BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                        AB 736|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
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                                   THIRD READING 


          Bill No:  AB 736
          Author:   Cooley (D) 
          Amended:  8/19/16 in Senate
          Vote:     21 

           SENATE PUBLIC EMP. & RET. COMMITTEE:  5-0, 6/13/16
           AYES:  Pan, Morrell, Beall, Hall, Moorlach

           SENATE APPROPRIATIONS COMMITTEE:  6-1, 8/11/16
           AYES:  Lara, Beall, Hill, McGuire, Mendoza, Nielsen
           NOES:  Bates

           ASSEMBLY FLOOR:  80-0, 6/1/15 - See last page for vote

           SUBJECT:   State teachers retirement:  executive positions


          SOURCE:    California State Teachers Retirement System
          
          DIGEST:    This bill adds two positions to the list of key  
          executive and investment positions which are exempt from civil  
          service rules, as specified, and for which the California State  
          Teachers' Retirement System ( CalSTRS) board may set  
          compensation and terms and conditions of employment. The two  
          positions are a chief operating officer (COO) and a chief  
          financial officer (CFO).  This bill also changes the list of key  
          employees who may not represent private interests before TRB for  
          two years after leaving CalSTRS employment.

          Senate Floor Amendments of 8/19/16 are minor, technical  
          amendments to clarify that the CalSTRS board's authority to  
          determine the compensation of key executive employees, as  
          specified, is intended to apply to only one position in each of  








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          the specified classifications or position titles.



          ANALYSIS:
          
          Existing law:
          
          1)Authorizes the board to establish compensation for CalSTRS'  
            executive officer, system actuary, general counsel, chief  
            investment officer, and other investment officers and  
            portfolio managers whose positions are designated managerial.

          2)Requires that the compensation level for these positions be  
            comparable to other public retirement systems and financial  
            services companies and, when these positions are filled  
            through a general civil service appointment, that the  
            candidates be selected from an eligible list based on an open  
            examination.

          3)States that, except for the chief executive officer who serves  
            at the pleasure of the board, these positions are subject to a  
            modified civil service selection process, and the board may  
            take action against these personnel for causes related to  
            their fiduciary duty, including the failure to meet specified  
            performance objectives.

          4)Prohibits board members and individuals employed in key  
            executive positions and in positions such as chief of staff,  
            deputy chief executive officer, chief financial officer, or  
            persons in an equivalent senior management position, upon  
            separation from employment, from being paid by a subsequent  
            employer to influence the actions of the retirement system or  
            decisions of its governing board for two years following the  
            end of employment with the retirement system.

          This bill:

          1)Adds the indefinite article "a" in front of the list of  
            CalSTRS' key executive positions exempt from general civil  
            service rules to clarify that the CalSTRS board's authority to  
            determine the compensation of key executive employees, as  
            specified, is intended to apply to only one position in each  
            of the specified classifications or position titles listed but  







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            more than one position in the investment officer or portfolio  
            manager classifications, as specified.  This restrictive  
            language conforms with similar language in the government code  
            applying to the California Public Employees' Retirement System  
            (CalPERS).

          2)Expands the list of positions for which the board has the  
            authority to set the compensation and terms and conditions of  
            employment to include a Chief Operating Officer and a Chief  
            Financial Officer.

          3)Limits the annual percentage increase in salary authorized by  
            this bill to ten percent for the 2017-18 fiscal year 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.

          4)Changes the restriction on the employees who are prohibited  
            for two years from working for private interests to influence  
            the board after leaving employment with CalSTRS. Aside from  
            board members, and key executives, as specified, only those  
            persons serving in a career executive assignment position that  
            have a direct reporting relationship to the CEO or COO are  
            subject to the restriction. 

          Related/Prior Legislation
          
          AB 125 (Wieckowski, 2013) would have expanded the list of  
          positions for which the TRB has the authority to set the  
          compensation and terms and conditions of employment to include  
          the COO and CFO and would have prohibited the salary for the COO  
          and CFO from exceeding 110% of the maximum salary payable to an  
          investment director of the retirement system.  The bill was  
          amended in the Senate to delete these provisions and to change  
          the author.

          AB 1735 (Wieckowski, 2012) would have 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 would have prohibited the salary for the  
          COO and CFO from exceeding 150% of the Governor's salary.  AB  
          1735 died in the Senate Appropriations Committee.








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          AB 1042 (Allen, Chapter 688, Statutes of 2011) authorized the  
          CalPERS board to appoint and set the compensation of a chief  
          financial officer.

          AB 1317 (Mullin, Chapter 333, Statutes of 2007) expanded the  
          list of key positions for which the CalPERS board and TRB could  
          set compensation and terms of employment to include the general  
          counsel.


          SB 269 (Soto, Chapter 856, Statutes of 2003) authorized the  
          CalPERS board and TRB to set compensation and terms and  
          conditions of employment of certain key positions.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   No


          According to Senate Appropriations Committee this bill would  
          result in increased annual salary costs to CalSTRS of up to  
          $189,300, excluding cost of living adjustments.  The actual  
          amount of the increase would depend on future hiring decisions  
          by TRB.


          SUPPORT:   (Verified8/22/16)


          California State Teachers' Retirement System (source)
          California Teachers Association
          California Retired Teachers Association


          OPPOSITION:   (Verified8/22/16)


          None received


          ARGUMENTS IN SUPPORT:     According to the sponsor, CalSTRS,  
          "This bill seeks to improve CalSTRS' ability to attract and  
          retain a COO and CFO, key positions that require specialized  
          expertise to manage the increasingly complex financial and  







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          operational components of the largest teacher pension fund in  
          the world.  Although CalSTRS has been fortunate to develop a  
          strong executive management team, to proactively plan for the  
          succession of these vulnerable top-level executive positions,  
          prudent business practices and fiduciary obligations dictate  
          that the board positions the organization to attract and recruit  
          from among the best and the brightest in the industry.  The most  
          qualified candidates are likely to be found outside civil  
          service in similarly large financial institutions in the private  
          sector, endowments or other large public pension systems."
          
          ASSEMBLY FLOOR:  80-0, 6/1/15
          AYES:  Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,  
            Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,  
            Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,  
            Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina  
            Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,  
            Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,  
            Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder,  
            Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,  
            Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,  
            Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez,  
            Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting,  
            Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins

          Prepared by:Glenn Miles / P.E. & R. / (916) 651-1519
          8/22/16 20:38:09


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