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Rogers Defends Management Co. Compensation in Letter to Alumni

Vice President for Alumni Affairs and Development Tamara E. Rogers '74 leads Harvard's sizable and influential development arm.
Vice President for Alumni Affairs and Development Tamara E. Rogers '74 leads Harvard's sizable and influential development arm.
By Christine Y. Cahill, Crimson Staff Writer

Vice President for Alumni Affairs and Development Tamara E. Rogers ’74 defended the compensation of top managers of the Harvard Management Company in a letter sent late last week to a group of alumni that had previously criticized the University's investment arm.

Repeating the University’s standard defense, Rogers argued that the salaries are justified by HMC’s performance-based compensation model and its practice of managing many of its investments in house.

Vice President for Alumni Affairs and Development Tamara E. Rogers '74 leads Harvard's sizable and influential development arm.
Vice President for Alumni Affairs and Development Tamara E. Rogers '74 leads Harvard's sizable and influential development arm. By Robert F Worley

“HMC’s compensation system is designed to align the interests of investment staff with those of the University,” she wrote in the letter, dated Sept. 12.

Rogers was responding to a group of nine Harvard graduates, most of whom are from of the Class of 1969, who sent a letter to University President Drew G. Faust dated Aug. 20, detailing their concern with the compensation levels of HMC employees. They wrote that they believe these salaries have, in the past few years, become increasingly less justifiable, as the endowment “struggles to recover” from the financial crisis.

HMC currently employs a performance-based compensation system. Rogers wrote in the letter that “approximately 90% of the bonus compensation paid to individual portfolio managers is based on investment performance over and above market benchmarks.”

In 2012, the most recent year for which data is available, outgoing HMC President and CEO Jane L. Mendillo earned $4,801,347. Andrew G. Wiltshire, head of alternative assets for HMC and the company’s top earner, received $7,896,277 in compensation.

At the same time, HMC’s returns have fallen below those of the University’s peer institutions. In fiscal year 2013, for example, Harvard’s endowment was outperformed by every other Ivy League institution and Stanford.

In her response letter, Rogers pointed to HMC’s hybrid model of investing, in which HMC manages about 42 percent of total assets through internal managers and outsources the remaining 58 percent to external managers. She wrote that this model has saved the University more than $1.5 billion in the past decade in money that would have been paid to external managers.

Rogers also emphasized the importance of competitive salaries in attracting and maintaining talented managers.

David Kaiser ’69, an author of the alumni letter, said on Monday that he was not satisfied with Rogers’s response. He said that he does not believe that HMC salaries at their current levels are necessary to attract good portfolio managers, given the nature of the institution their investments support.

“I don’t think anyone whose main goal is to maximize their wealth should work for a university because I don’t think that’s what universities are supposed to be about,” Kaiser said.

Kaiser’s comments were consistent with the final two paragraphs of the alumni letter, which sought to center the conversation about compensation around values. The authors placed the HMC compensation debate in the context of Thomas Piketty’s recent book, “Capital in the Twenty-First Century,” and questioned more broadly the values that HMC, as an institution that supports Harvard, should have.

“Has the time not come to ask ourselves whether we need our universities to promote distinctive values both in theory and practice, rather than simply lining up with institutions whose only professed purpose is to accumulate more wealth, promoting the profit motive and free markets,” the authors ask in the letter. “What values does Harvard stand for today, and are they truly reflected by the compensation scheme for Harvard Management?”

This is not the first time that the group of 1969 alumni has been critical of HMC’s compensation structure. The group wrote similar letters in 2009 and 2011 that also focused on changes in salaries since the recession.

While the recent letters have been met with what Kaiser calls very similar response letters from the University, the group played a role in the surge of criticism that ultimately resulted in a change in compensation policy in 2004.

In advance of their 35th reunion in 2004, in letters to then-President Lawrence H. Summers, they criticized what they alleged to be the inordinate salaries of HMC’s top-earners—two bond managers, Maurice Samuels and David R. Mittelman, earned $35.1 million and $34.1 million, respectively, in 2003.

Less than six months after the first letter, HMC President Jack R. Meyer announced that the maximum compensation for fund managers had been lowered, a change that the authors of the letter said was still not enough.

—Staff writer Christine Y. Cahill can be reached at christine.cahill@thecrimson.com. Follow her on Twitter @cycahill16.

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