Incentive Compensation Plan

Formerly Annual Incentive Plan and Long-term Incentive Plan

All full-time permanent employees are eligible to participate in Vestcor’s Incentive Compensation Plan (ICP) once employed for a minimum of six months.

Each position is eligible for an individual achievement award and a corporate scorecard award, and certain positions are eligible for a component based on absolute client returns and relative investment performance.

The individual and corporate scorecard award components of the ICP is calculated as a percentage of salary, weighted to reflect the role and impact that each eligible employee has on achievement of annual business plan objectives as assessed by the Board of Directors.

An absolute client investment performance award is measured quantitatively on a four-year cumulative basis compared to client long-term total fund investment objectives.

Investment performance is measured quantitatively as a total fund net value added investment return award on a four-year cumulative basis, compared against a value-added target set by the Board. Net value-added investment returns represent the gross investment return in excess of the investment policy benchmark returns, after deducting all investment management costs. Quantitative awards are limited to a maximum of two times target (84 bps of value-added total fund returns after costs).

The ICP also includes an investment team award for asset class value added returns of actively managed portfolios to promote teamwork within these investment asset classes. Investment management employees are organized into one of five teams eligible for the team award by asset class: Fixed Income, Quantitative Investments, Equities, Traders and Private Markets. The remaining employees do not participate in the team award due to the overarching focus of their responsibilities.

Starting in 2021, a significant portion of the ICP award is deferred for payment in future years for certain positions, including all investment and risk management staff, CEO, CFO, CIO and CPBO. The deferred ICP is paid out over four years, with 50% being paid in year one and the remaining 50% being paid out in equal installments over the subsequent three years. To further align this award with client investment performance, deferred amounts accrue a return equal to the total actual overall annual investment return achieved during the deferral period.

Long-term incentive plan being discontinued

Prior to 2021, Vestcor had a long-term incentive plan (LTIP) for investment and research staff, the CEO and CFO. Eligibility began only once the individual had been employed a minimum of four years. Once eligible, employee awards were calculated and paid using the prior four-year investment performance in excess of Board-approved investment policy benchmark returns and investment management costs. LTIP award calculations are limited to a maximum of 75 bps of value-added total fund returns after costs.

As part of the recommendations of the Total Compensation Review and as per the terms of the ICP, we discontinued the LTIP effective January 1, 2021. However active eligible employees who had previously commenced rolling four-year award determination periods will continue to receive the remaining annual payments calculated under the LTIP (periods covering 2018-2021, 2019-2022, and the final calculation and concluding four-year period of 2020-2023).

While the LTIP was designed to align employee interests with long-term client investment performance objectives, the new ICP design, with a significant deferral portion of the total award, is believed will strengthen the alignment of these interests and better serve Vestcor’s talent attraction and retention objectives. Once fully transitioned, the change in design is not intended to significantly affect the total incentive awards paid.