Finance Experts Differ On Management Co.

Finance experts disagree on whether the top employees of Harvard management Company (HMC) should be paid their million-dollar salaries.

For investing the University's endowment, the top HMC managers earn several times more than Harvard President Neil L. Rudenstine. Last year, six took home a whopping $800,000 or more in compensation and benefits, according to tax records.

Two HMC officials--Vice President Jon Jacobson and Dave Mittelman, senior vice president and director of fixed income development--were paid more than $1.2 million last year.

The salaries are the highest in the country for endowment managers employed by a university.

A source close to HMC says such salaries are necessary to woo top talent from Wall Street firms.

"Even with the bonuses the pay is still below Wall Street standards," said the source, who spoke on condition of anonymity.

HMC's recent success also justifies the stratospheric incomes earned by its top managers, the source said: "Last year HMC had an amazing year."

In fiscal 1993, HMC earned the University a 16.7 percent return on its roughly $6 billion endowment.

By comparison, Yale University's roughly $3 billion endowment returned 17.3 percent in the same period. Yale has outperformed Harvard for five straight and eight of the last 10 years.

The source defended HMC's performance relative to the company's internal "benchmark standard." The benchmark is based on the expected performanceof HMC's policy portfo-to--the long-term assetallocation plan the company set for itself in 1990which serves as a flexible guideline for itsday-to-day investment decisions.

HMC's actual performance this yearsignificantly a outachieved its self imposedbenchmark standard, the source said.

But Albert E. Gordon '59, a long timecontributor to the University and vocal critic ofHMC, attacked the management company foroverpaying its employees and keeping its workingsecret.

"I think it [the compensation structure] isoutrageous," he said. "The 16 percent performancefor last year was no great shakes and it was onlyone good year."

Gordon also said he wants HMC to "come clean"about the exact manner in which it awards bonusesbased on performance relative to the bench marks.The compensation system--which was revised whenHMC President Jack R. Meyer began working at thecompany in late 1990--has never been adequatelyexplained, Gordon says. The alumnus, himself aveteran investment manager, suggests that itallows for artificially high incomes.

Gordon went on to accuse HMC of failing toregularly disclose its investment activities,which Meyer had promised it would when he arrivedthree years ago.

"I would like to know the extent they'retrading in the derivative market," Gordon said."It's ridiculous that these things are secrets."

Derivatives are a form of high-risk speculativeinvestment which have been blamed for much of thestock market's recent volatility.

Other officials involved with managingendowments disagreed with Gordon's harsh appraisalof HMC.

John Griswold, head of the Common Fund, a $7billion pool of the endowments of about 1,400academic institutions, had nothing but praise forthe company.

"HMC is absolutely excellent," Griswold said."They know a great deal and are one of the largestand most sophisticated organizations of theirkind."

Thomas Ricks, vice-chancellor for assetmanagement in the University of Texas system,agreed with Griswold's assessment.

"Harvard's [HMC's] reputation is great," saidRicks, who oversees the investment of the nation'ssecond largest university endowment. "It is viewedas a leading, if not the leading, organizationwith regards to university management."

Ricks said that Texas' compensation system wassignificantly different, but that, as a publicinstitution, its salary structure could not becompared to Harvard's.

Common Fund employees generally get lowersalaries than HMC's managers, Griswold said. Hepointed out that Common Fund merely farms outmoney for other companies to manage, while HMCmanages the money itself.

"I'm sure the [independent] managers we usemake large sums of money, though," he said

HMC's actual performance this yearsignificantly a outachieved its self imposedbenchmark standard, the source said.

But Albert E. Gordon '59, a long timecontributor to the University and vocal critic ofHMC, attacked the management company foroverpaying its employees and keeping its workingsecret.

"I think it [the compensation structure] isoutrageous," he said. "The 16 percent performancefor last year was no great shakes and it was onlyone good year."

Gordon also said he wants HMC to "come clean"about the exact manner in which it awards bonusesbased on performance relative to the bench marks.The compensation system--which was revised whenHMC President Jack R. Meyer began working at thecompany in late 1990--has never been adequatelyexplained, Gordon says. The alumnus, himself aveteran investment manager, suggests that itallows for artificially high incomes.

Gordon went on to accuse HMC of failing toregularly disclose its investment activities,which Meyer had promised it would when he arrivedthree years ago.

"I would like to know the extent they'retrading in the derivative market," Gordon said."It's ridiculous that these things are secrets."

Derivatives are a form of high-risk speculativeinvestment which have been blamed for much of thestock market's recent volatility.

Other officials involved with managingendowments disagreed with Gordon's harsh appraisalof HMC.

John Griswold, head of the Common Fund, a $7billion pool of the endowments of about 1,400academic institutions, had nothing but praise forthe company.

"HMC is absolutely excellent," Griswold said."They know a great deal and are one of the largestand most sophisticated organizations of theirkind."

Thomas Ricks, vice-chancellor for assetmanagement in the University of Texas system,agreed with Griswold's assessment.

"Harvard's [HMC's] reputation is great," saidRicks, who oversees the investment of the nation'ssecond largest university endowment. "It is viewedas a leading, if not the leading, organizationwith regards to university management."

Ricks said that Texas' compensation system wassignificantly different, but that, as a publicinstitution, its salary structure could not becompared to Harvard's.

Common Fund employees generally get lowersalaries than HMC's managers, Griswold said. Hepointed out that Common Fund merely farms outmoney for other companies to manage, while HMCmanages the money itself.

"I'm sure the [independent] managers we usemake large sums of money, though," he said