In Garrison Keillor’s fictional Lake Wobegon, not only are all the women strong and all the men good looking, but all the children are above average. This is either a logical impossibility or not, depending on your perspective. While Lake Wobegon’s children could collectively be above the national average, they couldn’t of course all be above average within their group.
This distinction matters because it reflects how some groups or organisations perceive themselves and benchmark themselves against peers in the wider world.
Imagine Lake Wobegon’s children as a cluster of pension funds, all superior in performance and size against a wider benchmark. Can they expect to attract the best people to work for them and how much should they pay them?
If they think like Canada Pension Plan Investment Board (CPPIB), which last month appointed Mark Machin as CEO, they certainly could. But at a price: Machin is a former vice-chairman of Goldman Sachs’ Asia business. While he might be the person you would want as your CEO, the issue is that there aren’t enough Machins to go around and most can’t afford them anyway.
A small group of Canadian pension organisations, which includes CPPIB, Ontario Teachers and AIMCO, draws a disproportionate level of attention over pay levels and activities. A survey on pay at pension institutions reproduced in Keith Ambachtsheer’s book, The Future of Pension Management, reaffirms that median and average pay levels at Canadian pension institutions are higher than in the US, Europe and Australasia.
This can be contentious, as pension organisations operate globally as well as locally. Virginia Holmes, investment board chair at the UK’s Universities Superannuation Scheme, has publicly criticised pay at Canadian pension funds. One reason UK pension funds have a problem with this is that when Canadian players seek to recruit private markets specialists to work in London they drive up pay to levels that local funds cannot afford. Clearly, not everyone can pay above average.
But neither are absolute levels of pay the most important factor. There was no mass exodus of bankers from London when bonus restrictions came in after the 2008 crisis.
It is sometimes the contention that pension funds have a culture that is distinct from other financial institutions. If they do, what is that culture? For some, the distinction is one of social orientation. PGGM, for example, sees itself as part of a network of social-welfare organisations in the Netherlands. Others emphasise their long-term investment focus and lack of commercial pressures. A few, like CPPIB, present themselves as world-class investment organisations.
If pension organisations do have a distinct culture, can they attract good people without offering the highest pay? And what should be the right balance between fixed and variable pay? The recent move away from variable compensation at some Dutch institutions has led to higher fixed pay, which might prove to be the wrong in the long term if it leads to misaligned interests.
Of course, the problem is that pension organisations vary so greatly that it is impossible to generalise either about culture or pay. A UK local government pension manager who also runs its treasury operations is in a different organisation to a CPPIB investment manager.
Once they benchmark themselves at a global level, some institutions will need to scale their ambitions accordingly if they cannot compete with the largest pension organisations. But if they are well-run, with the right culture, the good news is that they stand a chance of recruiting and retaining the people they need.