Although P&I's Nov. 26 editorial, "Inadequate model," makes some valid points regarding the need for higher pay for investment managers at CalPERS, the last few lines appear to blame Kathleen Connell for their problems. Ms. Connell's lawsuit simply sought to have the CalPERS board obey the law. P&I does no favor to members of CalPERS, California taxpayers or the financial community by criticizing such actions.
CalPERS is a great advocate of good corporate governance, including transparency and compliance with the law. Yet, when the board violates California laws and obfuscates their activities, the financial press seems all too willing to accept the board's spin that such actions were necessary to meet fiduciary duties.
Here's the real story. CalPERS board members wanted a raise, but their reimbursement is clearly set in statute. Rather than sponsor legislation, they argued that Proposition 162, which gave the board independent authority to protect the fund from political raids, allows them to ignore statutory pay limits because such limits interfere with the performance of fiduciary duties.
The board argued that only higher pay was needed to attract competent board candidates. However, at about the same time they also voted for election rules that would have made it nearly impossible to unseat an incumbent. According to an editorial in the Sacramento Bee, their proposed rules risked creation of "a permanent board: unaccountable, untouchable and isolated from the people who elect it."
Fortunately, CalPERS members were able to head off that action, but the salary increases went through. When the board members raised their own pay they provided cover by also raising the salaries of a few investment managers. The strategy worked: The financial press has not focused on the board's own raises at all.
While its true that CalPERS needs to pay its money managers more if it is to continue to attract top talent, the same is true for CalSTRS and the treasurer's office. The same is true for many job classifications in state service. CalPERS isn't unique.
Ms. Connell should be praised, not censured, for upholding the law. Retirement boards should be able to plan ahead and go through the normal legal process to raise salaries as needed. Most importantly, they should not place themselves above the law.
Elk Grove, Calif.
Editor's note: The editorial called for the intervention of the Legislature to remedy the matter if necessary and for a review of other state departments to determine if salaries of their staffs need to be made more competitive as well.