CalPERS and CalSTRS rethinking bonuses

"CalPERS and CalSTRS have been at the forefront of the shareholders' governance movement, raising tough questions about excessive executive compensation and other issues in recent years. Now they need to answer some tough questions of their own. As governments cut vital services and trim salaries and lay off workers, the millions in bonuses paid out to retirement fund executives are difficult to defend."

Editorial: Pension funds go tone-deaf on bonuses

sacbee.com, Apr. 23, 2009

The California Public Employees' Retirement System, CalPERS, and the California State Teachers Retirement System, CalSTRS, have already put state and local governments and school districts on notice. Public employer contributions to pension funds will rise by 2 to 5 percent of payroll over the next two years. That's a huge increase. It amounts to millions of dollars in increased costs from some local governments and billions more from the state annually, beginning next year.

The new higher retirement bills come due just as local and state governments are reeling from the economic downturn. And yet at the same time the retirement funds are demanding more from government employers, they are awarding big bonuses to their top executives, the same people who made the investment decisions and the earnings projections that turned out to be so wrong.

Together, CalPERS and CalSTRS have lost more than $100 billion in assets over the past 18 months. Nonetheless, they paid out nearly $7 million in bonuses to top employees last year. As The Bee's Jon Ortiz reported in a recent article, the biggest check, $322,953, went to Christopher Ailman, chief investment officer for CalSTRS. It almost doubled his $330,000 annual salary.

Webster's New World Dictionary defines bonus as "payment over and above salary given to an employee as an incentive or reward." What exactly is being rewarded here? Representatives for the retirement funds defend the bonuses, arguing that they are needed to attract top-flight talent. The public and local governments that will struggle to pay those bonuses have reason to be skeptical.

CalPERS and CalSTRS have been at the forefront of the shareholders' governance movement, raising tough questions about excessive executive compensation and other issues in recent years. Now they need to answer some tough questions of their own. As governments cut vital services and trim salaries and lay off workers, the millions in bonuses paid out to retirement fund executives are difficult to defend.