BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 736 (Cooley) - State teachers' retirement: executive
positions
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|Version: May 10, 2016 |Policy Vote: P.E. & R. 5 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: June 27, 2016 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 736 would (1) authorize the Teachers' Retirement
Board (TRB) to set the compensation, terms and conditions of
employment for one chief operating officer (COO) and the chief
financial officer (CFO) of the California State Teachers'
Retirement System's (CalSTRS) by exempting those positions from
statutory civil service provisions, as specified, and (2) modify
the list of key employees who may not represent private
interests before TRB for two years after leaving CalSTRS
employment.
Fiscal
Impact: This bill would result in increased annual salary costs
to CalSTRS of up to $189,300, excluding cost of living
adjustments (See Staff Comments). The actual amount of the
increase would depend on future hiring decisions by TRB.
AB 736 (Cooley) Page 1 of
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Background: Under current law, the Department of Human Resources sets
salary ranges for Career Executive Assignment (CEA) positions.
However, the current ranges are set at lower levels than what
qualified COO and CFO candidates can obtain from other similar
financial institutions, thereby constraining CalSTRS' ability to
recruit, hire and retain the most qualified individuals for
those two positions.
In response, the Legislature has provided both CalSTRS and the
California Public Employees' Retirement System authority over
several key positions, including the Chief Executive Officer
(CEO), System Actuary, Chief Investment Officer (CIO), General
Counsel and designated managerial investment officers and
portfolio managers. More recently, the Legislature has (1)
expanded CalPERS' authority over its CFO position, and (2)
granted similar authority to the State Compensation Insurance
Fund (SCIF) and the California Health Benefit Exchange with
respect to several of their executives, including their COO- and
CFO-level positions.
Proposed Law:
This bill would do all of the following:
Expand the list of positions for which the Teachers'
Retirement Board (TRB) has the authority to set the
compensation and terms and conditions of employment to
include one COO and the CFO.
Limit the annual percentage increase in salary
authorized by this bill to ten percent for 2017-18 and five
percent for any fiscal year thereafter for a person who
served as COO or CFO on January 1, 2016, and who does not
separate from service in that position prior to the date on
which the increase is applied.
Make technical changes to the list of key employees who
are prohibited for two years from working for private
interests to influence the TRB after leaving employment
with CalSTRS.
AB 736 (Cooley) Page 2 of
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Related
Legislation:
AB 125 (Wieckowski, 2013) would have (1) expanded the
list of positions for which TRB has the authority to set
the compensation and terms and conditions of employment to
include the COO and CFO, and (2) prohibited the salary for
the COO and CFO from exceeding 110 percent of the maximum
salary payable to an investment director of the retirement
system. The bill was ultimately amended in the Senate to
delete these provisions.
AB 1735 (Wieckowski, 2012) would have (1) expanded the
list of positions for which TRB has the authority to set
the compensation and terms and conditions of employment to
include the COO and the CFO, and (2) prohibited the salary
for the COO and CFO from exceeding 150 percent of the
Governor's salary. The bill was held under submission on
the Suspense File of this Committee.
Staff
Comments: CalSTRS biannually reviews the level of compensation
for executive management and investment staff positions for
which TRB has authority. Specifically, the agency conducts a
comprehensive market pay analysis using data from third party
sources. The analysis uses a blend of private and public sector
organizations against which CalSTRS competes for professional
talent with similar skills. The minimum and maximum salary range
for these positions is recommended based on a benchmark
resulting from the market pay analysis. The minimum and maximum
salary range for non-investment positions is based on a peer
group weighted with two-thirds public sector funds and one-third
private sector firms.
As noted previously, the fiscal impact of this bill depends upon
the hiring decisions made by TRB. In the near term, hiring the
incumbent candidates (who served in the two capacities on
January 1, 2016) would be less costly than hiring external
candidates, though the opposite could be true if the incumbent
AB 736 (Cooley) Page 3 of
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candidates held the positions for several years, subsequently
receiving repeated five percent annual salary increases.
As a near-term example, the incumbents' current-law salary is
$172,900. If both were selected by TRB, the 2017-18 salary for
each would be $190,190, an increase of $17,290 (or ten percent)
over the prior year. Thus, under this scenario, the 2017-18
salary increase resulting from the bill for both (relative to
current law) would be $34,580.
If, however, TRB elects to hire individuals from outside of
CalSTRS, its current third-party market analysis indicates that
the salary costs would be within the range of $187,900 to
$268,500 for the CFO and $201,200 to $266,600 for the COO.
CalSTRS indicates that TRB would target the middle of the range
for both positions. Relative to their current salaries, doing so
would result in increased first-year salary costs of $116,300.
However, if the two individuals were hired at the top of the
respective ranges, first-year salary costs would increase by
$189,300.
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