N.B. pension managers net record $5.3M in bonus pay for 2019, despite below average returns

The body in charge of managing New Brunswick government pension plans paid its employees a record $5.3 million in incentive pay in 2019, including $2.1 million in bonuses to its top four executives, despite overseeing investment returns that were near the bottom of major Canadian pension funds.

Vestcor Inc. is the Fredericton-based organization set up to manage what is now $18.5 billion in New Brunswick government pension and other funds. It's jointly owned by the province's two largest public pension funds serving civil servants and teachers but also oversees the retirement plans of hospital workers, nurses, Crown corporation employees, provincial court judges, MLAs and other groups.

Vestcor also manages other investment accounts, including University of New Brunswick endowment funds and nuclear waste and decommissioning funds for NB Power.

According to its latest annual report released earlier this month, Vestcor and had one of its better years in 2019 earning $2.1 billion on its holdings, an investment return of 11.76 per cent.

In a press release, Vestcor called the results "strong," but, according to the Royal Bank of Canada's Investor and Treasury Services office, the result is at the low end of the 119 Canadian defined benefit pension funds it tracks.

The average return among funds in the RBC survey in 2019 was 14 per cent with organizations earning less than 12 per cent, like Vestcor, sitting in the bottom quarter of performers.

"This was the second highest annual return over the past 10 years, in large part due to an upsurge in Canadian and global equity markets," reported RBC, which noted the top quarter of pension funds earned returns above 15.7 per cent.

Top execs take home almost half of bonus pay

Still, employees at Vestcor earned record bonus pay of $5.3 million in 2019, a $300,000 increase from 2018.

About 40 per cent of those bonuses, and most of the increases, went to four employees at the top of the organization, including $882,721 in bonus pay to long-time president John Sinclair.

That's a slight drop from the $902,438 in incentive pay Sinclair earned in 2018, although an offsetting bump in his 2019 base pay kept his overall compensation at $1.26 million for the second year in a row. That does not include an additional $136,584 in employer contributions made toward his own pension.

Bonus payments to three vice-presidents underneath Sinclair, including Jonathan Spinney, James Scott and Mark Holleran, totalled $1.22 million in 2019, a $304,000 increase from 2018.

Bonus 235% president's base salary

Vestcor is open about its practice of paying bonuses and two years ago issued a statement defending the use of incentives to reward and retain talented employees, especially senior executives.

"Vestcor operates on the general principle that compensation should consist of a base component and a performance-based incentive component," read the statement.

"A pay-for-performance incentive program is typical for our industry. The percentage of compensation that is performance-based is proportional to the level of employee seniority."

Vestcor's board of directors has a published target for bonuses for employees of between 30 per cent and 130 per cent of their individual base salaries, but it regularly exceeds those levels for senior management.

Sinclair's bonus in 2019 was 235 per cent of his $375,047 base salary, while bonuses for the three vice-presidents averaged 170 per cent of their base pay.

President says payments in line with industry

In an email, Sinclair said the board of directors allows bonuses to exceed the upper target of 130 per cent of an individual's base pay for "outperformance." He noted the bonus pools from which payments are made each year each have upper limits and payments made to employees are "rigorously overseen by our board of directors in-line with industry best practices"

The bonus pools are calculated annually from an assessment of how much Vestcor managers have personally added to returns by beating investment targets over a one- and four-year rolling period and by how well they carry out administrative tasks.

Some of the targets are harder to beat than others and Vestcor claims that in earning $2.1 billion in 2019, $107 million of that was the result of its own "active management performance."

Most of the bonus money is based on beating targets over the four-year period, and Sinclair said it performed much better in relation to other Canadian pension funds prior to 2019.

"(Over) longer term periods Vestcor has solidly outperformed the RBC Canadian Defined Benefit median returns with much lower investment risk while also continuing to add significant value added returns," wrote Sinclair.