The CalPERS board will have the discretion to reduce or eliminate investment staff performance pay in years of negative performance of the fund, in a revised compensation plan to be presented to the board this week, chief investment officer Joe Dear told conexust1f.flywheelstaging.com.
“We are also proposing to simplify asset class level payments so the components for portfolio managers are more simple,” he said, demonstrating with an example that one portfolio manager had seven different levels of measurement.
“We are going to present a revised compensation plan for the board, we’ve done a lot of work on this,” he said.
Dear said a fair and transparent compensation model for investment staff was part of the investment management balance between art and science.
“We want to have an increasingly visible and transparent process so it encourages debate… we want to do the art along with the science.”
The fund has had its existing investment office compensation program since 1997 when it was designed by Watson Wyatt, but it hired Mercer Consulting to review the program in December last year.
Mercer highlighted some of the challenges that CalPERS, and other organizations face, including:
1. Attracting high visibility and scrutiny as a large, public entity;
2. Fielding questions about the relative performance design component common to investment office incentive plans, such as how can the plan pay-out incentives when the fund value is down;
3. Attracting and retaining high calibre investment professionals to the non-Wall Street investment community;
4. Providing creative alternatives for compensation investment professionals that are fair, competitive and reasonable; and
5. Simplifying investment compensation strategies to promote transparency.