The California Public Employees’ Retirement System, the largest pension in the U.S., reduced bonuses 12 percent for investment officers after stocks dragged down returns. Most also went without pay raises.
The pension distributed $3.6 million in performance bonuses among 55 investment officers, down from $4.1 million last year, according to Calpers data. The sums are based on investment results over three years, including a 1 percent return last year and 21.7 percent a year earlier. Chief Investment Officer Joe Dear was granted $87,750.
“The performance awards are based on multiple years of performance and we are a long-term investor, and that’s what we are trying to incentivize,” said Brad Pacheco, a Calpers spokesman. “For us to keep highly skilled investment managers to run this fund, we have to be competitive and these awards are part of that compensation.”
Volatility in capital markets has caused swings in the $244.5 billion pension fund’s returns while it assumes it will earn 7.5 percent annually to meet projected obligations. When it underperforms, the state and its municipalities must make up the difference. Calpers has earned 7.7 percent over the last 20 years.
The average Wall Street bonus fell 13 percent to $121,150 in 2011, the lowest since 2008, and down almost 40 percent from a peak of $191,360 in 2006, according to estimates by New York state Comptroller Thomas DiNapoli in February.
“The one-year shortfall is within the expected range of returns for a portfolio like Calpers,” Dear said in a statement. “The incentive payments are based on three-year performance of 10.6 percent. Global equity and fixed income, comprising 70 percent of the portfolio, beat their three-year benchmarks, adding $1.6 billion of value, so it is appropriate to compensate the portfolio managers for their success.”
The biggest bonus went to Arnie Phillips, a senior fixed-income portfolio manager, who was awarded $152,608, Pacheco said.
Calpers spends $40 million a year on compensation and benefits for investment staff, compared with $44 million for consultants and $1 billion on external managers. Using internal management saves an estimated $114 million annually that would have been paid to Wall Street in fees, Pacheco said.
Calpers froze wages this year for its executive staff and all but 11 of the investment officers. Rank-and-file employees still received merit raises.
“Now is not the time to be granting raises, given the current fiscal challenges facing our state and local governments,” Pacheco said.
Dear earned $522,594 in calendar year 2011 including bonus, according to data provided by the state’s controller. He’s one of 174 employees from the fund who were paid more than $100,000 last year. The pension system paid out a total of $167 million in wages, the controller’s data shows.