Judge GIC by its long term results

In an interview with the Sunday Times, Ng Kok Song, the retired Group Chief Investment Officer of GIC summed up his views by saying that an organisation like GIC should be judged by its performance over a longer time frame. How long is this time frame is relative and subjective, but definitely not over a year or a handful of years. This kind of view is reasonable in general for a Sovereign Wealth Fund or any funds managed by the fund managers. Investment is a long term process as against gambling or daily trading. The volatility of the assets and equities under management may fluctuate wildly in the short term or even daily when there is a major event or crisis happening. The value of the assets or funds under management could plunge or swing up in response to such events. This is equally true of big institutions, or even the performance of govts. It is thus unfair to wallop a non performing fund over a short interval of time or during a crisis.

Today’s corporate culture and practices are often based on short term performance, or at least the remuneration and reward system is geared towards an annual payout. This has resulted in the management and executives planning and working for instant rewards and instant gratification. And the accounting system and reward packages, bonuses, payouts, handouts, perks, etc etc are all based on short term results or annual results. A good performance in a year could earn the management their life time income. A poor performance in a year could earn them half a life time income. A disastrous performance in a year could earn them multiple life time incomes.

What is the problem? Many fund managers, top management, and even govts, want to be rewarded immediately, on a year to year basis. This is natural as their tenure is short and could be terminated quite quickly. And they all want to be judged over the long term so that their bad performance can be averaged out to look better over time, or maybe a windfall or a lucky streak some years ahead could turn their fortune around. Or they could have left when bad times are here or the bad times that were hidden in the books could not be hidden any longer. The Olympus Camera company is one such example.

Last year, our Govt recorded a once in a life time GDP growth rate of 15%, much higher than any country in the world. And their super world class salaries were given an added boost with super world class bonuses based on this once in a life time growth rate in a year. Like any big institutions, the next few years may end in the red, no growth or minus growth, it doesn’t matter, the big bonuses are already in the bank accounts.

I somehow think the equation or formula is not very right. I thought since performance is best to be assessed over a long term, the remuneration or reward system should also be designed to be paid out over a long term as well. Both will thus average out the performances and the rewards in the long run. Tiok boh?

Why like that one? Still cannot figure out why? Heard of head I win tail you lose? To be reasonable, honest, responsible, accountable and respectable, and to be real, rewards and bonus system of an institution or govt must be in line with the performance assessment system. If the reward is based on immediate payout for the year’s performance, then the measurement must be based on a yearly basis. If not, it is simply screwy.

I like simple logic that every layman can understand.