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CalPERS committee tweaks 2025–26 incentive metrics, raises total‑fund hurdle
Summary
CalPERS Performance, Compensation and Talent Management Committee approved modest changes to fiscal year 2025–26 incentive metrics — increasing the total‑fund performance hurdle and adjusting the enterprise operational effectiveness thresholds — and confirmed a rolling five‑year measurement for new incentive‑eligible staff.
The California Public Employees’ Retirement System's Performance, Compensation and Talent Management Committee on June 18 approved modest changes to the fiscal year 2025–26 incentive metrics and related compensation policy updates, including a higher performance hurdle for the total‑fund metric and tighter ranges for an enterprise operational effectiveness measure.
The measures were presented by GGA Global Governance Advisors and carried on a committee motion to adopt the consultant’s recommendations. Michelle Tucker, CalPERS staff, said the changes reflect GGA’s review and the committee’s input from April 2025.
GGA told the committee it recommended raising the total‑fund investment performance hurdles (previously 0/5/10 basis points) to a higher set of thresholds, described in the presentation as moving toward 0/10/20 (an increase in performance expectations). The consultant also recommended adjusting the enterprise operational effectiveness metric by raising the minimum threshold (so the minimum for any payout is harder to reach) and lowering the top‑end maximum so the metric’s payout curve is narrower and more discriminating.
GGA said the changes were intended as “tweaks” rather than a wholesale redesign while the board considers a possible transition to a total portfolio approach. The firm also recommended that when an employee becomes incentive‑eligible — whether newly hired or promoted — that person’s investment performance be measured on the same rolling five‑year basis as incumbents, rather than be grandfathered to shorter performance windows.
Public commenters raised concerns about incentive design. JJ Jalencik of RPEA criticized the size of senior executive bonuses and urged risk‑adjusted metrics that would not reward higher risk taking. Elnora Fretwell, a state retiree, requested clarification on prorating for employees who join midyear; staff clarified that awards are prorated if a team member starts prior to six months into the plan year, and otherwise no award is paid for that year.
Committee members discussed the recommendations in the context of the possible adoption of a total portfolio approach later this year; GGA and staff said more material design changes would be appropriate should the board adopt that investment approach. The committee voted to adopt the changes as recommended by the consultant.
The committee’s action will flow into the board policy documents and the incentive plan documents for eligible executive and investment management positions, including the CEO’s plan, which the committee addressed separately during the meeting.
