If CalPERS beats earnings targets, its next investment chief could take home $2.4 million
The maximum possible compensation for California state government’s highest-paid employee could increase significantly under a proposal CalPERS is considering.
The state pension system, valued at nearly $420 billion as of Monday, is considering the change as it searches for a new chief investment officer following the abrupt departure of former CIO Ben Meng two months ago.
Under the proposal, the next investment chief could earn up to $2.4 million in salary and incentives — up from a maximum of about $1.8 million under the current pay structure.
A chief investment officer would only be able to reach the maximum if “CalPERS’ performance far exceeds the performance of its peers and the overall market” over a five-year period, according to an analysis from consultant Grant Thornton.
The change would add long-term incentives while reducing short-term incentives. The proposal would keep the base annual salary range for the position the same, at between $424,500 and $707,500.
CalPERS made similar changes to compensation packages for the rest of its investment officers in 2019, and added long-term incentives for the chief executive officer in June.
The change would “position the CIO as the role with the highest target total compensation package in the investment office,” according to the analysis.
The change comes amid what CalPERS board members expect to be a tough search for a replacement for Meng, who earned $1.5 million in salary and incentives last year. Board members have said the job pays less than some similar roles at private companies, plus it comes with intense public scrutiny and the need to move to Sacramento.
Meng abruptly resigned in August after someone filed an anonymous complaint with the Fair Political Practices Commission raising concerns about his personal investments in a firm which CalPERS invested in under his direction.
The CalPERS board has expressed support for a proposal that would require its next chief investment officer to unload personal investments or place them into a blind trust, which could also affect recruitment.
The position’s midpoint salary of $566,000 represents the 75th percentile of market averages for similar positions, according to the analysis.
Generally, CalPERS aims to pay its employees between the 50th and 75th percentile of market averages, according to the analysis.
The maximum possible salary would be 14% above the 75th percentile ceiling in that range, but the Grant Thornton analysts said they weren’t concerned by that given how well the fund would have to perform to reach that benchmark.
To reach the maximum long-term incentive, the fund would have to achieve compound annual growth rate returns of 8.4% over five years, according to the analysis. The fund’s annual return target is 7%, a goal it has missed the last two fiscal years.