close to the action during interviews and the like?

.

Well it's on my list of things to sort out. I am not surprised to hear that though Iain, and I am sure that the reporters (most) who you see on the news are actually as simple as they look. I have some contacts of household names, so will be talking with them when I get back, although I will of course not be discuss any detail.

Kunst, I like your positivity, and would like to hope you are correct. I am going to take a proactive approach, as I am not sure. That said if the SHTF and a smear is really not possible, I am guessing a war or some other such event will most likely occupy the columns!

From the A/E

Bankers, and financial institutions in general, can only go as far as a political system lets them. I’ve noted many times before that we don't have a financial crisis, we have a political crisis. The reason why is so obvious it's hard to see: if you allow money into your political system, it will buy that system, and end up controlling it entirely (or close, allowing for the odd 1 in 1000 honest politician).

 

http://theautomaticearth.blogspot.com/

 

Entitlement

 

http://www.oftwominds.com/blogsept11/layers-of-entitlement9-11.html

 

 

 @Andrew, Loyd and others.

 Your comments about failures of authorities can only be solved with the enlightenment and involvement of the wider NZpublic.

Dominated by worldwide events, New Zealand will from 2012 on experiencing fast and dramatic changes on many fronts of lives. This will lead into chaotic situations throughout the country, particularly in bigger agglomerations.

Are we as a society prepared to face these challenges – I think no ! Coping with these political, economic, financial and social difficulties peacefully needs the interaction of different parties of our societies - now. It seems to me currently these parties are divorced and therefore relationships aren’t working the way they should in difficult times.

For a start the NZmedia such as TV/ Radio should take a lead to bring these parties together. Politicians/ policy- makers, experts - our authorities should publicly listen what the NZpopulation have to say facing and experiencing these challenges. The risk of frustration/ despair is already growing.

I think we need organised community programs, but also valuable TV/ radio programs regularly for one/ two hours during prime time, with comprehensive debating issues, which are of national interests/ concern.

Before it gets nasty and we see a nation, like other examples in turmoil - we can learn and do this peacefully - now.

 I think most people would really be interested to have a debate on this including Bernard’s team with the prospect for a wider and competent audience.

----

 Another 6.5 earthquake south of the Kermadec Island tonight

http://tsunami.geo.ed.ac.uk/local-bin/quakes/mapscript/demo_run.pl

 

 

"I will be interested to see the narrative the media is going to feed the electorate in the lead up. Getting some remnant of truth out into the media sphere is going to be critical for any change.."

I think this is me saying that education to the wider public is critical. You have those few who get any news at all mostly reading from the MSM in NZ etc, with the vast majority of the country totally clueless.

If you believe that the media are going to play a part in any constructive way, I would suggest you are dreaming Kunst. Media love their position of being able to fling mud regardless of who is in charge, they are in no way geared up to play a constructive role, you surely understand that? I agree on the community aspect, however this requires people in positions of trust in those communities being able to establish understanding in the communities that we face some unprecedented realities.

Reaching the wider public is not an easy task, I have been working on some ideas for a while, and it will take consolidated effort, and some very out of the box thought change.

 It can be done, and it will have to be done, because anyone sitting back and waiting for the establishment frameworks to lead, or even help when the SHTF, I think are in for a terrible shock!

 Loyd – there is no other way. I’m positive when frustration and discontent among the NZpublic grows the intention (will) of the public for answers grows and forces the media to play its role in support.

Lloyd and Kunst.

I get a little concerned with your context and expectations - especially that something like educational processes can be changed while just about everything else stays the same. Lloyd: 

I think this is me saying that education to the wider public is critical. You have those few who get any news at all mostly reading from the MSM in NZ etc, with the vast majority of the country totally clueless.

Lets step back a bit. Our education system is central to the defence the status quo. More education to the wider public (effectively propaganda and/or dumbing down) is the last thing we need.

Instead we need the wider public to dismiss or ignore the propaganda coming out of the main stream media and educational institutions, and start thinking for themselves.

If the process of change/education is not from the bottom up then it remains nothing more than a variation in the defence of the status quo.

Propaganda from education.....funny thing but these places of higher leaning usually teach ppl to think far more objectively and logically.....hence why you tend to see those with a higher education being more liberal.....they can disect the cr*p....and discard it.

Long may they continue with that.....

Media, not many ppl bother with such light weight stuff IMHO.......

From the bottom up, depends on your defination of "bottom" sounds like its your expectation that those at the "bottom" of the educatoion tree get to dictate to those further up because you have "common sense" and have not been poisioned by "liberal ideas"....

So I guess you will want to be the person advising the ppl to ignore anything you dont like as its propaganda....yeah right, no thanks.

regards

Propaganda from education.....funny thing but these places of higher leaning usually teach ppl to think far more objectively and logically.....hence why you tend to see those with a higher education being more liberal.....they can disect the cr*p....and discard it.

Thanks Steven - you have just proved my point on how effective higher education is in defending the status quo.

In terms of your higher education providing you with an ability to dissect the crap you state:

Media, not many ppl bother with such light weight stuff IMHO.......

The money spent with the media would suggest otherwise, but you apparently know better.

And in terms of a higher education giving you an ability to think objectively and logically (and not jump to conclusions self serving i.e. Tolstoy syndrome/confirmation bias):

From the bottom up, depends on your defination of "bottom" sounds like its your expectation that those at the "bottom" of the educatoion tree get to dictate to those further up because you have "common sense" and have not been poisioned by "liberal ideas"....

The bottom is pretty much everyone not part of the financial or political elite i.e. the majority.

That's why the education needs to be in critical thinking.  How to think, not what to think.

Propaganda from education.....funny thing but these places of higher leaning usually teach ppl to think far more objectively and logically.....hence why you tend to see those with a higher education being more liberal.....they can disect the cr*p....and discard it.

Thanks Steven - you have just proved my point on how effective higher education is in defending the status quo.

In terms of your higher education providing you with an ability to dissect the crap you state:

Media, not many ppl bother with such light weight stuff IMHO.......

The money spent with the media would suggest otherwise, but you apparently know better.

And in terms of a higher education giving you an ability to think objectively and logically (and not jump to self serving conclusions i.e. Tolstoy syndrome/confirmation bias):

From the bottom up, depends on your defination of "bottom" sounds like its your expectation that those at the "bottom" of the educatoion tree get to dictate to those further up because you have "common sense" and have not been poisioned by "liberal ideas"....

The bottom is pretty much everyone not part of the financial or political elite i.e. the bottom is the great majority.

Steven, sometimes you make a lot sense, and at others very little. It may still be possible - despite your higher education, to learn to engage your brain before your mouth.

There is a good chance deep hidden tricks that these executives use to trick the general community who hand their funds over for investment may one day be aired - then the remuneration will be seen as nothing compared to the obligation and duties to be honest and act with a standard of trust that so many people place in them. Some of the tricks would just floor most people. What is deplorable is that these people walk around with a continual smile on their face knowing what they know.