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Time to Clean House at Pensions?

Submitted by Leo Kolivakis on 08/31/2009 21:11 -0400

Submitted by Leo Kolivakis, publisher of Pension Pulse.

The CBC reports that Ontario cleans house at the OLG:

Ontario's
finance minister has fired the head of the Ontario Lottery and Gaming
Corporation and accepted the resignations of the entire board of
directors in an attempt to head off another scandal.

Dwight
Duncan told a news conference at Queen's Park on Monday that he was
"taking action to ensure protection of taxpayers money."

Duncan said there had been problems with expenses and they represented "symptoms of much larger problems" at OLG.

The corporation's CEO, Kelly McDougald, was fired "for cause," said the minister. The entire six-member board stepped down.

The provincial auditor general has been asked to conduct a thorough review of OLG expenses.

Both McDougald and the board members were brought in to clean up the scandal-plagued organization.

Duncan
released two years' worth of expense claims filed by OLG executives and
senior staff that include questionable claims filed by executives going
back years.

They included the cancellation of a deposit on a
Florida condo by Michael Sharland, the OLG's former vice-president of
security and surveillance who took a paid leave of absence in 2007.

Another
OLG executive charged the agency nearly $500 for a nanny so that she
could attend meetings during a four-month period in 2006.

Other senior staff billed the agency for small items like a $7 pen refill, a $1.12 cloth grocery bag and a $30 car wash.

Hudak calls for Duncan firing

Weekend reports suggested that a freedom-of-information request by the provincial Tories is behind the shakeup.

The Progressive Conservatives made a number of requests concerning the spending habits of OLG executives.

Duncan's announcement on Monday is an apparent attempt to deflect the results of those inquiries.

Shortly
after Duncan's announcement, the Conservative leader levelled a number
of scathing criticisms at the Liberal government called for the finance
minister to be fired.

"The minister came forward with his phony
remorse today simply because he got caught," Tim Hudak told reporters
Monday afternoon.

The Tories had asked for information on the
spending, Hudak said. The Liberals "knew it would be coming up in the
opening session of the legislature, [so they] put it out today to head
off the scandal," he said.

"But quite frankly, you can switch
one Liberal hand-picked CEO with another one. But you're not going to
stop the scandalous spending until [Premier Dalton] McGuinty sets the
tone by firing one of his ministers.

"There's a concept called ministerial accountability. You can play musical CEOs all you want," Hudak said.

"That's not going to bring an end to this mess. We need the minister to step down."

The
changes at OLG also come just a few months after a scandal at the
government-run eHealth agency led to the resignation of CEO Sarah
Kramer and board chair Alan Hudson.

The eHealth scandal resulted from untendered contracts, as well as lavish spending and picayune expense claims by consultants.

Duncan
said Monday that Ontario McGuinty will address the problems at the OLG
and outline a "broader set of initiatives" aimed at ending the expense
claims problems within the provincial government.

According to
the OLG's website, the lotteries generate "approximately $6 billion in
annual revenues and $2 billion in annual profit" for the province.

Ten days ago, I posted on how Bonusgate spread to New Brunswick. I specifically mentioned that the Auditor General of Canada should question the bonuses that were recently awarded to senior managers at PSP Investments and relay her concerns to the Treasury Board and Department of Finance.

Moreover,
provincial finance ministers should conduct a thorough performance,
operational and fraud audit using independent industry experts on every
major public pension fund in Canada, including provincial and federal crown
corporations like OMERS, Ontario Teachers', and the Canada Pension Plan
Investment Board (CPPIB). Some of these funds are hiding much more than
others, but they all have secrets they want to keep from the public and
they all game their private market benchmarks to reap big bonuses at
the end of their fiscal year (again, some are much worse offenders than
others).

Last week, the Globe and Mail reported that BC targets salaries for top public executives:

Salaries
for top executives who serve on independent B.C. government agencies
will be under the microscope as the cash-strapped province hunts for
new ways to rein in spending, Finance Minister Colin Hansen says.

The
government announced plans to review the fiscal performance of its
Crown corporations, health authorities and other arm's-length agencies
this week. Yesterday, Mr. Hansen said the often-controversial executive
compensation will be part of that review.

"I think those are all issues we have to address," he told reporters in Victoria.

Eight
years ago, the B.C. Liberal government launched a core review that
aimed to dispense with functions that were not deemed to be essential
government services. Now, it is reconsidering what should be
arm's-length services, and what could better be delivered as direct
government services.

"We want to be pragmatic, we want to look
at the most cost-effective way of delivering services to the public ...
and if that can be better structured by having an arm's-length
organization, then that's what we'll do," Mr. Hansen said.

"If
it's better to make sure we have a cohesive and consolidated approach
to delivering services by ensuring those are delivered by line
ministries, then we will do that."

NDP Leader Carole James said
the review of independent government agencies is a bid to distract the
public from the province's own mismanagement of public dollars.

"It's
the old game of, 'point the finger somewhere else and don't look at
us,' " she said yesterday. Ms. James noted that many of the agencies
now under review were established by the Liberal government in the name
of ending political interference.

The province last year
released a list of executive compensation at Crown corporations, health
authorities and other arm's-length agencies as it defended wage
increases for its own top civil servants.

That list showed close
to 150 executives at government agencies such as B.C. Hydro, the Fraser
Health Authority and the Insurance Corp. of B.C. who earn more than the
$188,000 that Gordon Campbell earned as premier last year.

At the time, the government pointed to those salaries to explain the need to raise the rates for its own senior civil servants.

Salaries
at agencies such as the health authorities are approved not by
government directly, but by boards that have been appointed by the
provincial government.

Some agencies are more arm's-length than others.

Late
last month, the province announced fiscal reviews of B.C. Ferries and
TransLink, the transit service for Metro Vancouver. Those assessments,
conducted by comptroller-general Cheryl Wenezenki-Yolland, may serve as
the model for the other agency reviews.

Ms. Wenezenki-Yolland is
examining how well the two operators have cut costs and delivered
service to the public, and how they compensate senior executives. The
announcement came the day the two agencies released details of their
top managers' salaries.

B.C. Ferries chief executive officer
David Hahn earned more than $1-million when incentives and pension
contributions were included, putting him in the upper stratosphere of
executives within the broad public service in B.C.

But B.C.
Ferries is supposed to be independent of political interference, and
officials there have said they will treat the results only as advice.

Meanwhile, the NDP focused its attention yesterday on the government's plans to adopt a harmonized sales tax next July.

Ms.
James accused the government of lying to the public about its
intentions on the tax during the last provincial election campaign.
"Serving the people of British Columbia means telling them the truth,"
she said. Liberals maintained during the May election campaign that
they did not intend to follow Ontario in adopting the HST.

Mr.
Hansen told the legislature his government did evaluate the potential
change but it wasn't until after the election that his finance analysts
persuaded him it was a good move.

I have not covered the British Columbia Investment Management Corporation (bcIMC)
much in my blog, but I did go over their 2008-2009 annual report and
noticed that its President & CEO, Doug Pearce, got compensated
$1,018,323, followed by Lincoln Webb, VP Private Placements who got
compensated $616,112 and Bryan Thomson, VP Equity Investments, with a
total compensation of $541, 367:

(click on image to enlarge)

Now,
these are good compensations but nowhere near what their counterparts
are getting in Eastern Canada and bcIMC is one of the largest funds in
the country.

How did it perform in 2008-2009? From the annual
report, we see that they lost 14.6% in 2008-2009 relative to their
benchmark of -11.1%. In other words, they underperformed their
benchmark by 3.5%, which is considerable, but their overall results are
among the best of the large funds. Interestingly, bcIMC which is known
to be "less sophisticated' than its counterparts in Canada, managed to
lose a lot less than most of them and its senior managers didn't get
paid anywhere near as well as most of their counterparts out east (not
that they got paid badly either after losing billions).

Moreover, as shown below, bcIMC clearly presents its benchmarks in its annual report (page 21):

(click on image to enlarge)

I
have issues with their private market benchmarks because in the good
years, they are easy to beat and in the bad years, they are almost
impossible to beat. This will come back to haunt them as private
markets suffer a protracted downturn (better to use a spread over
public markets to reflect the beta, illiquidity and leverage of private
markets).

Finally, I read on Zero Hedge about Michael Moore's Latest Love Story: Capitalism
(see video below). I wish Mr. Moore read some of my emails when I was
discussing the pension crisis so he could see how the pension crooks
steal money legally and get exalted at the same time.

Oh well,
you will all have to wait for my movie to come out some time in the
future. Till then, I hope politicians will clean house at Canada's
public pension funds because while most people are hurting, the pension
parrots are laughing all the way to the bank. Come on guys, show us
your Lotto 6/49 happy dance!

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Tue, 09/01/2009 - 04:16 | 54843 Enkidu

As the Hindu statesman and philosopher Kautilya said (circa 300 B.C.) 'when a fish swims in water you don't know when he drinks'! (translation very very loose).

Tue, 09/01/2009 - 01:45 | 54809 Doc Holiday