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Does the Caisse Need Retention Bonuses?
Submitted by Leo Kolivakis, publisher of Pension Pulse.
Nicolas Van Praet of the Financial Post reports that Caisse revolving door sparks move to retention bonuses:
Montreal
– The financial storm that ripped a record $40-billion investment loss
into the Caisse de dépôt et placement du Québec last year has left a
string of human resource casualties in its wake. Canada’s largest
pension plan has seen so many senior managers quit or shown the door
since Michael Sabia took over as chief executive this past March that
it has now introduced retention bonuses for the first time to keep key
executives.
“When there’s a lot of turnover, even confident employees start to get
a little bit restless,” said Lawrence Kryzanowski, professor of finance
at Concordia University. “Some of the good people... realize they might
be worth a lot more somewhere else.”
Of the 12 managers that made up the
inner circle of the Caisse’s executive committee roughly one year ago,
10 have either moved on or taken sick leave. In most cases, they have
been replaced by others who were either hired from the outside or
promoted from within. Other less senior managers have also quit.
Richard
Guay, who took over the CEO duties from Henri-Paul Rousseau in may
2008, resigned in January, saying he was burned out by the effects of
the financial crisis. His replacement, Fernand Perreault, has packed up
too.
As for the current team, Susan Kudzman, the Caisse’s
current chief risk officer, left for medical reasons recently and
hasn’t returned. Ghislain Parent, chief financial officer, also left on
sick leave just a few weeks ago.
Inside
Caisse headquarters, Mr. Sabia is said to have so far failed to break
the climate of suspicion that surrounds him. Publicly, observers are
questioning whether the new team will build enough confidence around it
to really fix the operations and steer the ship back on course.
“Clearly
there’s some disruption” caused by the executive switches, said Michel
Nadeau, a former senior Caisse executive who now heads the Institute
for Governance of Private and Public Organizations. “I’m a bit worried
about what’s behind this. There’s a possibility that the newcomers will
shy away from risk, which will take its toll on returns in the short
term.”
Of course, a complete revamp of the management ranks can
also be therapeutic if it produces a renewed confidence that comes with
breaking with the bad performance of the past. The board of directors
at General Motors Co. is trying to instill that kind of shift at the
Detroit automaker. Earlier this month, it fired chief executive Fritz
Henderson after 8 months on the job because he did not do enough to
overhaul the company culture.
Caisse spokesman Maxime Chagnon did not return a call seeking comment by press time.
The
Caisse, which managed $120-billion for retirees as the nest egg of most
Quebecers, tumbled harder than most other large pension funds last
year. Betting big on high-risk investments that soured and suffering
writedowns related to asset-backed commercial paper, it tallied a net
negative return of 25%.
Mr. Sabia moved fast to set up
stricter risk-management systems and replace some personnel. The fund
is also refinancing its debt through an $8-billion bond issue to be
completed by the end of next year.
But government officials have tamed any public expectations that the fund manager will recover quickly.
“I
don’t expect the Caisse to outdo the markets this year,” Quebec Finance
Minister Raymond Bachand told reporters in November. “It was
underweight in stocks, and given that the stock markets have rebounded
considerably, the Caisse’s results will certainly not exceed those of
competing pension funds.”
Mr. Sabia is the first person born
outside Quebec to serve as Caisse chief executive since it was created
in 1965. Before taking the helm, the Ontario native was chief executive
of BCE Inc.
Mr. Sabia should seriously
consider meeting me one day so I can share some thoughts with him. Then
again, I've already laid it all out on my blog before. Get rid of the
slimy snakes within the Caisse who are the cancer of this organization,
and focus on building a culture that rewards team work and
risk-adjusted returns.
The last
thing the Caisse needs is more whiners who want big bonuses. You want
the big bonus? Show me the money and show me the risk you took to make
the returns. It's that simple.
When I was unemployed,
I met many independent pro traders who eat what they kill. They're not
gaming bullshit private market benchmarks. They're not sleazy
politicians who are backstabbing their colleagues to climb the
corporate ladder. They're focused 100% on making money to survive
and pay their bills.
When I hear people at the Caisse whining, I tell them to shut up and deliver the goods. Period. The
Caisse isn't a charity. It's one of the largest pension funds in North
America. The money managers and analysts there are treated like
royalty, often spoon-fed by sell-side brokers (what they are fed, that's another matter).
Mr. Sabia
should gather the troops, lay down his expectations and tell people
straight out: "Either you are here to make money or get out and stay
out." Enough whining already.
»
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I've never been a fan of the Caisse. Mainly due to the politics of Canada. Quebecers try to keep their culture intact (which no-one can blame them for this) as much as possible... even if it hinders them (this one can blame them for).
Example. 2 equal investments. Ones in Quebec, ones outside. The Caisse, so I've been told, is mandated to invest in the Quebec business. In theory this is fair since both are equal. However, in practice, nothing is equal. The Caisse will choose Quebec investments even if it has more risk and less reward. I thinks this leads to laid-back attitudes to risk and return. Why bother doing the proper due diligence if you know your going to invest in one over the other anyways?
On the investment front, doing what's best for Quebecers and their pensions often involves looking outside Quebec. My biggest beef with the Caisse, PSP and CPPIB is that they often reward brokers in New york and London instead of promoting brokerages right here in Montreal (Toronto is fine). Billions of dollars invested in these pension funds and they can't tell the global brokers to open up offices in Montreal to pormote employment here? This is another scandal. I guess it's a lot sexier to fly over to London or New York, get wined and dined and go see some major sports or entertainment show. Yeah, invest in Quebec, but use your leverage properly!!!
I bet Sabia invests it all in CMHC - then it's bound to blow up even faster. If 40 billion have walked out the door it's pointless to pay retention monies - you're better off with a clean slate - of course one of the main problems is the political aims of the fund. Even the FED will be much worse once the politicians start controlling the interest rate all by themselves - welcome to -5% rates. Good piece Leo..
Thanks Leo for keeping these billions under the spotlight. I don't see anyone else doing it.
Good work Leo. I've always put the Caisse down to a ragbag of politicos doing what the hell they like with ordinary people's money - usually 'investing' with the political bias of their pro-Quebec investment managers. What are 'retention bonuses' anyway - just another little pot that will strip the little guy in good times and bad. I don't want their 'expertise', I just want them to buy Hydro-Quebec bonds and be done with it!
come on Leo, don't spit in the soup, you come from the same mould. PSP, la Caisse, same incompetencies.
Why did you leave PSP by the way?
All you need to know is that I left because I had to deal with my share of slimy snakes. I do not come from the same mould. I believe in bonuses based on true performance that considers the risks you are taking, not gaming benchmarks to screw the system. And while I had decent pay at these organizations, it was peanuts relative to what other sleazy politicians were making. I worked hard and took my responsibilities seriously. Next time you accuse me of something, have the courage to post your real name. I am tired of anonymous cowards who think they know me.
"I believe in bonuses based on true performance that considers the risks you are taking, not gaming benchmarks to screw the system."
Look Leo, nobody in financial services creates a nickels worth of wealth. The entire industry is one huge sucking parasite. Bonus, for what, being the most effective leech?
No mincing words for you this morning Leo. Nice piece.
Thanks Bruce, no I do not mince my words, which ticks some people off, especially when it threatens their self-interest. The way I see it, I am not paid to kiss my boss's ass. I am there to tell them the risks I see ahead in all asset classes. If some people don't like my style, that's fine, but don't shoot me for relaying my honest thoughts.