CalPERS board voted Tuesday to add a long-term incentive plan to the compensation package for its chief investment officer position, starting with the 2022 fiscal year, as it prepares to restart its recruitment process in June.
The CIO position has been vacant at the $460.8 billion California Public Employees' Retirement System, Sacramento, since August, when former CIO Yu "Ben" Meng resigned. In March, CalPERS suspended its search without making an offer. CalPERS could resume the search in June.
Under the new plan, the CIO's base pay range would remain the same at $424,500 to $707,500, but the CIO could earn an additional 100% to 150% of pay should the fund earn its 7% or higher compound annual growth rate or more over five years.
All other investment management positions within the investment office participate in a long-term incentive plan. The CIO position already has an annual incentive plan.
At "maximum" performance, with CalPERS earning an 8.4% compound annual growth rate over five years, the long-term incentive plan could pay more than $1 million.
Should the next CIO earn the maximum salary, annual incentive and long-term incentive, he or she could earn about $2.8 million, compared to a maximum of $1.8 million under the former total compensation package, according to a report by the board's new compensation consultant, Global Governance Advisors. The consultant presented the report, to the performance, compensation and talent management committee meeting Monday. The midpoint of total compensation would amount to about $1.7 million, including the new long-term incentive plan, up from $1.1 million, Global Governance Advisors' report showed.
Separately, the committee is expected at its June meeting to revisit its annual incentive award metrics. As part of an annual review of the annual incentive plan award metrics, GGA recommended that CalPERS switch to metrics with a higher weighting to quantitative, compared with, qualitative measures, according to another GGA report Monday to the compensation committee. The second GGA report found that the quantitative weighting is below market for the CIO, chief operating investment officer, all investment management positions and all division chief positions at CalPERS. The decision isn't tied to the CIO recruitment, in that metrics already exist for the annual incentive plan.
Separately, CalPERS reported it earned 25.5% for the year, 9.6% for the five years, 8.1% for the 10 years and 6.8% for the 20 years ended March 31. By comparison, CalPERS earned 4.7% for fiscal year 2020.
Also at Tuesday's meeting, CalPERS' board approved the fiscal year 2022 budget of $1.9 billion, a 16.5% increase from the prior fiscal year. The increase is due in part to fees for external investment management and an increase in assets under management.
External investment management fees are expected to jump 111.1% in fiscal 2022, when including performance fees, and 15% year-over-year without them. The increase is driven by global equities, private equity and opportunistic strategies. Global equity fees are expected to increase 30.8% based on market-driven assumptions of increased AUM among other things, the budget proposal shows. Some 80% of CalPERS' $232.8 billion equity portfolio is managed in-house.
Interim CIO Dan Bienvenue told the finance and administration committee that in global equity performance fees are paid for outperformance relative to a benchmark. He said that in the global equity portfolio, performance of external equity managers has "been very strong."
CalPERS' equity portfolio earned 0.6% net return, outperforming its benchmark by 21 basis points for the fiscal year ended June 30. Public equities returned an annualized 6% for the three years, 10 basis points under its benchmark; 6.6% for the five years, 4 basis points above its benchmark; and 9.7% for the 20 years, a 20 basis-point outperformance.
