FROM: Debby Cherney, Chief Executive Officer
SUBJECT: Investment Team Incentive Compensation
RECOMMENDATION:
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Recommend to the Board an updated framework for Investment Officer incentive compensation, effective with FY 2025-26.
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BACKGROUND:
At its April 2, 2015 meeting, the Board approved the 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.
The Current Incentive Compensation Plan Framework:
On June 20, 2024, the Executive Committee reviewed the existing Incentive Compensation Plan. The Chief Investment Officer has a target 50% incentive compensation, the Senior Investment Officers have a target 30% incentive compensation, and if the Investment Officer position were filled, they would have a target 20% incentive compensation. A copy of the current rubric for the incentive compensation for each of those classifications is attached as Exhibit A.
Each award has quantitative elements:
1. Fund Performance
a. Excess return over policy benchmark - a straightforward measure of our fiscal year rate of return (net) vs. the policy index approved by the Board.
b. Absolute return over the stated return - the stated return is currently SBCERA's assumed rate of 7.25%.
2. Risk Components
a. Alpha generation
b. Sharpe ratio
3. Relative Performance to median public fund universe
a. Risk
b. Return
In addition, each award also has qualitative elements. Among the considerations are:
1. Overall performance evaluation
2. Department management (where relevant)
3. Cohesion with management team
4. Executive of strategic plan and priorities
5. Execution and monitoring of policy
6. Activity and performance in industry groups, representing SBCERA at industry events as a speaker or panelist
7. Learning and growth
8. Board and Committee inte...
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