FROM: Debby Cherney, Chief Executive Officer
SUBJECT: Investment Team Incentive Compensation
RECOMMENDATION:
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Approve the addition of the Deputy Chief Investment Officer to the updated framework for Investment Officer incentive compensation, effective with FY 2025-26.
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BACKGROUND:
Since 2015, SBCERA approved and implemented an Incentive Compensation Plan which included the Chief Investment Officer (CIO) and Senior Investment Officer (SIO) positions as eligible for this compensation. On May 5, 2022, the Board extended the Incentive Compensation Plan to the Investment Officer (IO) classification. At its July 2025 meeting, the Board approved the addition of the Associate Investment Officer to the framework.
The Current Incentive Compensation Plan Framework:
The Chief Investment Officer has a target 50% incentive compensation, the Senior Investment Officers have a target 30% incentive compensation, the Investment Officers have a target of 20% and the Associate Investment Officers have a target of 12% incentive compensation.
Each award has quantitative elements:
1. Fund Performance
a) Excess return over policy benchmark - a straightforward measure of how well staff executes versus the policy benchmark using the formula of our fiscal year rate of return (net) vs. the policy index approved by the Board.
b) Absolute return over the stated return - how well the plan executes the mission of achieving the stated return which is currently SBCERA's assumed rate of 7.25%.
2. Risk Components
a) Alpha generation - How well staff executes versus policy
benchmark.
b) Sharpe ratio - Absolute return focus.
3. Peer Comparison
a) Risk
b) Return
c) Median with investment consultant universe metrics for Sharpe ratio and Alpha
4. SBCERA Implementation Benchmark
a) The Implementation Benchmark is calculated quarterly by NEPC and is based on a weighted average of the returns obtained from representative universes of asset classes in SBCERA's investment ...
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