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CalPERS Board Approves Potential Raises for Investment Team

The California pension fund voted in favor of possible raises for as many as 14 executive employees.

A raise may soon be in the cards for top executives at the California Public Employees’ Retirement System, the largest pension plan in the U.S. with about $325 billion of assets.

The pension fund’s Performance, Compensation and Talent Management Committee voted Tuesday afternoon to put in place a new framework that will allow salary increases for as many as 14 executives by four percent. The new pay structure will take effect July 1.

The board supported raising pay for employees at its investment office because it lags peers and morale has been low, according to committee members at the meeting Tuesday. The committee, which voted whether to increase salaries for as many as 14 employees or just 4, based its decision in part on a biennial salary survey by consulting firm McLagan that was completed in September 2015.

“Our chief investment officer talked about the wrath that the investment staff takes, whether it is from the media or from individuals,” committee member Henry Jones said during the meeting. He added that CalPERS CIO Ted Eliopoulos recognizes “the demoralization of our staff.”

Still, executive salary will remain on the low end of the industry averages provided by McLagan, a unit of professional services firm Aon, according to the pension’s executive compensation consultant firm Grant Thornton.

“Assuming the salary increases are implemented, total compensation will still lag industry peers significantly, particularly due to common long-term incentive plan practices and increases in variable compensation payouts over the last two years,” Eric Gonzaga of Grant Thornton wrote this month in an opinion letter to Michael Bilbrey, the Chair of the Performance, Compensation and Talent Management Committee.

“It’s disheartening to see us in the lowest quartile,” said Richard Costigan, vice chair of the committee, during the meeting.

Costigan noted that the investment office saved CalPERS $199 million last year, which is why he pushed for these raises.

“Unfortunately, what the report shows is we don’t pay enough,” he said. “We aren’t setting aside the resources.”

At the meeting, the CalPERS board also voted to approve pay structures for its chief executive officer and chief investment officer for fiscal year 2017-2018.

The largest single portion of CEO Marcie Frost’s incentive plan, or 25 percent, will be based on organizational leadership, followed by 20 percent for enterprise operation effectiveness, according to documents created for the meeting. Fund performance, stakeholder engagement, and customer service will each represent 15 percent of her plan, with 10 percent based on an investment office benchmark.

Frost’s current salary falls in the range of $224,000 to $352,000, a CalPERS document shows. Her pay for the past fiscal year was not specified as she started working for the pension plan in June 2016.

The incentive plan for CIO Ted Eliopoulos is 40 percent tied to fund performance. Fifteen percent will be based on an investment office benchmark, with another 15 percent tied to stakeholder engagement. Enterprise operational effectiveness, deliverables and leadership each represent 10 percent of his incentive plan.

Eliopoulos was paid a base salary of $543,780 for fiscal year 2015-2016 and awarded a $248,026 bonus. CalPERS has a base range salary for its CIOs of $408,000 and $612,000 annually.

The previous incentive plan for Eliopoulos’s salary was 70 percent tied to investment performance, 20 percent linked to enterprise business plan, and 10 percent based on leadership.

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