We examine the relation between public pension plan chief investment officer (CIO) compensation and plans’ investment performance. Higher paid CIOs outperform their counterparts by 47–60 basis points ...per year, largely through increased and superior investment in private equity and real estate. This outperformance generates an additional $74.91–$95.63 million in economic value. Plans offering higher compensation hire better educated CIOs and are more likely to retain their CIOs. Higher CIO compensation is positively correlated with the use of incentive compensation, but incentive compensation does not directly affect performance. Demand- and supply-side frictions help explain the variation in CIO pay and the persistent low compensation paid by some plans despite the positive relation between compensation and performance.
This paper was accepted by Victoria Ivashina, finance.
Funding:
S. Ray gratefully acknowledges a summer research grant from the Culverhouse College of Business at the University of Alabama.
Supplemental Material:
The online appendix and data are available at
https://doi.org/10.1287/mnsc.2022.4554
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The basic pension plan for urban enterprise workers (PPUEW) is the primary form of public pension system in China and is managed by provincial governments. Although the federal government requires ...that employers contribute 20% and individuals 8%, provincial governments have the right to adjust the rate. As different rates apply in different provinces, this study assesses the effect of rates on enterprises' incentive to participate in the PPUEW, using data from the 2011 China Annual Survey of Industrial Firms. As rates increase, employers and employees pay more; however, once the contribution ratio reaches a tipping point, they try to reduce deductibles. The findings suggest that a lower contribution rate motivates enterprises to participate in the PPUEW and boosts the fund's revenue.
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The Chinese pension system is highly fragmented and decentralized, with governance standards, pension fund management practices, their regulation and supervision varying considerably both across the ...funded components of the Chinese pension system and across provinces. This paper describes the key components of the system, highlights the progress made to date and identifies remaining weaknesses, in regard to information disclosure, the governance framework and pension fund management standards.
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