The plan calls for CalPERS to advocate for executive compensation reforms on a national level by addressing issues of transparency and design with the Securities and Exchange Commission, the financial exchanges, and the compensation consulting industry.
The System will also wage a campaign against targeted individual compensation committee directors who support egregious pay packages and companies that have the worst compensation practices, as well as recognize corporations who are leaders in pay-for-performance.
Levels of executive compensation have skyrocketed in recent years, creating a vast gap between the pay of top executives and average workers.
According to Businessweek, the average Chief Executive Officer salary has grown to 535 times the average worker's salary in 2000 from 42 times in 1980.
In 2003, CEO median cash pay - base salary and bonus - was up 14 percent to about $2 million from $1.75 million, according to a study of Standard & Poor's 500 companies conducted by Equilar.
"This will be a focused approach to today's most serious problem," said Sean Harrigan, President of CalPERS Board. "We will recognize the good guys who compensate for performance and we will call out some prime examples of those who are hurting long-term shareholder value by paying for lack of performance.
"Compensation can be so obscene that we need to tackle the problem structurally and hold accountable selected individual directors who create and support abusive pay packages," said Rob Feckner, Chair of CalPERS Investment Committee. "We will call on other institutional investors and allies to join us in this campaign."
Under the plan, CalPERS will pursue six major pay-for-performance initiatives over the next three years. They include:
- Submitting a comprehensive proposal to the Securities and Exchange Commission in 2005 that calls for greater transparency of compensation packages;
- Strengthening listing standards at the securities exchanges and self-regulatory organizations to promote greater communication and transparency between listed companies and investors;
- Urging the compensation consulting industry to adopt practices that better aligns boards and management with shareowners;
- Targeting a limited number of corporations in 10 market sectors with the worst compensation practices to move their executive compensation philosophy and practice toward greater pay-for-performance concepts;
- Publicly withholding support from a focused list of certain corporate compensation committee members who develop and support egregious pay packages; and
- Recognizing companies and individuals who use superior pay-for-performance practices.
CalPERS is the nation's largest public pension fund with assets of approximately $168 billion. The System provides retirement and health benefits to more that 1.4 million State and local public employees and their families.
