MBAO 6600 - Executive Compensation CalPERS Case: Introduction The CalPERS portfolio: 1. What is CalPERS’ Investment strategy? 2. How has CalPERS allocated.

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Presentation transcript:

MBAO Executive Compensation CalPERS Case: Introduction The CalPERS portfolio: 1. What is CalPERS’ Investment strategy? 2. How has CalPERS allocated its investment assets w.r.t. the investment strategy? 3. What is the difference between managing investments by Indexing (passive) versus Active Management of investments? 4. Why has CalPERS focused on passive management of its investments?

MBAO Executive Compensation CalPERS Case: Introduction CalPERS porfolio (continued): 5. Would your investment approach be different if you were managing pensions for GE or IBM? CalPERS values/goals: 1. What do you think about CalPERS social and financial responsibility criteria that it applies to its investments? Who benefits from this?

MBAO Executive Compensation CalPERS Case: Corporate Governance What is CalPERS approach to corporate governance? What does this approach do for CalPERS stakeholders? Who benefits? Who loses? Why doesn’t CalPERS just vote their shares by selling them as many other large shareholders do?

MBAO Executive Compensation CalPERS Case: Corporate Governance How does CalPERS influence the companies it targets? What strategies does it apply? Were they successful? Examples: Do you agree or disagree with the targets and issues CalPERS selected in 1991 such as: GM, ITT, Avon, Texaco, WR Grace, Scott Paper.

MBAO Executive Compensation CalPERS Case: Executive Pay Issues Why did CalPERS identify Executive Pay as a governance issue for its target companies? What issues involving Executive Pay did CalPERS seek to change? Examples? How successful was CalPERS in being a catalyst for change in the practice of executive pay?

MBAO Executive Compensation CAlPERS Case: Take Away Points

MBAO Executive Compensation CAlPERS Case:Governance CalPERS Approach to Corporate Governance: 1. Select target firms that commit a governance “sin” - no more than 12 targets per year. 2. Criteria: a. High institutional ownership of stock. b. High amount of CalPERS ownership. c. Poor performance of firm. 3. Tools: shareholder resolutions, proxies, shareholder advisory committees.

MBAO Executive Compensation CAlPERS Case: Takeaway Points 1. Institutional Shareholders have some influence on corporate governance. 2. CalPERS uses the media to focus public opinion on targets and motivate board members to protect their reputations by being proactive vis a vis the CEO and entrenched managers. 3. Index investing is becoming more prevalent, creating incentives for more active institutional shareholders such as CalPERS.