Friday, December 11, 2009

Does the Caisse Need Retention Bonuses?

Nicolas Van Praet of the Financial Post reports that Caisse revolving door sparks move to retention bonuses:

Montreal – The financial storm that ripped a record $40-billion investment loss into the Caisse de dépôt et placement du Québec last year has left a string of human resource casualties in its wake. Canada’s largest pension plan has seen so many senior managers quit or shown the door since Michael Sabia took over as chief executive this past March that it has now introduced retention bonuses for the first time to keep key executives.

“When there’s a lot of turnover, even confident employees start to get a little bit restless,” said Lawrence Kryzanowski, professor of finance at Concordia University. “Some of the good people... realize they might be worth a lot more somewhere else.”

Of the 12 managers that made up the inner circle of the Caisse’s executive committee roughly one year ago, 10 have either moved on or taken sick leave. In most cases, they have been replaced by others who were either hired from the outside or promoted from within. Other less senior managers have also quit.

Richard Guay, who took over the CEO duties from Henri-Paul Rousseau in may 2008, resigned in January, saying he was burned out by the effects of the financial crisis. His replacement, Fernand Perreault, has packed up too.

As for the current team, Susan Kudzman, the Caisse’s current chief risk officer, left for medical reasons recently and hasn’t returned. Ghislain Parent, chief financial officer, also left on sick leave just a few weeks ago.

Inside Caisse headquarters, Mr. Sabia is said to have so far failed to break the climate of suspicion that surrounds him. Publicly, observers are questioning whether the new team will build enough confidence around it to really fix the operations and steer the ship back on course.

“Clearly there’s some disruption” caused by the executive switches, said Michel Nadeau, a former senior Caisse executive who now heads the Institute for Governance of Private and Public Organizations. “I’m a bit worried about what’s behind this. There’s a possibility that the newcomers will shy away from risk, which will take its toll on returns in the short term.”

Of course, a complete revamp of the management ranks can also be therapeutic if it produces a renewed confidence that comes with breaking with the bad performance of the past. The board of directors at General Motors Co. is trying to instill that kind of shift at the Detroit automaker. Earlier this month, it fired chief executive Fritz Henderson after 8 months on the job because he did not do enough to overhaul the company culture.

Caisse spokesman Maxime Chagnon did not return a call seeking comment by press time.

The Caisse, which managed $120-billion for retirees as the nest egg of most Quebecers, tumbled harder than most other large pension funds last year. Betting big on high-risk investments that soured and suffering writedowns related to asset-backed commercial paper, it tallied a net negative return of 25%.

Mr. Sabia moved fast to set up stricter risk-management systems and replace some personnel. The fund is also refinancing its debt through an $8-billion bond issue to be completed by the end of next year.

But government officials have tamed any public expectations that the fund manager will recover quickly.

“I don’t expect the Caisse to outdo the markets this year,” Quebec Finance Minister Raymond Bachand told reporters in November. “It was underweight in stocks, and given that the stock markets have rebounded considerably, the Caisse’s results will certainly not exceed those of competing pension funds.”

Mr. Sabia is the first person born outside Quebec to serve as Caisse chief executive since it was created in 1965. Before taking the helm, the Ontario native was chief executive of BCE Inc.

Mr. Sabia should seriously consider meeting me one day so I can share some thoughts with him. Then again, I've already laid it all out on my blog before. Get rid of the slimy snakes within the Caisse who are the cancer of this organization, and focus on building a culture that rewards team work and risk-adjusted returns.

The last thing the Caisse needs is more whiners who want big bonuses. You want the big bonus? Show me the money and show me the risk you took to make the returns. It's that simple.

When I was unemployed, I met many independent pro traders who eat what they kill. They're not gaming bullshit private market benchmarks. They're not sleazy politicians who are backstabbing their colleagues to climb the corporate ladder. They're focused 100% on making money to survive and pay their bills.

When I hear people at the Caisse whining, I tell them to shut up and deliver the goods. Period. The Caisse isn't a charity. It's one of the largest pension funds in North America. The money managers and analysts there are treated like royalty, often spoon-fed by sell-side brokers (what they are fed, that's another matter).

Mr. Sabia should gather the troops, lay down his expectations and tell people straight out: "Either you are here to make money or get out and stay out." Enough whining already.

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