CalPERS weighs incentives and benchmarks in battle for talent

At CalPERS’ latest performance, compensation and talent management meeting, committee members continued to discuss changes to the $500 billion pension fund’s compensation program to make it more competitive in attracting and retaining staff.  CalPERS’ efforts to modernise the process reflects a sector wide struggle as other institutional investors including the Teacher Retirement System of Texas and the $83.4 billion Alaska Permanent Fund Corp struggle to fill a swathe of investment positions.

Returning to the board with their latest revisions, compensation consultant Global Governance Advisors’ Peter Landers and Bradley Kelly offered more detail on how to evolve the pension fund’s compensation, building on an April presentation when Kelly warned that complacency is the kiss of death for any organisation, especially public pensions, in today’s tight recruitment market.

Among the measures are plans to widen the peer group of funds that CalPERS compares its compensation levels against to include larger private sector firms, and introduce salary packages that have more incentives attached including an annual incentive plan that focuses on total fund results.

Regular review

The determination and assessment of compensation at CalPERS can lag peer funds. Although reviews may not always lead to salary adjustments, they need to be more frequent and regular. In a worse-case example, committee members heard how the compensation for CalPERS’ chief actuary position wasn’t adjusted over a 14-year period.

“Avoid major delays; our recommendation is you set a regular scheduled assessment roughly every two years to make sure you stay aligned with the market,” said Kelly, a partner at GGA.

The committee also reflected on the importance of CalPERS aligning pay, and benchmarking its compensation, with investors with a similar half trillion dollar assets under management.

“Your fund is growing; you want to make sure you are constantly benchmarking against similar-sized organisations,” said Kelly, later adding that alignment helps ensure CalPERS hires people best positioned to understand the size and complexity of the portfolio.  The board also discussed the importance of ensuring the benchmarking process compares CalPERS to other public pension funds and public state agencies, not just the private sector in a blended peer group.

Internal vs external

The committee also heard how, in some cases, internal candidates had been discouraged from applying for positions because of a perception that external candidates are more highly valued. GGA recommended putting in place a fair, transparent and objective assessment that treats external and internal candidates the same.

Moreover, there is a perception that external candidates are hired at the upper end of pay bands while internal hires, coming into new positions from within the fund, tend to sit at lower compensation bands.


Although CalPERS cannot compete with private sector compensation, the pension fund can retain talent by offering a compelling quality of life and purpose in a value-add package. For example, the board heard how New York State Common Retirement Fund has successfully hired a senior investment professional from BlackRock.

“People in the private sector look at these pension funds as an opportunity,” said Kelly.

Board member Theresa Taylor added: “For some, it’s all about the experience of wanting to work in a pension fund for the mission.”


CalPERS is planning to introduce an annual incentive plan that focuses on total fund results for incentive eligible positions. For now, suggestions that incentives incorporate returns of the asset class in which an investment executive works are on hold.

Discussions on the importance of rewarding talent and meritocracy at CalPERS captured some of the challenges in its pay structure. For sure, people shouldn’t be rewarded just because; the organisation needs to ensure everyone gives their all every day and are not keeping their seat warm for guaranteed incentives.

Yet higher levels of pay based on merit opens the potential for large pay differences and disparities between executives and rank and file workers that could lead to attrition among these essential employees.

Last year CalPERS approved a plan to pay its new chief investment officer, Nicole Musicco, annual and long-term incentives as much as 100 per cent to 150 per cent of an annual base salary ($707,500) based on investment performance.

Approved proposals will come to the full board at a later date.



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