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CalPERS committee adopts FY26‑27 incentive metrics tied to total‑portfolio targets; public commenters press for risk measures
Summary
The CalPERS committee approved new FY26‑27 incentive metrics that shift pay‑for‑performance toward a Total Portfolio Approach (TPA) — with a 0 bps threshold, 40 bps target and 80 bps maximum — and approved an updated CEO plan. Public commenters urged adding risk measurement and questioned high CEO payouts.
The California Public Employees' Retirement System (CalPERS) Performance, Talent & Compensation Committee approved updated incentive metrics for fiscal year 26‑27 designed to align executive and investment pay with a new Total Portfolio Approach.
GGA consultant Mr. Landers told the committee the updated design keeps a zero‑basis‑point minimum to begin earning incentives, sets a target at 40 basis points above the new TPA reference portfolio and caps maximum payout at 80 basis points. The plan phases in the TPA benchmark over five years with a grandfathering approach so early measurements remain partly anchored to the previous SAA benchmark. "We've set the target at 40 uh basis points," Landers said when walking through the recommended hurdles.
The change also shifts some weighting toward total fund performance and away from the enterprise operational effectiveness measure; staff described the adjustment as part of a broader move to emphasize total‑fund outcomes under TPA. Wilshire Advisors contributed a supporting analysis. Staff noted that the overall annual incentive budget presented for next year is roughly $43.5 million for annual awards across eligible roles, and that actual payouts have historically been below budgeted amounts (CalPERS staff cited $29.9 million paid last year across programs).
Committee members pressed consultants and staff on whether incentives should explicitly include measures of risk taken to achieve outperformance. "Since our TPA is really centered around allocation of risk and you will see more volatility with this approach, why are we not benchmarking performance on how much risk we're taking as well?" asked one member. Landers and staff said risk‑adjusted measures are not common in initial TPA implementations and warned that adding complex risk metrics can create administrability and transparency challenges; they said staff will review risk options annually and return with proposals if the committee directs it.
Public commenters, including representatives of the Retiree Protection Association, urged more conservative thresholds and stronger linkages between pay and risk. "There is no fiduciarially sound way of evaluating and rewarding investment performance without considering risk," one commenter said, urging the committee to require third‑party verification for stakeholder and customer service metrics used in incentive scoring.
The committee approved the FY26‑27 incentive metrics and later approved the CEO's updated FY26‑27 incentive plan, which reassigns 5 percentage points from an enterprise operational effectiveness metric to increase the CEO's weighting on total fund performance while retaining a 75/25 quantitative/qualitative split.
What happens next: staff will implement the approved metrics in FY26‑27 incentive documents, provide the board with midyear checkpoints and an annual review of how the TPA‑based measures are tracking, and explore options for incorporating risk measurement if the committee directs.
