Mark Machin's Big Bonus?

Institutional Investor reports on how the Canada Pension Plan Investment Board (CPPIB) paid chief executive Mark Machin C$5.265 million for a fiscal year ending March 31, 2019. CPPIB had estimated that it would pay Machin C$3.565 million for the year but incentive pay and bonuses topped up his final pay by C$1.7 million.

To put this in historic and peer perspective:

Machin had earned roughly C$4.569 million in fiscal year 2018, and $4.507 million in fiscal year 2017, according to past annual reports. Although Canadian public pension funds typically offer much higher compensation compared to their U.S. counterparts, Machin’s fiscal year 2019 pay was on the higher end of the spectrum: Ontario Teachers’ Pension Plan paid CEO Ron Mock about $4.893 million in 2018, according to its annual report, while the Ontario Municipal Employee Retirement System’s annual report reveals that it paid CEO Michael Latimer nearly $4.127 million.

A table of total compensation for CPPIB's senior executives is available here:

In addition to acknowledging stellar investment performance, Machin’s compensation reflects his successful leadership. Several senior investment professionals left in fiscal 2019, including Nick Zelenczuk, Graeme Eadie, Eric Wetlaufer, Pierre Lavallée and Cressida Hogg. Many of these people were replaced internally, testament to CPPIB’s bench strength, as well as its gender parity in hiring and promotion decisions.

For a detailed explanation on Mark Machin's accomplishments, see page 96 of the Annual Report.

For me, the most important thing to note is CPPIB’s long-term results:

These were achieved a number of ways, including the Fund’s decision to pursue active management, mostly in private markets, despite higher costs. As Machin explained in a recent Toronto Star interview:

"Ultimately, it’s $29.2 billion worth it — that’s how much more we’ve made over 12 years than we would have using the passive approach. Secondly, we have to be really honest with ourselves; if these numbers over a long period of time are not positive, then yeah, we should probably go back to a passive approach. And if you’re just average, then yeah, there’s no point."

And again, keep in mind, CPPIB's Reference Portfolio (its benchmark) is made up of 85% Global public large/mid-cap equity (including Canada and emerging markets) and 15% Canadian Federal and Provincial Governments Nominal Bonds. This isn't an easy benchmark to beat, especially in a roaring bull market.

Like all of Canada’s large pension funds, CPPIB is doing more and larger co-investments in private equity and more direct investments in infrastructure. The result is an overall decrease in fees.

In our conversation last week, Machin also told me that external hedge fund strategies and some other factor-based public market strategies didn’t perform well in fiscal 2019, further lowering performance fees.

I like to focus on long-term results, which is what primarily determines compensation (5-year performance), but I want to acknowledge CPPIB’s exceptional short-term results in fiscal 2019. Incredibly, Machin told me the Fund gained 8.3% in calendar year 2018, which is well above what all its peers reported, including the Caisse which gained 4.2%, OTPP which gained 2.5%, and OMERS which gained 2.3%.

To conclude, CPPIB is extremely transparent on how compensation is determined, offering detailed information in its annual report, as do all of Canada's large pensions.

Below, Mark Machin, president and CEO of the Canada Pension Plan Investment Board, discusses the Fund’s investment strategy and why he's worried about the rise of geopolitical tensions with Bloomberg BNN's Amanda Lang.

And for 20 years CPPIB has invested in the best interests of CPP contributors and beneficiaries. Machin shares more about their 20th anniversary in his annual President’s message.