Title: An act relating to compensation of state investment board personnel.

Brief Description: Changing state investment board personnel compensation provisions.

Sponsors: Senators Brown, Zarelli, Spanel, Berkey, Parlette, Pridemore, Eide, Hewitt and Shin; by request of State Investment Board.

Brief History:

Committee Activity: Ways & Means: 1/31/08, 2/7/08 [DPS].

SENATE COMMITTEE ON WAYS & MEANS

Majority Report: That Substitute Senate Bill No. 6755 be substituted therefor, and the substitute bill do pass.Signed by Senators Prentice, Chair; Fraser, Vice Chair, Capital Budget Chair; Pridemore, Vice Chair, Operating Budget; Zarelli, Ranking Minority Member; Brandland, Carrell, Fairley, Hatfield, Hewitt, Hobbs, Keiser, Kohl-Welles, Oemig, Parlette, Rasmussen, Regala, Roach, Rockefeller, Schoesler and Tom.

Staff: Steve Jones (786-7440)

Background: The State Investment Board was established by the Legislature in 1981 to oversee the long-term investment of the state's pension, industrial insurance, and trust funds. These investments are managed by a staff employed by the board, as well as outside investment advisors under contract with the board. The administrative and investment expenses of the board are paid from the State Investment Board Expense Account, which is funded from the investment earnings of the funds managed by the board, subject to legislative appropriation.

The executive director and investment officers employed by the board are exempt from the state civil service laws. Their compensation is determined by the board. In 2001, the Legislature authorized the board to establish a retention pool to grant salary increases to address recruitment and retention issues. The compensation level for the investment officers cannot exceed the average paid by state funds of a similar size, based on a biennial salary survey. Each year, the salary increases granted by the board from the retention pool cannot exceed an average of five percent.

Summary of Bill: The bill as referred to committee was not considered.

SUMMARY OF BILL (Recommended Substitute): The State Investment Board's retention pool is made a part of the State Investment Board Expense Account. The retention pool may be used to reward performance with incentive compensation and to address recruitment and retention problems pursuant to a performance management and compensation program developed by the board, based on a biennial compensation survey. The compensation levels cannot exceed the average total compensation paid by other public funds of a similar size. Disbursements from the retention pool are made from legislative appropriations on authorization of the executive director or a designee. The salary increase limitation of five percent is removed.

Appropriation: None.

Fiscal Note: Not requested.

Committee/Commission/Task Force Created: No.

Effective Date: Ninety days after adjournment of session in which bill is passed.

Staff Summary of Public Testimony on Original Bill: PRO: The State Investment Board manages more than $80 billion in state funds. These investments are made with the goal of maximum investment return with a prudent level of risk. The Board needs more flexibility for incentive pay for senior investment officers. This legislation will allow the Board to remain competitive in a highly specialized labor market. The Board's investment officers are being recruited by other states, and several vacancies exist. The compensation awarded under the substitute bill will be subject to appropriation and based on a salary survey. The 5 percent cap needs to be lifted.

CON: Performance pay systems are never perfect and often undermine employee morale. Comparisons with other investment funds are imperfect because the job conditions and responsibilities vary significantly. This bill is not needed because the employee turnover rate of investment officers at the State Investment Board is relatively low when compared to other state job classifications. Other state employees have difficult jobs and are required to make difficult life-and-death decisions, and many of these job classifications are experiencing significant recruitment and retention problems. The 5 percent cap should not be eliminated without being replaced by a reasonable limitation on salary increases.

Persons Testifying: PRO: Senator Lisa Brown, prime sponsor; Joe Dear, Pat McElligutt, State Investment Board.

CON: Greg Devereux, Washington Federation of State Employees.