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Harvard Discloses Leaders’ Annual Compensation

5.11.18


The University today released its tax return for nonprofit organizations (Form 990) for 2016 (covering the tax year from July 1, 2016, to June 30, 2017—Harvard’s fiscal year 2017). The headline figure, in the accompanying data on the compensation paid to the president and chief executive officer of Harvard Management Company (HMC, which is responsible for investing the endowment) and to its highest-paid portfolio managers during calendar year 2016, is $23.9 million received by Daniel Cummings, then managing director, real estate.

At first glance, that harks back to the eight-figure pay packages for HMC portfolio managers at the beginning of the millennium, a lightning rod for criticism. Now, however, Cummings’s compensation—including $12.3 million vested during 2016, based on his age and length of tenure (a feature in HMC’s compensation formula that has not come into play, at least on anything like this scale, in past reports)—is an historical snapshot: the wholesale restructuring of HMC being led by N.P. Narvekar, who became CEO in December 2016, has resulted in the downsizing of the in-house staff; a change in the pay formula; and—as of early 2018—the spinoff of the high-performing real-estate team to Bain Capital, which absorbed 22 Harvard staff members and more than $3 billion of assets under management. Cummings runs the operation under its new parent.

Investment-Manager Compensation

The newly released HMC compensation figures, reflecting annual incentive pay disbursed once each year, span the second half of fiscal 2016 (a very disappointing period, when a negative 2.0 percent return on endowment investments and the annual distribution to Harvard’s budget caused the value of the endowment to decline by $1.9 billion, to $35.7 billion—prompting the transformation that Narvekar is now  implementing) and the first half of fiscal 2017 (when returns were 8.1 percent—significantly better than the prior year, but significantly below peer institutions’ performance, as Narvekar took significant write-downs on natural-resources assets—and the endowment’s value rose to $37.1 billion).

The compensation HMC is reporting for calendar 2016, reflecting the sums received by the most highly compensated portfolio managers and other senior personnel, requires more than the usual amount of interpretation.

  • Stephen Blyth, president and CEO, who resigned effective July 27, 2016, for medical reasons: $6.8 million (compared to $14.9 million in the prior year).
  • N.P. Narvekar, CEO (beginning December 5, 2016): $972,000 (including $912,000 in guaranteed compensation to be paid in future years).
  • Daniel Cummings, managing director, real estate: $23.9 million (compared to $11.6 million the prior year; the current-year figure, as noted, includes $12.3 million in compensation that vested during the year based on his age and length of tenure).
  • Michele Toscani, managing director, fixed income: $7.1 million (compared to $5.9 million the prior year).
  • Graig Fantuzzi, managing director, fixed income; $4.8 million (compared to $4.7 million the prior year). Note that Toscani and Fantuzzi left HMC last year and have jointly formed TPRV Capital, a hedge fund, based in Boston.
  • Robert Ettl, chief operating officer: $4.4 million (compared to $4.8 million the prior year).
  • Joseph Marconi, real-estate portfolio manager: $3.1 million (not among the most highly compensated managers reported in the prior year).

The predominance of real-estate investment professionals on the list of highly compensated personnel reflects the strong performance of HMC’s directly invested real-estate assets, a strategy inaugurated by Cummings in 2010 (20.2 percent in fiscal 2016, and 35.5 percent in fiscal 2015, according to HMC’s reports for those years; Narvekar’s 2017 report discontinued reporting performance by asset class).

HMC’s pay formula has historically provided a base salary, with the large majority of bonus compensation varying with investment-managers’ performance. Those variable awards depend on producing investment returns in excess of market benchmarks for each specific category of assets, and sustaining that performance over time: subsequent underperformance results in variable compensation being “clawed back.” Thus, the variable awards in any annual period reflect results over multiple years—and that effect shows up in the compensation reported here.

Narvekar is changing the way HMC manages money so significantly that managers’ compensation formula (and the level of compensation), may well look very different when reported a couple of years hence. Beginning in fiscal 2018, compensation for generalist investment professionals is now determined by the aggregate performance of the endowment overall, not by separate asset categories.

Presidential and Administrative Compensation

President Drew Faust’s total compensation for the year covered in the tax filing was reported as $1,533,485. [Corrected May 11, 1:15 p.m., to delete erroneous prior-year data; we regret mixing up those figures. The Editors] That  figure includes these major elements, among other items: $905,461 of base compensation; $433,825 of retirement and other deferred compensation (primarily a $400,000 credit for deferred compensation); and $189,982 of nontaxable benefits (principally use of the presidential residence, Elmwood, plus health and other employee benefits).

Provost Alan Garber’s base compensation was $667,674. Other comparable reported compensation, for the executive vice president and various vice presidents, ranged from $656,975 to $342,009. Those breaking the $500,000 base-compensation threshold included Katie Lapp, the EVP;  Robert Iuliano, senior vice president and general counsel; Tamara Elliott Rogers, vice president for alumni affairs and development; and Thomas J. Hollister, vice president and chief financial officer.

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