TEACHERS’ RETIREMENT BOARD
COMPENSATION COMMITTEE
Item Number:
5
SUBJECT: Discussion of Possible Compensation Topics for FY 2017-18
CONSENT:
ATTACHMENT(S): 0
ACTION:
INFORMATION:
DATE OF MEETING: April 6, 2017 / 15 mins
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PRESENTER(S): Melissa Norcia/
PCA/ Meketa/ Global Governance Advisors
PURPOSE
The purpose of this item is to engage the committee in a discussion on the compensation
program’s incentive plan framework for positions under the board’s compensation setting
authority and to seek direction from the committee for a comprehensive evaluation to determine
if changes to the incentive plan design features are warranted.
BACKGROUND
In 2006 and 2007 the board reviewed its compensation program, and adopted its policy for
positions under its compensation setting authority. Since that time, the committee has
intermittently revised or adopted incentive performance criteria, measures and
quantitative/qualitative weightings on an as needed basis or when new positions or new asset
classes/functions have been established. However, the last comprehensive review of the
incentive plan framework was conducted in 2009.
DISCUSSION
In accordance with the board’s compensation policy, CalSTRS incentive plan is intended to:
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Reinforce the System’s investment, governance and compensation philosophies and
objectives.
Help CalSTRS attract, motivate, and retain top-performing executives and investment
staff.
Align incentive payouts with overall System, functional area, and individual
performance.
Focus staff on key investment objectives/benchmarks that are measured on a long-term
basis.
In various meetings of the Investments and Compensation Committees, investment consultants
from Pension Consulting Alliance (PCA) and Meketa have expressed their concerns with the
current incentive plan design and the need to better align the program to meet investment
objectives. Specific examples of recommendations include a review of investment benchmarks
that appropriately measure and incentivize performance on a long-term basis, quantitative and
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Compensation Committee Meeting – Item 5
April 6, 2017
Page 2
qualitative weightings that reflect a position’s role and accountabilities of investment results, and
the need for a comprehensive review considering the last review was conducted in 2009.
The labor market analysis prepared by McLagan Partners, included in today’s agenda item # 3,
presented findings that CalSTRS total rewards market position (base salary + annual incentive +
long-term incentives + retirement and health benefits) is well below the competitive market.
This is due, primarily to long-term incentive awards offered within the peer group, further
supporting the need for a comprehensive incentive design review.
For the analysis the committee may wish to consider the following incentive plan design features
in the review:
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Quantitative performance components, including Total Fund and Asset
Class/Function performance benchmarks, and weightings
Qualitative performance components and weightings
Incentive opportunity levels
Competitive compensation mix of base, short-term and long-term incentives
Consultants from Global Governance Advisors (GGA), PCA, and Meketa are in attendance to
answer any questions from the committee.
NEXT STEPS
Staff is seeking direction from the committee on a comprehensive review of the incentive plan’s
framework.
Should the committee choose to conduct a comprehensive review, staff recommends engaging
the services of GGA, the committee’s primary strategist, to lead the review, and to place the item
on the committee’s FY 2017-18 work plan.
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