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CalPERS Adopts Chiang’s Bonus Pay Proposal

SACRAMENTO – State Controller John Chiang today voted with the rest of the California Public Employees’ Retirement System (CalPERS) governing board to provide discretion to the board to reduce incentive awards, or bonus payments, to staff in years when the pension fund loses money.

“It is counter-intuitive to pay bonuses when the pension fund performs poorly and taxpayers are on the hook to cover the loss,” said Chiang.  “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.”

Last September, Controller Chiang urged the Board’s Performance and Compensation Committee to create a plan that increased Board discretion over staff bonuses by allowing them to reduce or eliminate bonuses during lean years.  The Committee ordered CalPERS’ consulting firm, Mercer, to review the fund’s policies and develop recommendations for a new compensation system.  But while the firm recommended allowing the Board to reduce or eliminate bonuses during poor-performance years, it also recommended giving the Board the authority to increase compensation above and beyond the bonuses already scheduled for years that the fund significantly exceeds performance expectations.  The Controller strongly opposed those recommendations in a May 17 letter to compensation chair Patricia Clarey.

The Board’s action today follows the Controller’s original proposal by giving the CalPERS Board the ability to directly reduce or eliminate bonus payments during years with negative returns.

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