SACRAMENTO, Calif. - CalPERS' chief investment officer could rake in $437,500 under a new pay plan.
That's believed to be the highest total compensation of any public pension fund CIO, double what most large public fund investment chiefs earn, and 75% more than the top pay for any previous chief investment officer of the $118 billion California Public Employees' Retirement System.
But the new salary isn't close to what investment chiefs earn at big corporate pension funds with in-house investment management operations.
Nicholas Crispi, president of executive recruiter Crispi, Wagner & Co., New York, said corporate fund CIOs can earn $1 million and higher.
"It's absolutely peanuts," Mr. Crispi said of the CalPERS salary.
It may be peanuts, but CalPERS trustees decided to change the pay structure to better compete with financial services firms for investment professionals.
With its new plan, CalPERS breaks the mold of public funds.
Some 75% of CIO Sheryl Pressler's performance evaluation now will be based on meeting or exceeding investment benchmarks; the rest will be based on qualitative factors.
CalPERS' board members on June 18 approved the first incentive payments under their new plan - $296,434 for four top investment officers and three administrative officers.
Ms. Pressler got a base salary raise to $198,450 from $183,750 and incentive pay of $52,822 for the last 18 months of service; previously, she got no incentive pay.
She could do even better in the future, an internal backtesting of the quantitative factors used to determine incentive pay shows.
Ms. Pressler received the incentive pay for bringing an additional $2 billion to the fund through her personal recommendations, including increasing the equity allocation, said fund spokeswoman Pat Macht.
Other incentive bonuses were: $112,000 for David Gilbert, senior investment officer for real estate; $35,932 for Barry J. Gonder, senior investment officer for alternative investments; $28,125 for Robert Boldt, senior investment officer for public markets; and $31,250 for Ron Seeling, the chief actuary.
The old pay range for the three senior investment officers was $125,000 to $160,000. Now, with incentives, total compensation will range from $218,750 to $280,000.
The new base pay for the CIO is $185,000 to $250,000.
The CIO's incentive amount depends in part on the base pay. At a base salary of $185,000, the investment chief could receive a maximum of $323,750 if target goals are exceeded, and $277,500 if they are met.
The "very top end" annual salary for CIOs of large state funds is about $250,000, said Glenn M. Buggy, a consultant with executive recruiter Russell Reynolds Associates Inc., New York. Salaries for some large funds range from $200,000 to $230,000 per year, with bonuses never more than 10% to 15%, said Mr. Buggy.
The pay for investment talent "is not even close to what is offered in the private sector," said Mr. Buggy.
CIOs of mutual fund companies earn "five to 10 times" what Ms. Pressler can make, said Crispi, Wagner's Mr. Crispi said.
By contrast, the CIO of the $76 billion New York State & Local Retirement Systems makes $107,000 a year, with no incentive, according to a spokesman. The CIO of the $68 billion Florida State Board of Administration makes $150,000 a year with no incentive, said a spokeswoman.
At California's other jumbo state pension fund, the $68 billion California State Teachers' Retirement System, Sacramento, the CIO's base pay ranges from $185,000 to $230,000, with additional incentive pay for good performance of 10%.
But California state Controller Kathleen Connell has called the new CalPERS pay plan "offensive." She said the CIO could be the highest paid public employee in the country.
With CalPERS' performance falling into the third quartile, Ms. Connell said, bonuses shouldn't be given for poor performance.
Chuck Valdes, chairman of the CalPERS investment committee, said the pay plan was needed to compete with the private sector for talent. Because CalPERS has offered low salaries, most candidates for top jobs come from other government pension plans, he said.
Even with the salary increases, the new pay plan offers compensation far below Wall Street salaries, said Mr. Valdes. The system's new salary range for top investment officials is at the lower half of banking and insurance company salary ranges for investment executives, Mr. Valdes said.
Top investment officials of banks and insurance companies with more than $15 billion in assets received a median total compensation of $450,000 annually, of which $301,000 was the median base salary, according to an insurance industry survey.
Under CalPERS' new system, the CIO would need to score 150% over the target rate of investment return for any one year to get the highest incentive pay.
A test of how the system might work using only quantitative factors showed Ms. Pressler scored 112.6% in 1996 and 133.7% in 1995.
Incentive pay for CEO James E. Burton is still to be decided.
Under the new plan, the base salary range for the chief executive officer moves to $110,000 to $140,000 from $100,000 to $110,000. With maximum incentive pay, the total compensation range could be $143,000 to $182,000, depending on the base pay level.
If paid the maximum salary, the CEO would be the highest paid among state pension funds checked by the California Public Employees' fund.
Second only to CalPERS, the salary range of the CEO for the Teacher Retirement System of Texas salary is $102,000 to $157,500, according to CalPERS. The lowest pay was the CEO at the New Jersey State Division of Investment, at $89,250.
No similar sample was available from CalPERS for CIO.
Base salary for the deputy executive officer was unchanged at $105,000 to $120,000. But incentives could boost total compensation to $136,500 to $156,000.
The salary of the chief actuary remains at $120,000 to $150,000. The maximum incentive range is $156,000 to $195,000, and the target $144,000 to $180,000.
In criticizing the pay plan, Ms. Connell said public employees haven't had a salary increase in more than two years. She said the pay plan calls for potential salary increases ranging up to 98% of current levels.
But even with the new incentive plan, the private market can afford to pay much more than the California fund, said Mr. Valdes.
When CalPERS recently tried to hire some senior investment officers, it found it difficult to attract people.
"I can't tell you how many people (from the private sector) asked about the salaries. When I told them the range, they said 'That is nowhere near adequate,'*" said Mr. Valdes.
With a $113 billion pension plan to run, CalPERS should be willing to be at least competitive to attract the best talent. While the fund will have to spend more money on salaries, it could gain millions of additional dollars in return, he said.
Mr. Valdes complained CalPERS also is losing its lower-level in-house investment staff to the private sector, which offers double the pay. Employees frequently take off soon after being trained by the fund, he said.
With the stock market rising, recruiting has become difficult even for money managers, said Mr. Buggy.
Money management firms are "clamoring for talent and that will make it more difficult for state pension funds to find people," he said.