More than two dozen investment professionals in the state Treasurer’s Office received raises averaging more than $49,000 earlier this year after the agency adopted a new compensation plan designed to align their wages with salaries at other public pension funds.
The raises for 25 “key” investment employees, which took effect in June, range from $13,750 to $87,872, according to state data. On a percentage basis, they extend from a low of 8 percent to a high of 102 percent. The employees are involved in making investments for the $90 billion state pension fund, which provides retirement benefits for more than 900,000 state employees and teachers and is the nation’s 12th-largest pension fund.
The raises, which were authorized by state legislators and total $1.2 million, were implemented by the agency headed by Treasurer Janet Cowell based on recommendations from a consulting firm, Mercer Consulting. Mercer’s recommendations were based largely on a pair of surveys of compensation at public pension plans, with adjustments upward and downward for factors such as performance or being less experienced.
The raises are part of the agency’s efforts to reduce the fees it pays outside money managers, which include managing more investments in-house, agency spokesman Schorr Johnson wrote in an email.
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The state budget that legislators passed in 2014 authorized the treasurer to “establish market-oriented compensation plans” for “employees possessing specialized skills or knowledge” in investing as a way of retaining them.
The legislature also directed that the plan “be based on compensation studies conducted by a nationally recognized firm specializing in public fund investment compensation” and that employees covered by the plan would be exempt from the State Personnel Act, making them at-will employees who can be terminated for any reason.
“Below-market compensation has been a longstanding risk for the department compared to its public-sector pension peers,” Johnson said. “The authority from the legislature to provide market-competitive compensation will help recruit and retain necessary staff.”
All salaries under the new compensation plan must be reported annually to the Joint Legislative Oversight Committee on General Government. Funding for the salaries comes from the pension fund rather than the state’s general fund.
In a Feb. 27 letter to that committee’s co-chairman, Sen. Tommy Tucker, a Union County Republican, Cowell wrote that the agency took “a measured approach” that utilized roughly two-thirds of the approximately $2 million appropriated by the legislature for the increased compensation.
“The salary adjustments are also modest in the context of our investment program operations,” Cowell added. She pointed out that the salary increases in the aggregate amounted to about one-thousandth of 1 percent of the pension fund’s total investments and one-quarter of one percent of annual investment costs, including the expense of hiring outside money managers.
Cowell, a Democrat who is not seeking re-election, declined to be interviewed. Senate President Pro Tem Phil Berger and House Speaker Tim Moore, both Republicans, and Tucker couldn’t be reached for comment.
The philosophy of the new compensation plan was to set salaries “between the 50th and 75th percentiles of comparable U.S. public pension plans,” Johnson, the agency spokesman, said. He added that “no bonuses will be provided in the new market-based program, and these salary figures are substantially below market compensation provided at endowments and in the private sector.”
The compensation of state employees has been a hot-button political issue in recent years. Legislators contemplated granting a raise to state employees in this year’s budget but ended up settling instead for a one-time $750 bonus; pay for teachers with less than four years of experience was bumped up to $35,000 and “step” increases were funded for teachers as they move up a tiered pay schedule.
The largest raise among the employees in the Treasurer’s Office, both in terms of dollars and percentage, went to Carlene Hughes, a portfolio manager, whose $87,872 raise pushed her salary to $173,800, a 102 percent increase. The smallest raise, in percentage terms, was awarded to Kevin SigRist, chief investment officer. His 8 percent raise, which amounted to $29,375, pushed his salary to $380,375.
Mitch Kokai, senior political analyst at the John Locke Foundation, a conservative think tank in Raleigh, said of the new compensation plan: “When there is a market for a certain type of employee, it probably makes sense for a government to use market-based pay.”
Making them at-will employees at the same time, he added, was a good tradeoff.
“You are increasing the reward, but you are also increasing the risk” because of the reduced job security, Kokai said.
Risk of turnover
Alexandra Sirota, director of the liberal N.C. Budget & Tax Center, said that “while the decision to shift to market-based (compensation) in the Treasury may be a good policy move in order to retain top talent, it raises a lot of questions about why such an approach isn’t being used for the classroom as well, for example.”
“We know that workers in state government have seen their purchasing power erode over the last 10 years,” she said. “They haven’t seen raises that allow them to really keep up with the rising costs of basic goods and services.”
Sirota pointed to data from the U.S. Bureau of Labor Statistics that show that North Carolina ranks 39th among state governments in average wages.
Last year a report produced by the bipartisan Investment Fiduciary Governance Commission, which was hand-picked by Cowell, concluded that “there will be a risk of continued high turnover in the investment staff” at the Treasurer’s Office as long as “compensation disparity” persisted.
Data compiled by the General Assembly’s fiscal research division in mid-2014 showed that the three-year turnover rate in the treasurer’s investment management division exceeded 30 percent, and about 25 percent of the positions were vacant, according to Johnson.
Indeed, when the agency put its market-oriented compensation plan into effect, a total of 45 positions were “reclassified” with higher salaries. But only 26 of those positions were filled at the time.
Mercer Consulting was paid $124,631 for its work on the compensation plan.
News researcher David Raynor contributed.
Look up salaries of state government workers at nando.com/state-pay.