Pension Funds and Incentive Compensation: A Story Based on the Ontario Teachers’ Experience

Robert Bertram|Barbara Zvan


  • Defined Contribution Plan
  • Internal Swap Market
  • Life-Cycle Theory
  • Pension Fund
  • Wage Return Setup
  • Wage-Linked Exposure
  • Pension Funds

This article describes the evolution of the incentive compensation system for the investment division of Ontario Teachers’ Pension Plan. Today, the system is based on carefully-designed interfaces between actual results, investment benchmarks, risk budgets, and compensation formulas. The authors note that the system is part of a broader compensation structure that rewards managers on the basis of overall absolute fund performance combined with benchmark-relative performance.