The $200 billion California Public Employees’ Retirement System (CalPERS) has hired Mercer Consulting review the investment office incentive compensation program, a design set up in 1997 under the guidance of the board’s compensation consultant Watson Wyatt.
The appointment of Mercer, designed to give a new perspective, follows a directive to staff in May to review the existing incentive compensation program and propose modifications to simplify it.
The redesign project will include reviewing CalPER’s current compensation plan as well as analyzing incentive compensation practices in relevant sectors such as other pension funds, endowments, and asset management firms. Mercer will then design a new incentive program and discuss it with the key stakeholders at CalPERS, including the head of the human resources chief Chris O’Brien.
Mercer has begun the process of individual interviews and has interviewed the CIO, senior investment officers, human resources and policy business support divisions. It recommends it has access to select board members and relevant senior management, with the estimated completion date the end of March 2010.
In assessing compensation programs against the market Mercer will review the size and complexity of the operations, assets under management, internally versus externally managed funds; the individual scope and responsibility of each position, and the relative market competition.
Mercer highlighted some of the challenges that CalPERS, and other organizations face, including:
Attracting high visibility and scrutiny as a large, public entity;
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;
Attracting and retaining high calibre investment professionals to the non-Wall Street investment community;
Providing creative alternatives for compensation investment professionals that are fair, competitive and reasonable; and Simplifying investment compensation strategies to promote transparency.
Nanci Hibschman, principal in the human capital business of Mercer’s San Fransisco office, is the lead compensation consultant, and Louis Finney, principal in Mercer Investment Consulting’s Chicago office is the lead investment consultant.