“Why Did the Bonus Number Win 19 Out of 20 Times?

Ohio STRS has apparently decided that the best response to allegations that it used favorable performance numbers to help determine investment-staff bonuses is to bury Ohio teachers under enough investment jargon that hopefully everyone gives up.  https://www.strsoh.org/news/investments.html

GIPS.  Performance examinations.  Time-weighted returns. Net fiduciary position. Valuation conventions. Different methodologies. Independent verification.

Anything, apparently, except answering the obvious question:

Why did the performance number that helped determine investment-staff compensation come out higher in 19 of 20 years?

That is the remarkable finding of the Heritage Foundation’s Allen Mendenhall and Dan Sutter in Retirement at Risk: The Political Economy of Public Pension Governance. https://commonsense401kproject.com/2026/07/13/new-academic-paper-ohio-strs-had-two-performance-numbers-and-used-the-better-one-to-pay-bonuses/

The authors compared STRS’s reported investment returns with returns they reconstructed from audited financial information for 2003–2022.

STRS’s reported number was higher 19 times out of 20.

The average difference was about 0.33% per year.

The authors estimate the compounded difference at approximately $9.3 billion over the period.

And — here’s the part STRS would probably prefer Ohio teachers not dwell upon — the more favorable performance measure was used in evaluating investment performance and determining incentive compensation.

This is the central finding of a peer-reviewed academic paper.

Funny How the Errors Keep Going in the Same Direction

Different legitimate performance methodologies can absolutely produce different numbers.

That isn’t the scandal.

The scandal is the direction.

If this were merely innocent statistical noise, sometimes STRS’s number should be higher and sometimes it should be lower.

That is essentially what the researchers found at Ohio’s other giant pension system, OPERS.

OPERS’s discrepancies were much smaller — about 0.08% — and went both directions.

STRS?

19 out of 20 in the favorable direction.

What extraordinary luck.

It is almost as if an employee were allowed to calculate his own batting average for purposes of determining his bonus — and somehow discovered 19 years out of 20 that he was batting better than the accountant thought.

STRS can produce another 40-page explanation of investment-performance methodology if it wants.

It still has to explain 19 out of 20.

The Compensation Makes This Much Worse

This might be an interesting accounting dispute if STRS investment employees were ordinary Ohio public employees earning ordinary public-sector salaries.

They aren’t.

As CommonSense previously documented, STRS has created what amounts to a little Wall Street compensation island in Columbus.

Based on the compensation data we reviewed:

• 4 STRS employees earned more than $600,000.
• 20 earned more than $400,000.
• 49 earned more than $300,000.
• 85 earned more than $200,000.

And the disparity inside STRS itself is extraordinary.

The average investment employee was paid approximately $180,693, versus about $89,686 for accounting employees.

The Chief Investment Officer received approximately $913,909, versus approximately $193,933 for the Chief Financial Officer.

So the people helping produce and defend the investment-performance numbers can make multiples of the people responsible for financial controls.

That is not a trivial governance detail.

That is the governance problem.

Meanwhile, Ohio’s governor — who runs the entire State of Ohio — makes a fraction of what STRS’s top investment personnel can receive.

Apparently managing an Ohio teachers’ pension portfolio is several times more valuable than managing Ohio.

And teachers and retirees are supposed to regard this compensation structure as perfectly normal.   https://commonsense401kproject.com/2026/05/02/ohio-strs-investment-staff-paid-excessively-to-look-the-other-way/

STRS’s Favorite Magic Word: GIPS

When challenged about performance, STRS repeatedly retreats behind GIPS compliance and independent verification.

That sounds impressive.

But it doesn’t answer the question.

GIPS is a performance-presentation framework. It tells an organization how performance should be calculated and presented under specified conventions.   https://commonsense401kproject.com/2026/08/05/gips-compliance-the-new-gaap-why-pension-trustees-should-stop-confusing-reporting-standards-with-market-reality-with-private-equity/  

It does not magically transform every underlying valuation into an observable market price.

That becomes particularly important with private equity, private credit, real estate and other alternatives.

A private-equity GP can mark a partnership at $100.

The accountant can determine that the valuation process complies with accepted accounting rules.

The performance people can correctly calculate a return using $100.

The GIPS verifier can determine that the calculation and presentation comply with GIPS.

And an actual buyer might still only pay $75.

Everybody can therefore be “compliant” while the economic value available in an actual transaction is substantially different.

As CommonSense has argued before:

The math can be perfectly correct while the number being fed into the math remains questionable.

And when those resulting performance numbers help determine bonuses, valuation isn’t some obscure accounting debate anymore.

It becomes a compensation issue.   https://commonsense401kproject.com/2025/08/25/misleading-claims-of-gips-compliance-at-ohio-strs/

The World’s Most Convenient Measuring Stick

The deeper problem at STRS is the same problem we have identified at other public pension systems.

Staff participates in an extraordinarily convenient closed loop:

Choose complicated investments.

Accept private-market valuations that aren’t continuously tested by markets.

Measure performance using specialized methodologies and custom benchmarks.

Have consultants and verifiers certify that the methodology was followed.

Declare value-added.

Pay bonuses.

Then, when somebody asks whether a simple transparent portfolio might have produced a better result at dramatically lower cost, explain that the comparison isn’t sophisticated enough.

Apparently the only unacceptable benchmark is one ordinary teachers can understand.

For compensation purposes, STRS should publish one reconciliation every year:

Audited financial return

versus

GIPS-reported investment return

versus

return used to calculate staff incentive compensation.

Put all three numbers on one page.

Then disclose the exact dollar amount of compensation produced by each calculation.

And for private assets, add one more column:

Estimated realizable secondary-market value.

If a private-equity partnership is carried at $100 million, tell Ohio teachers what independent buyers would actually pay for it.

Then recalculate performance and bonuses using that number.

If STRS’s performance is as terrific as STRS says it is, this should be an easy exercise.

Don’t demand Wall Street compensation for performance measured using pension-accounting conventions, GP-estimated private-market values, customized benchmarks and internally generated performance calculations.

You don’t get to claim you are a public servant when discussing accountability and a Wall Street rainmaker when discussing compensation.

Pick one.

Bottom Line: 19 Out of 20

STRS can torture this issue with as much investment terminology as it wants.

The number that matters remains remarkably simple:

19 out of 20.

The academic researchers found STRS’s reported performance exceeded the result they reconstructed from audited financial information in 19 of 20 years.

The more favorable performance numbers were connected to investment-staff incentive compensation.

At OPERS, the differences were smaller and went both ways.

At STRS, they overwhelmingly went one way.

Toward higher reported performance.

Toward higher apparent value-added.

And toward the compensation system.

Ohio teachers don’t need another lecture about GIPS.

They need a straight answer to a very simple question:

Why did the number connected to paying the investment staff keep winning?

Until STRS answers that without hiding behind methodological jargon, its tortured explanations may simply reinforce the problem they are supposed to explain.

Because when employees are allowed to help define the measuring stick used to determine their own bonuses, the issue isn’t whether the measuring stick technically complies with industry standards.

The issue is who gets to hold the ruler.