STRS Ohio Board Votes Against Performance Bonuses for Investment Staff

The board of the State Teachers Retirement System of Ohio has voted to deny 69 investment staff of the pension fund $10 million in performance bonuses for fiscal year 2025, a period which begins July 1, 2024.

The 5-4 vote on Friday was made across the factions that have emerged within the fund’s board. A faction of STRS Ohio board members, known as the reformers, wants the pension fund’s assets to be passively managed through index funds as well as increase cost of living adjustments for the fund’s roughly 500,000 members.

According to STRS Ohio data, the pension fund has consistently been in the top 10% of performance relative to peers. Over the past 20 years, the fund has been in the top 3% of performance according to performance data from the fund’s consultant Meketa Investment Group’s plan sponsor peer group analysis.

The pension fund has returned 8.95% year to date, and has returned 12.38%, 6.53%, 9.25%, 8.38% and 8.00% over the past one, three, five, 10 and 20 years annualized.

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The fund holds 26% of its portfolio in U.S. equites and allocates 22.1% fixed income. International equities make up 22% of STRS Ohio’s asset allocation, while alternative investments, real estate and liquidity reserves make up 22%, 19.9% and 1.4% respectively. Of the investment staffs 108 members, 69 would be eligible for performance bonuses this fiscal year.

Additional data from Aon’s McLagan finds that compensation for the fund’s investment staff is lower than peer funds.

At the board meeting, some board members argued that a loss of performance-based compensation means that some investment staff could leave the fund. Acting executive director Lynn Hoover noted at the meeting that the fund has seen more than 200 professionals leave the organization in the past five years.

“200 is a heck of a lot of people that have separated or retired from the organization, and I have no reason to believe that won’t continue going forward and we have to plan [for] that, that’s a significant amount of expertise that we have to train and get ready to be able to manage the assets and professionally run the system, this is not sustainable and I would not recommend we continue down this path,” Hoover said at the meeting.

Back and forward discussion between board members and staff of the fund was met by jeers from the audience.

Despite stronger long-term performance relative to peers and pay that is below peer pension funds, some board members questioned the need for increased compensation for investment staff. “If we can get the top performance, and not pay as much, what’s wrong with that?” said Rudy Fichtenbaum, a board member of STRS Ohio.

Board members of the fund who opposed the performance-based compensation packages argued in favor of switching to passive investment management, they also oppose it because they object to millions in staff bonuses being paid when cost-of-living adjustments for participants were not in previous years.

In 2017, cost of-living adjustments were suspended for five years for several of the pension fund’s beneficiaries. Following a $5.3 billion loss in fiscal year 2022, some beneficiaries of STRS Ohio wondered why investment staff were receiving bonuses while COLAs were not being issued. Another board meeting in July will continue the discussion of what will happen to the performance-based incentive program for the upcoming fiscal year.

The STRS Ohio board has recently been embroiled in controversy. In 2023, Ohio Governor Mike DeWine removed board member Wade Steen from his position, but Steen was later reinstated by a state court.

DeWine and Ohio Attorney General Dave Yost later accused Steen and board member Fichtenbaum, both reformers, of conspiring to outsource the management of the pension fund’s investment to an outside entity with alleged links to the duo, an accusation they deny.