Some public pension plans are giving their chief investment officers a raise.
These pension boards are increasing base pay or, more often, sweetening incentive pay as a way to keep the executives in place, or attract new talent should an opening occur.
In recent months, the $354.7 billion California Public Employees' Retirement System approved paying its next chief investment officer as much as 64% more in combined annual base pay and potential bonus. The move came one month after current CIO Theodore "Ted" Eliopoulos announced plans to step down by the end of this year. And Boston-based Massachusetts Pension Reserves Investment Management Board in November gave its CIO a 9.3% raise that started Dec. 1, plus his full bonus based on pension plan performance.
CalPERS in 1997 was one of the first U.S. public funds to implement incentive pay for its CIO based on meeting or exceeding investment benchmarks. Today, about half of U.S. public plans offer incentive pay to their CIOs, a practice that's stepped up in recent years, industry sources said.
"Historically there has been a significant percentage of public pension plans that have not paid incentive compensation; they have been base salary only," said Renee Neri, New York-based partner and head of asset management Americas at Heidrick & Struggles International Inc., an executive search firm. "But we're starting to see an increase in the incentive-based compensation." The bonuses are tied to meeting or exceeding benchmarks set by the board or some other metric.
Still, even with incentive pay, public pension plan CIOs make a fraction of what they could make at a corporate pension fund, endowment, foundation or money management firm.
A big reason to increase compensation and incentive pay is the ability attract talent, Ms. said.
At Sacramento-based CalPERS, the board agreed in June to increase compensation for its next CIO to a range of $424,500 to $707,500 per year, in addition to incentives up to 150% of salary. That would amount to a maximum of $1.8 million annually.
According to an analysis by CalPERS' executive compensation consultant Grant Thornton LLP, the median salary range for CIOs in its comparison group is $396,000 to $594,000 with a $495,000 midpoint; CIO salaries in the 75th percentile are $452,800 to $679,200 with a $566,000 midpoint.
The board also gave CalPERS' CEO the authority to select an incentive target for the CIO, which was 50% of salary before the raise.
Mr. Eliopoulos' salary range is $408,000 to $612,000, with an incentive of up to 75% of salary for a maximum of $1.1 million a year.
For fiscal 2017, Mr. Eliopoulos' bonus was $314,305, about 45% of his base pay. Awards for the 2018 fiscal year will not be announced until September.