Bonus plan approved for pension fund employees

The executive director of the state's $50 billion public pension fund could add $129,000 to his $322,000 annual salary under a bonus plan approved yesterday by the fund's trustees that will also pay bonuses to the agency's 23 other employees.

Michael Travaglini, who received a 14 percent raise a year ago and is one of the state's highest-paid employees, will qualify for a 40 percent bonus over two years if the fund meets certain investment benchmarks. His two top managers are eligible for the same compensation.

The plan is even more generous to other workers, who could qualify for annual bonuses equal to 30 percent of their pay.

The Pension Reserves Investment Management Board voted 5 to 3 to approve the plan, a compromise offered after an earlier version that could have doubled Travaglini's pay was opposed by Governor Deval Patrick and then abandoned by state Treasurer Timothy P. Cahill, chairman of the board.

"There was a proposal put forward that the governor and I felt was out of line with comparable pension systems," said Leslie Kirwan, secretary of administration and finance and Patrick's representative to the pension board. "Had that come to a vote, I was asked to oppose it.

"In light of significant revisions that were made to the proposal, we were able to support this program as being more in line with comparable systems," Kirwan said.

But some lawmakers said the plan - which could cost as much as $950,000 a year, based on current salaries - is too expensive, especially given the state's shaky finances.

"I don't think you'll find anybody in another state agency who has this type of arrangement," said state Senator Richard R. Tisei of Wakefield, the Republican minority leader. "Even in the private sector, people aren't receiving bonuses anywhere near that amount. They seem a bit exorbitant. One of the pitfalls of having an independent agency is that it marches to its own drummer."

The board approved the plan without public input.

"I find it interesting how quickly a plan that raises salary expenditures can come to pass, yet how long it takes to reform other abuses of the pension system," said state Representative Bradley Jones of North Reading, the House minority leader. "This plan was devised, brought forward, and implemented essentially overnight. Maybe there's a rational basis for doing it. But there are other problems with the system we see on almost a daily basis, and we can't get them addressed. That's what frustrates the public."

Under the plan, which would begin making payments next September, employees would receive bonuses if the fund exceeds a composite industry benchmark by three-quarters of 1 percent. For the past three years, the state pension fund earned 16.25 percent a year, 1.03 percentage points higher than the benchmark during the period.

Although the fund has consistently beaten industry standards by wide margins, Travaglini said, there is no guarantee the plan will continue to do so.

"Over five or 10 years, we are number one versus all public peers," he said in an interview, but added that for July and August this year, the fund is lagging behind the industry benchmark. "I'll simply say it's by no means a low performance threshold.

"We're raising the bar, and we're raising the opportunities to earn," Travaglini said. "That is standard in the asset management business."

Cahill also defended the bonus plan, although he acknowledged that it will probably be controversial.

"I'm aware of the level of the salaries and how that plays in the public's mind," he said. "But I have a $50 billion fund to run, and I need qualified people to manage it. When those people leave, I need to be able to attract qualified people to manage it. This is a tool that allows us to do that.

"I kept hearing from board members and the public that if he [Travaglini] or the staff were going to be highly paid, it should be more of a performance-based payment; that's what this is," he said.

Alex Aikens, a board member and a Brandeis University business professor, said he voted against the plan because he thinks it doesn't pay enough.

A consultant hired to look at the pay practices concluded that the pension board pays less than many other successful public pension systems, he said.

"Our bonus plan should reflect bonus plans of the top public pension funds," Aikens said. "That's what we aspire to be. I have never seen a top-performing firm pay like a mediocre firm." The board "has to think like a private sector firm and not go for the mediocre."

Andrea Estes can be reached at estes@globe.com.