The board also changed the performance matrix used to give certain high-level executive and investment staff raises. CalPERS' new matrix reduces the percentage increases for the best performers with an "exceptional" rating offering a 5% salary increase from 7%, and "consistently exceeds expectations" providing a 4% boost from 5%. The raise for "fully meeting standards" is 3%, the same as meeting standards under the old matrix; a new category to be called "inconsistently meeting expectations" can be awarded a 2% raise; and an assessment of "does not meet expectations" is zero.
The majority of the employees tended to fall in the top two levels, "which is why we wanted to bring everyone back to what a normal distribution in any organization, high-performing or not, should be," Brad Kelly, GGA partner told the board
GGA executives said that the median raise in North America is expected to rise to 3% in 2022, he said. Typically, the majority of employees — 60% to 70% —hit their target of meeting expectations, with "a nice distribution above and below," Mr. Kelly said. "The cream of the crop," 25% to 30% of an organization's staff, will exceed or far exceed expectations and 5% to 10% will be low performers, he said.
"We know bringing people back down the fully meets expectations can be a psychological shift. It is not going to be easy," he said.
The idea behind the changes is to place more emphasis on incentives than on base salaries to make CalPERS a "performance culture," Mr. Kelly said.
"We think this is a sustainable way of managing compensation," he said. "We want there to be more of a focus on incentive opportunities both in the short term and long term so there is a focus on achieving those objectives, getting the returns for your fund."