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Collete Chilton’s Pay: $726,556

According to the College’s Form 990, Chief Investment Officer Collete Chilton’s total compensation was $726,556 in FY 2008 and $686,053 in FY 2007. Comments:

1) The Record should do an article about Chilton’s compensation. Don’t the editors believe in muckraking anymore? I bet that some of the more left-wing Williams professors would provide good quotes, either on or off the record. Don’t think that there is anything suspect going on here? Perhaps you failed to read the College’s letter to the Senate Finance Committee.

Some members of the Investment Office are eligible for bonuses based on the return on our investments, though the office is so new that we have not completed the first year of returns on which bonuses would be computed. So, in the past ten years no such bonuses have been paid.

In other words, the College worries that Chilton and other (how many?) investment professionals won’t work hard enough even though Williams is paying them hundreds of thousands of dollars per year. So, in addition to all that guaranteed money, we need to pay them extra bonuses or else they’ll —- what exactly? Spend all day at the movies?

I think that this is the sleaziest arrangement at Williams today.

2) How did this happen? Tough to know. I am still trying to get the inside story. My guesses/speculation:

a) Both Morty and key trustees were in favor of starting an Investment Office and other steps for turning Williams into Yale.

b) No one worried too much about Chilton’s compensation. The Trustees, of course, see their role as more supervisory. They don’t set salaries. There may have been a head-hunter or compensation consultant involved. Morty, while in theory worried about the College’s overall budget, had no real incentive to pay Chilton less.

Never forget that Morty, for all his many wonderful qualities, is not — How to put this politely? — immune to the siren song of worldly wealth. It is not out of the goodness of his heart that he serves on the board of MMC. It was not an accident that he failed to take a pay-cut, unlike presidents at some other schools, during the budget crisis. It is not irrelevant to him that the Northwestern job pays around twice as much. It was not via random motion that his annual salary increased by hundreds of thousands of dollars during his time at Williams.

So, subconsciously or not, Morty would realize that a proposal to pay the new Chief Investment Officer substantially more money than he was then making would only provide a (dramatic?) upward push to his own compensation.

c) This deal was made in the bubble years. There is no way that Chilton could find a comparable job paying this much money today. Even for 2006, the compensation is excessive. Professionals I quizzed felt that someone with Chilton’s resume — modest compared to others in the field — would be somewhere in the $300,000 to $500,000 range when her contract was signed three years ago.

3) What should be done? The College ought to close the Boston Investment Office. (Read the whole comment thread for details and background.) Most/all of the senior investment professionals (like Chilton) would decline to move to Williamstown. Problem solved, without any nasty firings or salary cuts. In a financial crisis in which Williams can’t afford to spend a few thousand on the Williamstown Jazz Festival, we can’t afford a Boston Investment Office.

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#1 Comment By JeffZ On August 18, 2009 @ 6:35 am

This is one of the best opportunities for change offered by the hiring of a new President, who has no personal stake in the success of this office. Wipe the slate clean. Eliminate the Boston office, have a smaller group working in Williamstown for a more reasonable salary. It would be at least arguable (although I still would be against this office, and these salaries) if this group had generated exceptional returns for Williams, relative to the market, but there is zero evidence of that. There are now tons of good people in finance looking for work. I am sure it would be easy to find a few (especially alums) who are qualified who would love to live in Williamstown and take less pay in order to feel like they are contributing to a non-profit, but at this point, the pool also includes the many talented people in finance who just want a good job but are currently out of luck. It is a buyer’s market Moreover, it makes sense for institutional reasons to have these people on-site, not to mention, better to see some of those big salaries poured back into the local economy. Even if the salaries need to be fairly large (say half of what are being paid), having a few extra local deep pockets around to help fund MassMoca, the theater festival, other local institutions would be nice. Oh, and I have no objection to the bonus structure — so long, that is, as if it is structured so that, if the endowment loses money based on their investment choices, they lose a good chunk of their base salaries. Otherwise, I think a base salary in the 300-500 range is more than sufficient.

If I was the new President, among the very first things I’d do would be to try to sell the Williams Club as soon as the real estate market in NYC begins to rebound, close this office, saving overhead and travel costs and dramatically reducing the total salaries being paid, plus work hard for a few substantial targeted donations, all to get enough money to fund 1-2 years worth of construction on the new library, so as to get that project going sooner rather than later. I also hope they knock the Presidential salary back a few levels in recognition of the sacrifices others at Williams are making.

#2 Comment By JeffZ On August 18, 2009 @ 6:48 am

By the way, while I wholeheartedly agree with DK on this one, on a lighter note, anyone who had August 18 in the betting pool proposed by Nuts in his comment on the thread David links to above is the winner …

#3 Comment By hwc On August 18, 2009 @ 11:13 am

How do these bonus arrangements work? She gets extra from the College when the endowment goes up. Now, she has to write a check to the College for a percentage of the $400 million losses last year, right? As I understand it, idea is for the investment managers to “have some of their own skin in the game”. Sounds fair. Or, she could just resign.

And, while we are at it, perhaps somebody might take a look at how Board chairman Greg Avis’ private equity and venture capital partnerships have performed for Williams. There’s something “fishy” (as they say in Washington) about the Chair of the Board of Trustees being responsible for directing endowment investments to the private equity partnerships where he is a Founding Managing Director. They all do it. It stinks to high heaven. How does he evaluate the investment strategy and performance? Fire Chilton for big losses with Summit Partners last year? Did she realistically have any choice? Have these endowments been managed in the colleges’ best interests or to feather the beds of all the trustees and their private equity and hedge funds? This year, on the heels of endowment collapses, seems like as good a time as any to start asking some of these questions.

#4 Comment By Ronit On August 18, 2009 @ 11:40 am

@hwc:

How do these bonus arrangements work? She gets extra from the College when the endowment goes up. Now, she has to write a check to the College for a percentage of the $400 million losses last year, right?

I have no idea about the specifics of this arrangement, but it is common to benchmark manager bonuses against an index. It doesn’t make sense to credit managers based on the total value of the rise or fall in the portfolio, because most of that is going to be due to the market’s swings, which are outside her control. You want to reward managers for any additional value they bring on top of what the market provides. In a year when the market is down 38%, a manager whose portfolio is only down 10% has done an absolutely exceptional job and should be rewarded accordingly.

I have no idea what the benchmark would be here, or whether there even is a benchmark. But it would have been smart for the college to have one in place.

#5 Comment By hwc On August 18, 2009 @ 11:53 am

To put Ms. Chilton’s $750,000 in perspective:

The year before, Williams paid Director of Investments Bradford Wakeman $216,962 in salary and benefit contributions.

The same year, Swarthmore paid Director of Investments, Mark Amstutz $205,428 in wages and benefits.

Pomona College’s Director of Investments didn’t make the list of the top-five highest paid employees. Number 5 was at $219,000, so his or her pay was no higher than Swarthmore’s or Williams.

Grinnell College, which had a bigger per student endowment than any of them, didn’t have an investment mananger make the list of top five that year with a cut-off of $192,000. They did have the Associate Treasurer make the list in the 2008 report at $183,000.

So, it appears that Williams replaced an in-house guy at the prevailing market rate of $200k with Collette at $750,000. The funny thing is that these schools all pay fees to the same fund managers. For example, Williams and Swarthmore both pay Cambridge Associates between $750,000 and $1 million a year. They all have some coin managed by alumni fund managers. For example, Swarthmore has a big chunk managed by T. Rowe Price.

#6 Comment By David On August 18, 2009 @ 12:20 pm

1) Ronit is correct that the standard approach would be to create some sort of index and measure the performance of the endowment relative to that index. First, this is very hard to do! What would an appropriate index be for the Williams endowment, with its holdings in private equity and venture capital? Second, even if one could come up with an index, such an index might be easily “gamed” by sleazy people. See the trickery at CPPIB for an example.

But, big picture, there is just no need for this sort of bonus. Collette Chilton isn’t working any harder than she would otherwise work if there were no bonus.

But, again, if you are Morty, then the sooner that Chilton is paid over $1 million, the sooner your own compensation hits seven figures.

Needless to say, it would be nice to have some transparency. There is some formula. What is it?

2) hwc writes:

And, while we are at it, perhaps somebody might take a look at how Board chairman Greg Avis’ private equity and venture capital partnerships have performed for Williams. There’s something “fishy” (as they say in Washington) about the Chair of the Board of Trustees being responsible for directing endowment investments to the private equity partnerships where he is a Founding Managing Director. They all do it. It stinks to high heaven.

I am not sure that this is totally fair. Consider:

a) Some of these investments may have been made years ago, before Avis joined the Board. Consider a new venture capital investment that Williams is making this year. It has a ten year term. Even if you assume/assert that this investment should not be made in any fund associated with a current trustee, would it be unreasonable to invest in a fund headed by an Eph? Obviously not, all else equal. But it is precisely such Ephs that are likely to end up on the Board, even before the 10 year term of the fund completes.

b) To the extent that you can make a bull case for the performance of the Williams endowment (along with those of other schools) over the last 20 years, it is precisely because the Trustees got the College invested in the most successful funds. If you had $100 million to invest in private equity in 1990, I bet that following, say, Joe Rice’s ’54 recommendations was a pretty smart idea.

If I had a choice between 10 venture capital deals and Greg Avis ’80 told me that fund #7 was most likely to do well, then I would probably listen to him. This is even true of fund #7 was run by his firm.

c) To the extent that there are dangers with this sort of self-dealing (and I agree that this is a real worry), the obvious solution is transparency. Tell us what deals the College has invested in, with which firms and what terms. (You could leave out the terms since doing so might allow Williams to get better terms.) Tell us the performance of those funds and the relationship of the deals to any Trustee. With that information, we could judge for ourselves the danger/benefits of self-dealing.

Is that a plausible goal? I don’t know. It would probably require someone on the faculty to take an active interest in the topic. Does anyone know of a (tenured) faculty member who might be interested?

4) hwc: Don’t you read my posts? ;-) Bradford Wakema is not a holdover. He was Chilton’s right-hand man at her previous firm. Before 2006, Williams had noone in this role. (There were folks in the treasurers office who handled the mechanics and the record-keeping, but the trustees on the investment committee handled all the decisions. And they worked for free.)

5) I continue to think that we should go back to the old system. Trustees should make these decisions. If they are too busy or lazy, then we should get new trustees. I know several very wealthy alums who would be happy to take Mike Eisenson’s place on the Board.

#7 Comment By hwc On August 18, 2009 @ 12:57 pm

Bradford Wakemam is not a holdover. He was Chilton’s right-hand man at her previous firm.

Oh, I see. Well, that’s really a tangle of self-dealing, then.

Just as it is a legitimate question to ask whether Emory University is really a health care conglomerate with small subsidiaries dabbling in education, we — at some point — have to ask whether some other schools have become private equity manangement firms dabbling in education.

BTW, there was a huge flaw in the bonus structures of the college investment people. They were rewarded on total return, rather than being incentivized to make sure their investments met the cash needs to operate the schools, in the timeframes the cash was needed. In effect, they were being incentivized to create liquidity problems for their employers.

#8 Comment By David On August 18, 2009 @ 1:18 pm

BTW, there was a huge flaw in the bonus structures of the college investment people.

I don’t think that this is true.

1) I don’t think (contrary evidence welcome) that the investment officers at other similar schools (Pomona, Swarthmore, Grinnel, Bowdoin, Amherst, et cetera) get bonuses in the way that Chilton and others in the Williams office do. One of the reasons that the Williams deal is so sleazy is that it is so rare.

2) Even those College which do give bonuses to people (like Harvard), the bonuses are mostly to in-house managers, almost all of whom have no responsibility for liquidity. They are treated just like outside managers except their employer is Harvard: given a pile of money and a benchmark to beat.

You are certainly correct that heads should roll at places like Amherst where liquidity was so poorly managed, but I don’t think that the “bonus structures” had anything to do with this disaster since, as best I can tell, no one at Amherst had a bonus clause in her contract. This was simple mismanagement by the Trustees/president.

Williams is very fortunately that alums like Joe Rice ’54 and Dave Coolidge ’65 have guided the endowment so well over the last decade or two.

#9 Comment By Ronit On August 18, 2009 @ 1:38 pm

I don’t think (contrary evidence welcome) that the investment officers at other similar schools (Pomona, Swarthmore, Grinnel, Bowdoin, Amherst, et cetera) get bonuses in the way that Chilton and others in the Williams office do.

Do we have any evidence, from the form 990 or elsewhere, that they do get bonuses at Williams? All we have is the letter to the Finance Committee, which only states that there is a provision in the contract for such bonuses, but that the baseline for such a bonus had not been calculated yet in March 2008. Given performance since early 2008, it’s quite likely that Chilton has never received a bonus.

#10 Comment By what if On August 20, 2009 @ 9:37 pm

What if we keep the Boston investment office but get a new director for it and pay them in line with other schools?

It doesn’t seem like the office has done a particularly bad job of managing the endowment compared to comparable educational institutions, but perhaps a change at the top is needed.

#11 Comment By JeffZ On August 21, 2009 @ 10:27 am

I think, What If, that part of the issue is having the office in Boston itself. I am not really a finance guy, so I’m not going to get involved in the debate over whether the trustees can handle steering investments, or whether we need dedicated employees, and if so, how many. My concern (in addition to the exhorbitant compensation) is that having an office in Boston adds a lot of costs (overhead, which is expensive in Boston, not to mention travel costs), when I am sure there are plenty of good people willing to make a lot of money to live in Williamstown and do this sort of work (and all we need are a few, if that). I think that also makes them more tied to the college and the college community instead of operating as some quasi-satellite entity.