THE UNIVERSITY today released its tax return for nonprofit organizations (Form 990) for 2015 (covering the tax year from July 1, 2015, to June 30, 2016—Harvard’s fiscal year 2016). As is its practice, Harvard has simultaneously disseminated information 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. The tax filing discloses compensation for other University officials as well, including President Drew Faust. This year’s report is unusual, given the changes in HMC personnel and strategies implemented after this reporting period, and the deferred compensation awarded to Faust—both detailed below.
As noted in May 2010, the basis for such reporting has changed, so the HMC information just released covers payments made during calendar year 2015. This means that the information on HMC is representative of an era gone by: Stephen Blyth, who became president and CEO of HMC at the beginning of 2015, stepped down from that role for medical reasons in the spring of 2016; HMC is now led by N.P. Narvekar, who has begun cutting the staff in half as he transforms its money-management system, reallocates funds to external managers, and in other ways shakes up the status quo. The HMC personnel and their compensation, already altered significantly, will no doubt result in a different roster of senior management in future years’ tax filings.
The newly released HMC compensation figures, reflecting annual incentive pay disbursed once each year, span the second half of fiscal 2015 (a year of uncertain markets and internal transitions, when the rate of investment return was a relatively disappointing 5.8 percent, and the endowment increased in value by $1.2 billion, to its reported value of $37.6 billion as of June 30, 2015) and the first half of fiscal 2016 (a very disappointing year when a negative 2.0 percent return on endowment investments and the annual distributions to support Harvard operations caused the value of the endowment to decline by $1.9 billion, after adding gifts received from the capital campaign, to $35.7 billion—prompting the shifts in HMC that Narvekar is now implementing). The articles linked in this paragraph provide investment returns by asset class for those reporting periods.
For calendar 2015, HMC reported these total-compensation sums for Blyth and for the most highly compensated portfolio managers and other personnel. For those individuals who were also among the most highly compensated HMC personnel in calendar year 2014 (reported last May), that year’s compensation is also shown (in parentheses). Note that Andrew Wiltshire has subsequently retired and Marco Barrozo has departed. Bloomberg reported that Michele Toscani and Graig Fantuzzi departed during the winter to start a hedge fund. Robert Ettl served as interim head of HMC once Blyth went on leave and until Narvekar arrived.
- Stephen Blyth, president and CEO: $14.9 million ($8.3 million in the prior year, when he was head of public markets)
- Daniel Cummings, real-estate portfolio manager: $11.6 million ($8.7 million)
- Andrew G. Wiltshire, head of alternative assets: $11.4 million ($10.4 million)
- Michele Toscani, fixed-income portfolio manager: $5.9 million
- Marco Barrozo, fixed-income portfolio manager: $4.9 million
- Robert Ettl, chief operating officer: $4.8 million ($4.4 million)
- Graig Fantuzzi, fixed-income portfolio manager: $4.7 million
HMC’s 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 the 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. Blyth was in the process of changing the compensation formula to focus on HMC’s overall performance, rather than the relative performance by asset class; Narvekar is changing the way HMC manages money so significantly that managers’ responsibilities, and their compensation formula (and the level of compensation), may well look very different a couple of years from now. According to HMC’s announcement of the compensation figures, “[B]eginning in fiscal year 2018, compensation for generalist investment professionals will be driven by aggregate performance” of the endowment.
Individual managers’ compensation has sometimes provoked criticism. It is worth noting that for HMC portfolio managers, who invested perhaps 40 percent of endowment assets for the period reported here (but who will likely invest far less of the portfolio under the new system, as funds are shifted to outside firms), the reported compensation includes performance incentives; reported management costs for funds invested externally (the remaining HMC assets, and the model for essentially all assets at peer institutions like Princeton, Stanford, and Yale) reflect only direct fees, not performance incentives like the much-noted 20 percent profit-sharing that is commonly awarded to external partners running private-equity and hedge funds.
In future years, students adept at big-data analysis may want to compare HMC’s myriad outside investment partnerships with the list disclosed in this and previous filings. Though they reveal little, the lineup is certain to change significantly, as Narvekar restructures the portfolio.
Presidential, Administrative, and Decanal Pay
PRESIDENT DREW FAUST’S salary for the fiscal year reported in the tax filing was reported as $1,404,848, up from $816,370 last year. The new figure includes $536,449, representing $450,000 of deferred compensation, plus accrued investment earnings, for “exceptional service” and to “encourage retention” during the years 2012 through 2014, which vested and paid out in 2015. In the current year, the deferred account was credited with $300,000 (not yet vested), and nontaxable benefits of $160,403—principally the value of the use of the official presidential residence, Elmwood. (Separately, her annual compensation for service on the board of directors of Staples, Inc., reported in its proxy statement, was a cash fee of $46,875, plus stock awards of $175,001.)
Provost Alan Garber’s salary was $660,814. Other reported salaries, for the executive vice president and various vice presidents, ranged from $659,823 to $295,107. The highest decanal salary reported was that of Harvard Medical School’s then-dean, Jeffrey S. Flier, at $623,745.