Harvard Management Company (HMC) has issued its annual report on the compensation of its most highly paid in-house investment professionals. The news, often the subject of close scrutiny, comes at a particularly sensitive time.
The managers' compensation is heavily performance-based: their base salaries are supplemented by substantial bonuses only if they exceed market rates of return in the asset classes for which they are responsible--and, further, sustain that return over time (if performance subsequently lags, bonuses earned but not yet paid out can be "clawed back"). During fiscal year 2008, which ended last June 30, HMC achieved an 8.6 percent return on endowment assets--much better than the 13.1 percent decline in the Standard & Poor's index of large U.S. stocks and even ahead of the 7.1 percent return on the broadest bond-market proxy. The aggregate return for the fiscal year exceeded market returns of 6.9 percent on HMC's benchmarks for its portfolio overall, yielding an extra "value-added" margin of investment return, worth $600 million to the endowment. During the stellar fiscal 2007 year, HMC's aggregate return was 23 percent: 5.8 percentage points better than market benchmarks, representing extra endowment returns of $1.7 billion.
Those halcyon days--which in fact drive much of this year's bonus awards--are of course overshadowed in memory by the recent sharp decline in the value of Harvard's endowment, and those of all known peer institutions, reflecting the rout in financial markets worldwide since last summer. (Whatever the returns for the current fiscal year turn out to be, they may, of course, be relatively better or worse than the performance of the relevant market benchmarks for HMC's asset classes; that, in turn, will figure into compensation awards for future years.)
According to the news release, these were the five highest-paid employees (figures include salaries, bonuses, and benefits):
Stephen Blyth, $6.4 million, Managing Director--International Fixed Income
Marc Seidner, $6.3 million, Managing Director--Domestic Fixed Income
Stanley Zuzic, $4.9 million, Senior Vice President--Domestic Equities
Steven Alperin, $4.4 million. Managing Director--Emerging Market Equities
Andrew Wiltshire,$3.9 million, Managing Director--Natural Resources
In addition, Mohamed El-Erian, former president and CEO, was paid $921,000. He announced his intention to resign and to return to his previous employer in California, in September 2007, and departed that December.
For past coverage of HMC compensation, including some explanation of the performance-related bonus system, see also here and here.
