The board of the $201.9 billion California Public Employees' Retirement System, Sacramento, adopted a new policy that will allow it to reduce incentive awards or bonus payments to investment staff in years when the pension fund loses money.
In an interview Thursday, California State Controller John Chiang, a key advocate of the change and a member of the board, said the vote sends the right message.
“Our compensation policies must be fair, but good governance policies require bonuses to reflect the performance of the fund, especially during times of extraordinary market loss,” he said.
CalPERS lost 24% on its investments in the fiscal year ended June 30, 2009, but still paid almost $3 million in bonuses to 110 employees.
Mr. Chiang said it would be up to the board to determine whether bonuses would be deferred, reduced or permanently stripped in any particular year the system has negative performance.
Mercer, hired to review CalPERS' compensation system, had recommended reducing or eliminating bonuses during years of negative performance. But the consultant also recommended increasing bonuses during years that the fund exceeded projections.
The plan adopted by the board Wednesday does not allow the bonuses to become higher in good years.
Separately, at Wednesday's meeting, the board appointed Alan W. Milligan as the pension fund's chief actuary.
Mr. Milligan was deputy chief actuary and had been serving as the interim chief actuary since the retirement of Ron Seeling in March. He joined CalPERS in 2001.