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Agenda Item 5 - Attachment 2 - Page 1 of 21 Biennial Salary Survey Peer Group Discussion Executive & Investment Management Positions September 16, 2015

Agenda Item 5 - Attachment 2 - Page 2 of 21 Introduction 2 California Public Employees Retirement System (CalPERS) asked McLagan to assess the salary, total cash compensation, and pay policy for ten executive and investment management positions: Chief Executive Officer Chief Actuary Chief Financial Officer General Counsel Chief Investment Officer Chief Operating Investment Officer Managing Investment Director Investment Director Investment Manager Associate Investment Manager Following up on the August meeting, the objectives of today s discussion are to: Review the results for Investment positions based on the Committee-approved peer group. Approve incentive compensation opportunity for the Associate Investment Manager position. Review the value of CalPERS DB and post-retirement health benefits. Compare and contrast CalPERS vs CalSTRS pay philosophy and decision making. Review and discuss the potential Executive Management peer group, and resulting market data.

Investment Management Positions Agenda Item 5 - Attachment 2 - Page 3 of 21

Agenda Item 5 - Attachment 2 - Page 4 of 21 CalPERS vs Investment Management Peer Group 4 As shown on the following pages, an analysis of CalPERS Investment Management pay positioning suggests: CalPERS salaries are fairly mainstream, positioned near the competitive median. CalPERS target cash compensation levels (salary + target bonus) are positioned below the market 25 th (low) percentile. CalPERS maximum cash compensation is also positioned below the market 25 th (low) percentile.

Agenda Item 5 - Attachment 2 - Page 5 of 21 Investment Management Peer Group Salary vs Market 5 $700 $600 $500 $400 $300 $200 $100 $0 Associate IM Inv. Manager Investment Director Managing Inv. Dir. COIO CIO CalPERS Market CalPERS Market CalPERS Market CalPERS Market CalPERS Market CalPERS Market Max / 75th 153 155 210 223 282 294 392 377 360 350 612 518 Mid / Median $128 $134 $175 $194 $235 $238 $327 $288 $300 $300 $510 $453 Min / 25th 102 115 140 167 188 210 262 250 240 250 408 430

Agenda Item 5 - Attachment 2 - Page 6 of 21 Investment Management Peer Group Target Cash vs Market 6 $2,500 Market Total Cash = Salary + Cash Bonus (excludes long-term/deferred awards) $2,000 $1,500 $1,000 Associate IM shown at proposed 30% target $500 $0 Associate IM Inv. Manager Investment Director Managing Inv. Dir. COIO CIO CalPERS Mkt TCash CalPERS Mkt TCash CalPERS Mkt TCash CalPERS Mkt TCash CalPERS Mkt TCash CalPERS Mkt TCash Max / 75th 199 263 294 499 395 800 588 1,595 504 702 918 1,928 Mid / Median $167 $222 $245 $390 $329 $585 $491 $948 $420 $603 $765 $1,381 Min / 25th 133 182 196 311 263 465 393 709 336 542 612 868

Agenda Item 5 - Attachment 2 - Page 7 of 21 Investment Management Peer Group Maximum Cash vs Market 7 $2,500 Market Total Cash = Salary + Cash Bonus (excludes long-term/deferred awards) $2,000 $1,500 $1,000 Associate IM shown at proposed 45% max $500 $0 Associate IM Inv. Manager Investment Director Managing Inv. Dir. COIO CIO CalPERS Mkt TCash CalPERS Mkt TCash CalPERS Mkt TCash CalPERS Mkt TCash CalPERS Mkt TCash CalPERS Mkt TCash Max / 75th 222 263 336 499 451 800 686 1,595 576 702 1,071 1,928 Mid / Median $186 $222 $280 $390 $376 $585 $572 $948 $480 $603 $893 $1,381 Min / 25th 148 182 224 311 301 465 459 709 384 542 714 868

Agenda Item 5 - Attachment 2 - Page 8 of 21 CalPERS Loses Talent to the Private Sector 8 Following-up on information requested by the Committee in August: There have been 21 departures of CalPERS Investment Office Managers since January 2010. 2 left for retirement. 1 left for a promotion to CalSTRS. 18 left for the private sector. Of these, the median tenure at CalPERS was less than 3.5 years.

Agenda Item 5 - Attachment 2 - Page 9 of 21 CalPERS Retirement Benefits 9 CalPERS staff modeled a number of retirement benefit scenarios. These values represent an estimated annual classic retirement (2% @ 55) allowance: Investment Manager Vesting (Years of Service) Midrange Salary $175,000 56% of current staff Maximum Salary $210,000 5 $22,860 $27,468 10 $41,292 $49,836 15 $59,724 $71,772 20 $78,156 $93,924 Investment Director Vesting (Years of Service) Midrange Salary $235,000 90% of current staff Maximum Salary $282,000 5 $30,768 $36,960 10 $55,572 $66,768 15 $80,388 $96,576 20 $105,192 $126,384 Managing Investment Director Vesting (Years of Service) Midrange Salary $327,000 100% of current staff Maximum Salary $392,000 5 $42,888 $51,456 10 $77,484 $92,964 15 $112,068 $134,460 20 $146,664 $175,956 Post-retirement health benefit: Less than 10 years = 0% benefit. 10 years = 50% benefit. 20 years = 100% benefit (+5% for each year between 10 and 20). Note: The estimated allowance reflects assumptions of current value and a retirement at age 57. 44% of Investment Managers and 10% of Investment Directors fall under the Post-PEPRA allowance (2% at 62), with an annual cap for 2015 of approx. $117,000 pensionable compensation.

Executive Management Positions Agenda Item 5 - Attachment 2 - Page 10 of 21

Agenda Item 5 - Attachment 2 - Page 11 of 21 Executive Management Peer Group 11 At the August meeting, the Committee asked McLagan to assemble competitive pay data for the following peer organizations: Leading US and Canadian Pension Funds (11). Insurance and Bank asset management subsidiaries with AUM $100 to 500B (20). CA-based agencies that are governed by Boards (11). As shown on the following pages, McLagan, with the help of CalPERS staff, gathered information about possible CA-based agencies to include in the Management peer group: While a number of agencies are governed by Boards, few have full pay-decision making authority. Moreover, the size, scale, and complexity of these organizations varies. While there are numerous other state agencies that CalPERS may recruit executive talent from, they were not included as comparators in this analysis as their salaries are set in statute. The competitive data shown on the following pages includes all CA-based agencies listed on the next page, regardless of their pay-making authority (e.g., by definition the resulting market data will be somewhat skewed towards state-wide and, in some cases, county-wide, pay restrictions).

Agenda Item 5 - Attachment 2 - Page 12 of 21 Executive Management Peer Group CA-Based Agencies 12 Potential Peer Agency Comparators Governed by Independent Pay Agency a Board Authority Bay Area Rapid Transit (BART) City of Los Angeles County of Los Angeles Covered California (California Health Benefit Exchange) East Bay Municipal Utility District Los Angeles County Employee Retirement System (LACERA) Los Angeles Department of Water and Power (LADWP) Sacramento Municipal Utility District (SMUD) San Diego City Employees Retirement System (SDCERS) Santa Barbara County Employees' Retirement System (SBCERS) State Compensation Insurance Fund (SCIF)

Agenda Item 5 - Attachment 2 - Page 13 of 21 Executive Management Peer Group Summary 13 Asset Investment Call Liability Mission- Function Center Mgmt Driven EE Size Complexity Comments Government Leading US Public Funds Same as Inv Group Leading Canadian Public Funds Same as Inv Group CA-Based Agencies Board-governed Agencies For-Profit Banks AUM $100 to 500B Insurance Companies AUM $100 to 500B

Agenda Item 5 - Attachment 2 - Page 14 of 21 CalPERS vs Executive Management Peer Group 14 As detailed on the following pages, an analysis of CalPERS Executive pay versus market shows: Position Salary Target Cash Max Cash CEO 25 th Percentile 25 th Percentile Just above 25 th Chief Actuary <25 th Percentile <25 th Percentile Approx. 25 th CFO Median Just below Median Just above Median General Counsel 25 th to median Just below Median Just above Median

Agenda Item 5 - Attachment 2 - Page 15 of 21 Implications of Executive Management Peer Group CEO 15 $2,000 Market Total Cash = Salary + Cash Bonus (excludes long-term/deferred awards) $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Salary Salary + Target Salary + Max CalPERS Market CalPERS Mkt TCash CalPERS Mkt TCash Max / 75th 336 450 427 1,729 470 1,729 Mid / Median $280 $400 $356 $779 $392 $779 Min / 25th 224 286 284 341 314 341

Agenda Item 5 - Attachment 2 - Page 16 of 21 Implications of Executive Management Peer Group Chief Actuary 16 $700 Market Total Cash = Salary + Cash Bonus (excludes long-term/deferred awards) $600 $500 $400 $300 $200 $100 $0 Salary Salary + Target Salary + Max CalPERS Market CalPERS Mkt TCash CalPERS Mkt TCash Max / 75th 310 355 394 614 434 614 Mid / Median $258 $311 $328 $477 $361 $477 Min / 25th 206 274 262 352 288 352

Agenda Item 5 - Attachment 2 - Page 17 of 21 Implications of Executive Management Peer Group CFO 17 $700 Market Total Cash = Salary + Cash Bonus (excludes long-term/deferred awards) $600 $500 $400 $300 $200 $100 $0 Salary Salary + Target Salary + Max CalPERS Market CalPERS Mkt TCash CalPERS Mkt TCash Max / 75th 310 311 394 593 434 593 Mid / Median $260 $265 $330 $347 $364 $347 Min / 25th 210 209 267 230 294 230

Agenda Item 5 - Attachment 2 - Page 18 of 21 Implications of Executive Management Peer Group General Counsel 18 $600 Market Total Cash = Salary + Cash Bonus (excludes long-term/deferred awards) $500 $400 $300 $200 $100 $0 Salary Salary + Target Salary + Max CalPERS Market CalPERS Mkt TCash CalPERS Mkt TCash Max / 75th 322 293 409 503 451 503 Mid / Median $268 $275 $340 $359 $375 $359 Min / 25th 214 251 272 287 300 287

Appendix Agenda Item 5 - Attachment 2 - Page 19 of 21

Agenda Item 5 - Attachment 2 - Page 20 of 21 Investment Management Peer Group Institutional Peer Details 20 Leading Institutional Managers (15) Canada Pension Plan Investment Board Canadian Pension Fund $265.0 Caisse de depot et placement du Quebec Canadian Pension Fund 225.9 California State Teachers' Retirement System US Public Fund 188.8 Ontario Teachers Pension Plan Board Canadian Pension Fund 154.5 Teacher Retirement System of Texas US Public Fund 129.9 GE Asset Management Inc. US Corp. Plan Sponsor 118.0 State of Wisconsin Investment Board US Public Fund 96.1 General Motors Asset Management US Corp. Plan Sponsor 86.3 Georgia Employees Retirement System US Public Fund 82.4 Lockheed Martin Investment Management Company US Corp. Plan Sponsor 76.3 State Teachers Retirement System Ohio US Public Fund 73.6 Ontario Municipal Employees Retirement System Canadian Pension Fund 72.0 Healthcare of Ontario Pension Plan Canadian Pension Fund 68.0 Virginia Retirement Systems US Public Fund 65.9 DuPont Capital Management US Corp. Plan Sponsor 31.0 US Public Fund 6 40% Canadian Pension Fund 5 33% US Corp. Plan Sponsor 4 27% 15 12/31/2014 % Internally # of Inv AUM Managed Staff High Quartile $142.2 89% 111 Median 86.3 72% 74 Low Quartile 72.8 40% 38 California Public Employees' Retirement System $295.8 69% 210 CalPERS' Rank 1 of 16 9 of 16 3 of 16

Agenda Item 5 - Attachment 2 - Page 21 of 21 CalSTRS vs CalPERS 21 The Committee asked McLagan to compare and contrast CalPERS pay CalSTRS. A review of CalSTRS compensation philosophy and decision making process shows a number of similarities to CalPERS as well as a number of differences: Like CalPERS, CalSTRS: Conducts a competitive market assessment every two years. Includes both public and private peers. Varies the peer group used for investment staff and executive management. Pay program includes a salary and incentive opportunity. In it s July 2013 meeting reviewed a pay comparison of (1) CalSTRS (2) CalPERS and (3) various peer groups. Unlike CalPERS, CalSTRS: Targets cash compensation opportunity (e.g., salary + maximum bonus) at the 50 th percentile. Made changes to salary and incentive ranges in 2013. Peer group for investment staff consists only of other leading institutional managers (e.g., US and Canadian public funds, corporate plan sponsors, endowments, foundations). Peer group for executive management includes a 67% weighting to leading public funds and a 33% weighting to a broad-range of private-sector investment management organizations.