BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 125 (Wieckowski) - CalSTRS: Executive Positions
Amended: May 24, 2013 Policy Vote: PE&R 5-0
Urgency: No Mandate: No
Hearing Date: August 30, 2013
Consultant: Maureen Ortiz
SUSPENSE FILE.
Bill Summary: AB 125 authorizes CalSTRS to fix the compensation,
terms and conditions of employment for the two positions of
Chief Operating Officer, and Chief Financial Officer. The bill
limits the salary for each of these positions to 110 percent of
the maximum salary payable to an investment director of the
pension system.
Fiscal Impact:
Potentially up to $250,000 for increased salaries dependent
on the compensation packages developed (Special Fund)
Minor costs to compile savings information for the annual
report (Special Fund)
The total cost of the salary increases would be approximately
$148,000 annually if the individuals were paid a mid-salary
range.
Background: Existing law authorizes CalSTRS and CalPERS to set
compensation packages independent of the civil service
classification system for other key positions including Chief
Executive Officer, System Actuary, Chief Investment Officer and
General Counsel. CalPERS also has the statutory authority to
set the salary for its Chief Financial Officer without
limitations.
Existing law restricts the salary and benefit packages that can
be provided to the Chief Operating Officer (COO), and Chief
Financial Officer (CFO) at CalSTRS to existing classification
levels within the state civil service system. The current salary
cap for the CFO is $117,120, and the salary cap for COO is
AB 125 (Wieckowski)
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$130,032, while the current compensation paid is $113,712 for
the CFO and $114,528 for the COO. This limitation constrains the
ability of CalSTRS to recruit highly qualified candidates with
financial expertise relating to risks and investments.
Individuals for these positions are not readily available within
the state civil service system but do very likely exist in the
private sector within other pension funds or at private sector
financial institutions. These high level positions require
essential depth and breadth of specialized knowledge, skills,
abilities and competencies since individuals in these positions
are responsible for overseeing and leading vital operational,
administrative, and financial activities of the pension system.
The Chief Operating Officer is charged with leading all of the
operational and administrative functions at CalSTRS and has
immense accountability for the management of risk. The Chief
Financial Officer is responsible for leading all financial
activities which include pension financial accounting and
analysis, investment analysis and all financial system
activities. Both positions require specialized knowledge,
skills and competencies in order to effectively carry out the
complex duties of the positions, as well as being potential
successors to the position of Chief Executive Officer.
Proposed Law: AB 125 authorizes CalSTRS to fix the compensation
for the positions of Chief Operating Officer and Chief Financial
Officer consistent with its fiduciary responsibility to its
members to recruit and retain highly qualified and effective
employees for these positions. The bill limits each salary for
these two positions to 110 percent of the maximum salary payable
to an investment director at CalSTRS, thereby, allowing the new
salaries to be as high as $264,000 annually.
Additionally, AB 125 requires the CalSTRS Board of Directors to
report to the fiscal committees of the Legislature twelve months
after filling either position relating to the improvements and
cost savings realized because of these new positions, including
savings resulting from reduced contracting and the greater use
of internal resources. This report must be continued annually
thereafter.
Related Legislation: This bill is similar to AB 1735
(Wieckowski) which was held on this committee's Suspense File
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last year. That bill limited the compensation for these two
positions to 150 percent of the Governor's salary.
Staff Comments: AB 125 will give the CalSTRS board the
authority to recruit from external sources, thereby gaining
access to a larger and more highly qualified candidate pool.
The most recent independent audit of CalSTRS' financial
statements identified significant risk surrounding internal
controls and material weaknesses in financial reporting. The
current COO and CFO are the senior management most responsible
for managing these areas of risk. In response to the audit,
CalSTRS completed an organizational assessment that benchmarked
organizational structures and positions with the essential
competencies needed to manage the increasingly complex fiscal
and risk management issues related to public pension funds. The
assessment identified the need to create new CFO and COO
positions that would facilitate risk mitigation strategies in a
new reporting structure with additional responsibilities and
intensified standards of financial and operational
accountability.
AB 125 does not require the creation of any additional personnel
years (PY) for the positions. The existing positions of COO and
CFO have been enhanced to incorporate additional
responsibilities and duties determined necessary for risk
mitigation and for managing the exceptionally and continually
increasingly complex administrative and operational activities
related to public pension funds. The additional
responsibilities and required capabilities that have been added
to the positions are in response to an independent audit that
identified significant risk surrounding internal controls, as
well as in response to the findings and recommendations from a
recently conducted organizational assessment.
In addition to the realigned and additional responsibilities,
the CFO position now has an elevated reporting structure, with a
direct reporting relationship to the CEO. The COO position is
second in line to the CEO, has been restructured to include
additional and broader organizational and operational oversight
responsibilities, and would serve as the CEO in his or her
absence. For these reasons, the positions of COO and CFO are
referred to as new positions. Current incumbents would be
required to reapply and competitively compete with other
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candidates for the positions should this measure become enacted.
While this bill authorizes the COO and CFO to be set as high as
110% of the maximum salary payable to an investment director at
CalSTRS, the board uses a comparator group of salary ranges when
fixing the salary and compensation of its investment and
administrative staff. According to recent comparator group
salary ranges, it is more likely that the board will set the
maximum salaries for COO and CFO between $225,000 and $242,000 -
not the $264,000 that would be allowable under this bill.