MERCER
CONSULTING
Sightings from The Catbird Seat
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August 13, 2008
Retiree fund
down $150.2M
Advertiser Staff
The market value of assets in the Hawai'i Employees' Retirement System slid by $150.2 million during the latest quarter as the pension fund had a negative return on investments because of turbulent financial markets.
The pension plan had a negative 1 percent return during the April-June period, a better performance than expected — and better, too, than the negative 1.4 percent median returns of similar plans.
The pension plan ended the quarter with $10.8 billion in assets.
The end of the quarter also marked the end of the fiscal year for the ERS. During the second half of the 12-month period the ERS had negative returns; it ended its fiscal year with assets lower by $730.1 million.
The pension plan provides retirement benefits for state and county workers and employs investment advisers to manage its portfolio of stocks, bonds, real estate and other investments as it tries to achieve an annual return of 8 percent.
For the fiscal year, the ERS had a return of negative 3.4 percent. Its peer plans had a median return of negative 4.4 percent during the period.
Even with the decline in assets the ERS has enough money for now to provide retirement benefits for its more than 100,000 members.
For more, GO TO > > > The Great Nest Egg Robberies - Part II; CV05-00030-Farmer vs. Harmon - Witness: Yukio Takemoto; Linda Lingle; David C. Farmer
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January 13, 2003
State finds new pension savings administrator
By Johnny Brannon, Honolulu Advertiser
The state has quietly dumped the longtime administrator of its Deferred Compensation Plan for public employees and selected another firm owned in part by a parent company targeted in a major fraud investigation.
The state has put its new contract with CitiStreet LLC on hold, however, because of unrelated protests filed by other bidders, including Hawaii Benefits Inc., which has managed the plan for more than 20 years.
CitiStreet is a joint venture half-owned by Citigroup, one of the top lenders to collapsed energy giant Enron. Members of the U.S. Senate Governmental Affairs Committee have alleged that Citigroup helped Enron hide its massive debt problems from investors, and an investigation is ongoing.
The deferred compensation plan administrator manages the enrollment and record keeping for money that public employees elect to have deducted from their paychecks and invested for future needs such as retirement. There are more than 43,000 participants employed by the state and the counties of Hawai'i, Kaua'i and Maui.
The administrator proposes investments, but a state board of trustees makes the final selections of investment options and monitors their performance.
A petition that sharply criticizes Citistreet has begun circulating among some state employees, which asks the trustees to reconsider its award because of the fraud probe and other matters.
Acting board president Diana Kaapu did not return repeated calls. She recently issued a notice to clarify key issues related to the choice "because inaccurate and misleading information concerning actions" by the board had "been disseminated recently."
The selection was made in October under the tenure of former board president Davis Yogi, who now serves as state airports director. He said the seven trustees considered a range of factors in making their selection, such as the variety of services offered and how the firm would educate participants about their investment options.
Yogi said the trustees voted anonymously, and declined to say whether he was satisfied with the selection that was made. He said the trustees were aware of the fraud allegations involving Citigroup and made numerous inquiries about its potential impact on CitiStreet.
The current five-year contract with Hawaii Benefits was worth about $16 million, and had been extended for one year at about $3.3 million, he said.
The administrator contract was put out to bid because Hawaii Benefits' contract expires on June 30. The contract is paid for by plan participants through administrative fees, rather than by the state.
In a letter to the board, Hawaii Benefits president Mike Moss said he was "disappointed and perplexed" that his firm was not chosen to continue as plan administrator. He said the company enjoyed "the highest level of participant satisfaction."
He said the company had been given no indication that the board was dissatisfied with Hawaii Benefits and requested an opportunity to satisfy any changed expectations of board members.
The other company challenging the award is Great-West Life and Annuity Insurance Company/Benefits Corp.
The firm believes CitiStreet will unfairly be able to use a subsidiary to handle its marketing, Great-West senior vice-president of government marketing Gregg Seller said.
That would give the subsidiary access to plan participants' addresses and phone numbers to market other products that had not been approved by the trustees, he said.
He said the board had also refused to accept a written response to a clarification to the bid Great-West submitted.
"We weren't modifying the proposal, just explaining how it would work," he said.
Representatives from CitiStreet did not immediately return calls.
Many members of the Hawai'i Government Employees Association have called the union's headquarters to inquire about the new plan administrator and ask a wide variety of questions, HGEA deputy executive director Randy Perreira said.
"This is retirement money for these people, so certainly we would hope their money is safe," he said.
The union was apprised of the new contract but was not involved in the selection process and has little information about the challenges that have been lodged, he added.
Citigroup's links with Enron are being probed by the Senate panel's Permanent Subcommittee on Investigations.
"Enron's deceptions were shocking, and equally shocking was the extent to which respected U.S. financial institutions like Chase, Citigroup and Merrill Lynch helped Enron carry out its deceptions," the subcommittee's head, Sen. Carl Levin, D-Mich., said in a written statement.
Citigroup announced earlier this month that it would establish a $1.5 billion reserve to pay for litigation and settlements.
For more on Citigroup, GO TO > > > Vampires in the City
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From Honolulu Star-Bulletin, 9/12/97: Ex-Justice Nakamura dies: . . . Former labor attorney and state Supreme Court Justice Edward Nakamura, widely regarded as a man of integrity unafraid to criticize abuses of power, died early yesterday at Queen’s Hospital after undergoing open heart surgery. . . .
Even after retirement in 1989 ... Nakamura remained an influential figure. He played a key behind-the-scenes role in the crafting of the Aug 9 “Broken Trust” opinion piece in the Star-Bulletin that spurred Gov Ben Cayetano to order an investigation of the $10 billion Bishop Estate . . .
“It was only after three meetings with Ed over pancakes at the Like Like Drive Inn that I started to see ‘the whole picture,’” said University of Hawaii law Professor Randall Roth, one of the five authors of the essay. “Without his guidance, the project might never have gotten off the ground.”
Nakamura provided insight into how things worked. “It was an insider’s look at the Democratic power structure,” Roth said. “He was fed up with the way things have evolved. He felt some people in recent years betrayed what the ideals of the Democratic revolution (of the 1950s) were all about. They were watching out for themselves rather than the ideals of their predecessors.”
Roth added: “In his quiet but firm way, Ed always followed his conscience, even when that was certain to displease powerful people.”
In 1993, Nakamura opposed then-Gov. John Waihee’s nomination of attorney Sharon Himeno to the state Supreme Court, which drew fire because of her political connections and because her law firm represented her father, developer Stanley Himeno, in a questionable business deal involving the state pension fund.
Nakamura advised attorney who publicly opposed Himeno’s nomination, which was rejected by the Senate.
Resigned from Board. That same year, Nakamura testified in the Senate’s special investigation into the management of the state pension fund. He said that during his tenure as a fund trustee, a golf course deal was pushed by the then-chairman of the Employees’ Retirement System, Gordon Uyeda, that would have provided a financial windfall for Uyeda’s friend, developer Rodney Inaba.
When the pension board voted to purchase the Wood Ranch Golf Club in Simi Valley, Calif., Nakamura resigned in protest.
But the $31 million deal quickly unraveled with Waihee apparently playing a role in getting trustees to abandon the project. . . .
Retired state appellate Judge Walter Heen, another co-author of the “Broken Trust” opinion piece, said: “Justice Nakamura will stand out in the history of Hawaii as one of its finest legal minds and one who possessed the highest concern for principle. His opinions reflect both those characteristics.” . . .
Nakamura’s nephew, attorney James Kawashima ... added: “He was very principled and always ethical. Sometimes that’s rare in people and lawyers both.”
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From Honolulu Star-Bulletin, 3/11/97: Nomura scandal spurs isle concern. . . . Trustees of the $7 billion state Employees’ Retirement System plan to discuss their dealings next month with Nomura Capital Management Inc. whose Japanese parent company, Nomura Securities Inc., is embroiled in a major scandal over unauthorized trading.
Stanley Siu, the ERS’s administrator, said that Nomura Capital executives in New York called him yesterday to assure him that questionable trades do not involve the retirement system’s investments. ... Nomura Capital manages about $185 million of ERS’s investments in Asia ...
Siu noted that Nomura Capital’s investments for the ERS in Asia declined 3.8% in 1996 due largely to Japan’s sagging stock market....
For more, GO TO > > > Predators in Paradise; CV05-00030-David C. Farmer, Trustee, Office of the U.S. Trustee vs Harmon - Witness: Yukio Takemoto
July 17, 2006
Texas Regulators: Houston ISD and
Benefits Firm Took Part in Illegal Deal
The Houston Independent School District and its employee benefits firm illegally profited from a deal they have with three other school districts, according to the Texas Department of Insurance.
New York-based Mercer Human Resource Consulting has been paid at least $20 million since 2000 for managing the school district's healthcare plan, which covers 20,000 employees, the Houston Chronicle reported July 13 in its online edition.
The state insurance agency said the school districts in Dallas, Aldine and Katy bought into Houston's employee benefits consortium with Mercer after HISD promised it would hold down benefit costs by pooling their buying power and avoiding costs associated with competitive bidding.
"However, because each ISD is separately rated by carriers, those ISDs do not receive lower benefit rates by being incorporated into a larger group,'' the insurance department wrote in a letter it sent to Mercer.
Mercer officials denied any wrongdoing.
"We are evaluating the letter in detail, but we note it says that the agency is 'considering' action, not that it has made that determination,'' the statement said. "We believe we are in compliance with relevant Texas law and regulation and that this matter has been driven by a disgruntled competitor which has had no success in its repeated efforts in civil litigation.''
Lawyers for a competing firm suing Mercer hope to force the company to pay back at least $40 million to the Houston, Dallas, Katy and Aldine school districts.
State regulators also determined Mercer is operating in Texas without the required consulting license.
Houston school board Trustee Larry Marshall said the insurance department's findings are surprising.
"I'm stunned,” he said. "Little did we know that this web was in existence. ... I think we probably need an impartial look at this.”
www.insurancejournal.com/news/southcentral/2006/07/17/70470.htm
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www.kycbs.net/Mercer-Texas-Case.htm
MEET M. MICHELLE BURNS
M. Michele Burns, age 50, is chairwoman and chief executive officer of Mercer. Ms. Burns joined MMC as executive vice president on March 1, 2006, assumed the position of chief financial officer of MMC on March 31, 2006 and moved to her current position with Mercer on September 25, 2006.
Prior to joining MMC, Ms. Burns was executive vice president and chief financial officer since May 2004, and chief restructuring officer, and chief financial officer since August 2004, of Mirant Corporation, an energy company, following the company’s bankruptcy filing in 2003.
Prior to joining Mirant, she was executive vice president and chief financial officer of Delta Air Lines, Inc. from August 2000 to April 2004. She held various other positions in the finance and tax departments of Delta beginning in January 1999. Delta filed for protection under Chapter 11 of the United States Bankruptcy Code in September 2005.
M. Michelle Burns, currently a director of Wal-Mart Stores, Inc. and Cisco Systems, Inc., she previously served as executive vice president.
For Wal-Mart Stores, Inc.:
Cash Compensation (FY December 2006)
Salary: $625,000
Bonus: $750,000
Latest FY other long-term comp. $945,832
Total: $2,320,832
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From wikipedia:
WAL-MART
Financial
In 2006, Wal-Mart was 67th most profitable corporation (profits divided by total revenue), behind retailers Home Depot, Dell, and Target, and ahead of Costco and Kroger. For the fiscal year ending January 31, 2006, Wal-Mart reported a net income of $12.178 billion on $344.992 billion of sales revenue (3.5% profit margin). For the fiscal year ending January 31, 2006, Wal-Mart's international operations accounted for about 20.1% of total sales. As of Mar 06, 2008, net sales for the 4-week period ending Feb 29, 2008 was $29.1 billion, up 8.9% from the previous year's results.
Governance
Wal-Mart is governed by a fifteen-member Board of Directors, which is elected annually by shareholders. S. Robson Walton, the eldest son of founder Sam Walton, serves as Chairman of the Board. Lee Scott, the Chief Executive Officer, serves on the board as well. Other members of the board include Aída Álvarez, James Breyer, M. Michele Burns, James Cash, Roger Corbett, Douglas N. Daft, David Glass, Roland A. Hernandez, Allen Questrom, Jack Shewmaker, Jim Walton, Christopher J. Williams, and Linda S. Wolf.
Notable former members of the board include Hillary Clinton (1985–1992) and Tom Coughlin (2003–2004), the latter having served as Vice Chairman. Clinton left the board before the 1992 U.S. Presidential Election, and Coughlin left in December 2005 after pleading guilty to wire fraud and tax evasion for stealing hundreds of thousands of dollars from Wal-Mart. On August 11, 2006, he was sentenced to 27 months of home confinement, five years of probation, and ordered to pay $411,000 in restitution.
http://en.wikipedia.org/wiki/Walmart
April 21, 2006
Public companies find ways to
perk up their senior executives
by Harold Nedd, Pacific Business News
Judging by the latest batch of annual reports, some Hawaii public companies aren't bashful about the perks they give their executives on top of their salaries, bonuses and stock awards.
Beyond the basics like car allowances and country club memberships, some companies are doing everything from reimbursing senior executives for tax help to providing directors with discounted rates on million-dollar mortgage loans.
While impressive by local standards, compensation experts describe the list of perks laid out in charts in corporate proxy statements as fairly unremarkable, especially when compared with perks like access to the corporate jet at some large Mainland companies.
Under rules set down by the Securities and Exchange Commission, a company does not have to report any of the perks it gives to senior executives as long as the total value does not exceed $50,000 a year. That limit will drop to $10,000 by next year's proxy season.
"That's when you'll see the lavish perks jump out," said Janet DenUyl, who leads the executive benefits unit at New York-based Mercer Human Resource Consulting. "But there is nothing surprising about the perquisites in Hawaii. They all seem fairly common. They enhance your ability to do your job."
Hawaiian Holdings Inc., the parent company of Hawaiian Airlines, disclosed in the company's corporate filing it had given a discretionary "expense allowance" of $30,000 to new Executive Vice President and Chief Financial Officer Peter R. Ingram, who was appointed in November 2005.
That was in addition to a $5,000 housing allowance for Ingram and $24,245 to cover his relocation expenses.
When Maui Land & Pineapple Inc. (see The Vultures in Maui Land & Pine) hired Thomas H. Juliano as an executive in June 2005, he received a $129,808 salary. But he didn't have to spend much of that on moving expenses or state taxes. The company gave him $30,000 to cover moving expenses, as well as $20,548 to pay his taxes, according to the company proxy.
Executive Vice President Brian C. Nishida was able to increase his $241,303 salary by selling back to the company accrued vacation that yielded him an extra $18,561 in 2005.
At Hawaiian Electric Industries Inc., parent company of American Savings Bank, two directors jumped on a loan perk that the company has decided to stop offering after June 30 to directors who are not employees.
Shirley Daniel, the University of Hawaii accounting professor who joined the board in 2002, is paying 4 percent interest on a $1.5 million mortgage loan, and Victor H. Li, a director since 1988, is paying a 3 percent rate on a $357,218 mortgage loan, according to a corporate filing.
In its proxy statement, Bank of Hawaii reported paying near ready-to-retire Vice Chairman Alton T. Kuioka a $750,000 bonus to stay with the company, although his role has been reduced. The retention payment pushed his total compensation in 2005 to $2.7 million, second only to CEO Allan Landon, whose total pay came to $3.9 million.
Also last year, Central Pacific Financial Corp. spent $59,548 on country club memberships for its five highest-paid executives, including CEO Clint Arnoldus, whose base salary was raised 5 percent to $630,000 on Jan. 1, according to the company proxy.
The company paid $45,600 for all of their car allowances, as well. That was on top of a $100,000 retention bonus paid to Vice Chairman Blenn A. Fujimoto and Executive Vice President Denis K. Isono.
December 8, 2006
Mercer accused of $80M risk
Atlanta Business Chronicle - by Ryan Mahoney
The Atlanta office of Mercer Investment Consulting Inc. conned a union pension fund into adopting a risky investment strategy that caused it to lose $80 million during the turn-of-the-century stock market crash, a new lawsuit charges.
Mercer, a unit of insurance broker Marsh & McLennan Cos. (NYSE: MMC), is the investment adviser for some of the nation's largest retirement plans, from Bank of America Corp. (NYSE: BAC) to the U.S. government.
In a suit filed Nov. 22 in Fulton County Superior Court, the New Orleans longshoremen's pension fund says Mercer in 1998 recommended its board of trustees invest 60 percent of its assets in equities and 40 percent in fixed-income funds in order to achieve an annual return of at least 8.5 percent and avoid a funding shortfall over the next 10 years.
At the time, the fund's assets were evenly split between equities and fixed income, a strategy intended to produce a 7.5 percent annual return.
The board followed Mercer's advice, and initially could not fault the results. The fund's market value jumped from $359 million in September 1997 to $396 million in September 2000, producing a $22 million surplus, the suit said.
But the fund lost $80 million over the next two years and fell to $265 million as of September 2002, after accounting for benefits paid out during the period. The board fired Mercer about a year later.
The suit claims the pension plan was actually running a $6 million surplus when Mercer proposed attempting an 8.5 percent rate of return.
Given that surplus, and the fact that only about a quarter of the plan's participants were still working -- with the fund paying out 10 times the contributions it took in -- the suit says the fund should have taken the opportunity to pursue a less risky investment strategy.
John Dickson and Michael Haley, Mercer's advisers to the fund from 1994 until May 2001 and from May 2001 until December 2003, respectively, are co-defendants in the suit.
In addition to giving bad financial advice, the suit claims all three defendants are guilty of "conflicts of interest that caused them to favor certain asset managers and investment options in order to obtain greater profit for themselves."
The Securities and Exchange Commission has investigated Mercer and other investment consultants in the past, questioning the objectivity of advice provided by firms that are paid by both pension funds and money managers.
Mercer spokeswoman Stephanie Poe said the complaint had no merit....
March 29, 2006
Milwaukee County lawsuit
over pension deal
Milwaukee County has sued its former actuarial firm, Mercer Human Resource Consulting, for malpractice and breach of contract related to the 2000 county pension deal.
Mercer advised the county on the cost of the pension enhancements under a contract signed by the former personnel director Gary Dobbert. (Dobbert crafted the pension package and went to jail in 2004 for lying about the deal’s costs.)
The lawsuit alleges that Mercer
…made repeated, serious actuarial mistakes, grossly underestimated costs and totally failed to assess the actuarial effect.
The lawsuit is being brought by Milwaukee County, the county’s Employee Retirement System, and the county’s Pension Board.
http://www.sequence-inc.com/fraudfiles/2006/03/29/
May 15, 2005
SEC Targets Pensions
By Neil Weinberg, Forbes
Now the U.S. Securities and Exchange Commission is taking on the pension business.
The expected action involves companies that advise public and private pension funds how to allocate trillions of dollars in investments and which money managers they recommend. This has led to accusations that “pay-to-play” is rampant among consultants. Critics charge they favor money managers who buy services from them.
The consultants have denied such bias.
The SEC may have felt compelled to act in part because many pension fund managers appear oblivious to the conflicts inherent in the advice they are receiving. Forbes last year cited an official in charge of investments for the Santa Clara Valley Transit Authority who had no idea his consultant, Mercer Investment Consulting, a unit of Marsh & McLennan (nyse: MMC), was also receiving payments from many of the managers it recommended....
Although the SEC is not expected to announce specific enforcement proceedings against pension consultants on Monday, it is likely that such action will become public in coming months, a person familiar with the situation said.
The SEC’s report is expected to recommend that pension funds use a checklist of questions when evaluating consultants to ensure that the funds understand how their advisers are compensated and the potential conflicts of interest inherent in their businesses, these people said.
“It’s great that the SEC is finally alerting pensions to the dangers involved in hiring these consultants,” said Edward Siedle, president of Benchmark Financial Services, an Ocean Ridge, Fla., firm that investigates wrongdoing among money managers.
“This goes to the heart of a system involving corrupt gatekeepers that is costing many pension funds millions or billions of dollars.”
Among the firms the SEC reportedly requested to submit information in 2003 are Mercer, Callan Associates, Segal Investment Solutions, Watson Wyatt and Wilshire Associates....
www.forbes.com/2005/05/15/cz_nw_0515pension.html
March 23, 2005
Citigroup, Putnam Pay SEC Fines Over Fund
In three unrelated cases, federal regulators fined Citigroup Inc. and Putnam Investments $20 million and $40 million respectively and a smaller brokerage firm $100,000 to resolve allegations that they concealed from customers the fact that brokers were paid to recommend certain mutual funds, creating a conflict of interest.
The Securities and Exchange Commission announced the separate settlements Wednesday with Citigroup, the biggest U.S. financial institution; Putman, the seventh-largest mutual fund company, and brokerage Capital Analysts Inc.
Citigroup, Capital Analysts and Putnam, a unit of Marsh & McLennan Cos., neither admitted nor denied wrongdoing as part of the agreements....
From their website www.mercerhr.com:
Mercer History
Started in the United States in 1937 as the employee benefits department of Marsh & McLennan, Inc., our company took the name of “William M. Mercer” in 1959, when Marsh & McLennan acquired William M. Mercer Limited, a Canadian firm founded by William Manson Mercer in 1945. In 1975, Mercer became a wholly-owned subsidiary of Marsh & McLennan Companies, Inc. In 2002, we changed our corporate name to Mercer Human Resource Consulting. (Recognizing its similar yet different client base, “Mercer Investment Consulting” was simultaneously created as a separate entity.)
Mercer has grown significantly in size and service capabilities through careful recruiting efforts and a series of mergers with other top-quality consulting firms. Today, we are the world’s largest consulting firm in our business.
05/26/2004
HR Figures Prominently in
Stock Exchange Scandal
The human resources director of the New York Stock Exchange and a major HR consulting firm have become key players in the scandal surrounding a $139.5 million pay package for former NYSE Chairman Richard Grasso.
New York Attorney General Eliot Spitzer filed a civil suit against Grasso this week, demanding that he repay more than $100 million of the sum. Spitzer believes Grasso "inflated his pay and deliberately misled his high-powered board about many details of his package to enhance his pay above and beyond a benchmark of comparable chief executives," The New York Times reported on Tuesday.
Grasso, forced out of his job when word of the compensation package caused an uproar last fall, said he's "disappointed that New York's attorney general has chosen to intervene in what amounts to a commercial dispute between my former employer and me. I look forward to a complete vindication in court."
But Grasso will have to overcome the testimony of Frank Ashen, head of human resources for the NYSE. News organizations report that Ashen, a 25-year employee of "the big board" and its internal compensation expert, has given Spitzer a statement that essentially says he and Grasso hid bonus payments for Grasso from the board.
In a Tuesday story carrying the headline, "More Than One Canary Sang," the New York Post reported that Ashen has admitted to concealing "lumps of pay of as much as $18 million a pop, by removing large sums from his worksheets and spreadsheets before he presented final pay recommendations to the NYSE's Board of Directors for approval."
"After directors signed off," the Post reported, "Ashen would restore the numbers in order for payroll to cut the excessive paychecks without the board's knowledge."
In exchange for Ashen's cooperation, Spitzer dropped his original plan to name Ashen as a co-defendant in the Grasso suit. Ashen has also agreed to return $1.3 million of the $1.9 million in bonuses he received from Grasso, according to the Times....
Another "gold mine of evidence"—as the Post puts it—has been Mercer Human Resources Consulting Inc, which had been brought in to advise the stock exchange on Grasso's 2003 contract and his request for $139.5 million.
The Post reported that Mercer was pressured by Grasso and Kenneth G. Langone —an NYSE board member, chairman of the board's compensation committee, and a friend of Grasso's—"to crunch the numbers Grasso wanted."
According to the Times, Mercer has since admitted giving the NYSE board a compensation report that contained "omissions and inaccuracies." It has also provided key documents in the lawsuit.
Among other things, the Post reported, Mercer had concealed a "bombshell" internal memo saying that each $1 million increment in a certain bonus plan* for Grasso would trigger a $6.8 million increase in lump-sum payments later. The newspaper added that Mercer has agreed to give back about $440,000 in fees it collected from the NYSE.
Spitzer is suing Grasso under a New York State law that regulates not-for-profit organizations. It says the chief executive of a quasi-public institution—like the NYSE—can be held liable for being paid an unreasonable amount not "commensurate" with his official duties.
"This case demonstrates everything that can go wrong in setting executive compensation," Spitzer said in a press release. "The lack of proper information, the stifling of internal debate, the failure of board members to conduct proper inquiry and the unabashed pursuit of personal gain resulted in a wholly inappropriate and illegal compensation package."
http://hr.blr.com/display.cfm/id/9588
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* For another bogus “bonus plan”, GO TO > > > Hawaiian Airlines
January 13, 2004
Panel touts doubling
Kamehameha salaries
The recommendation for the trustees is based on
"unanticipated" duties the board performs
The annual pay for Kamehameha Schools' five trustees would nearly double under a plan submitted by a court-appointed panel.
In a Dec. 22 report filed with Probate Court, the Trustee Compensation Committee for the Kamehameha Schools recommended the annual pay for each trustee increase to $180,000 from the current $97,500.
The three-member panel also proposed that the board chairman's annual pay increase to $207,000 from $120,000.
The new pay requires the approval of Probate Court, which has scheduled a Jan. 23 hearing.
"We are mindful that our determination and recommendation may be viewed by the casual observer on first impression as a significant increase in trustee compensation. However, on balance, during our study we also learned of the unanticipated and substantial demands on the time and talents of the trustees," the report said.
"Your committee is convinced that presently and for the foreseeable next few years, being a Kamehameha Schools trustees is virtually a full-time job."
The attorney general's office, which serves as the estate's court-appointed guardian, said it plans to raise objections with the court on the pay plan.
A recent study by Philanthropic Research Inc. for the attorney general's office found that average trustee pay for public charities nationwide with assets of more than $500 million is about $6,500 a year, said Deputy Attorney General Hugh Jones.
Philanthropic Research, which operates the Guidestar.org national database of U.S. charitable organizations, concluded that the proposed increase would make Kamehameha Schools' trustees among the highest paid in the nation for public charities, Jones said.
Kekoa Paulsen, a spokesman for the roughly $5.7 billion trust, said the board is declining comment on the report until the Probate Court takes action on the matter. One person familiar with the trust said the committee did not consult with the estate's board when it made its recommendation, although its consultants did interview several trustees about their day-to-day duties....
Trustee pay has been a source of controversy at the Kamehameha Schools, going back to the late 1980s and 1990s when board members were each paid up to $1 million a year. Legislative and court-mandated reforms implemented since then have capped board members' pay at "reasonable levels" set by an outside trustee compensation committee.
The committee, whose members include local attorneys Allen Hoe and David Fairbanks and Kamehameha Schools graduate Michael Rawlings, said the new pay structure is partly in response to recent challenges experienced by the trust.
Federal court lawsuits seeking to overturn the school's Hawaiian-preference admission policy, efforts to expand the school's educational programs and the abrupt resignation last year of the estate's chief executive officer, Hamilton McCubbin, have forced the estate's five-member board to spend more time and effort on trust matters, the committee said.
In its 28-page report, the committee noted that trustees Nainoa Thompson, Diane Plotts, Constance Lau, Robert Kihune and Douglas Ing attended more than 130 board meetings, executive briefings and community gatherings during the past fiscal year.
That is nearly three times the 45 yearly meetings the committee envisioned in 1999 when it capped trustee pay at $97,500 a year, the report said.
The committee's report is largely based on a study by Mercer Human Resource Consulting, which recommended an $180,000 annual retainer for board members and $225,000 annual compensation for the trust's chairman.
While trustees of many of the nation's largest public charities serve with less or no compensation, Kamehameha Schools' board members "spend far greater than double the amount of time spent by most corporate directors and trustees of large foundations," the Mercer report said.
"The issues confronted by the trustees from expansion of the schools, land use, environmental issues, to litigation concerning admission policies are most significant, complex and time-consuming matters that cannot be delegated or disposed of in a monthly meeting," the Mercer report said.
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For the complete article - along with a paid advertisement
by Mercer Human Resource Consulting - go to...
http://starbulletin.com/2004/01/13/news/story1.html
November 5, 2003
From the House Subcommittee on Oversight and Investigations: