STUMP » Articles » Calpers Craziness: A Performance Review... and an Investigation? » 27 September 2018, 13:01

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Calpers Craziness: A Performance Review... and an Investigation?  


27 September 2018, 13:01

Quick recap:

In May, the CFO at Calpers, the largest non-federal public pension fund in the U.S., resigned due to him fabricating items on his resume.

In August, Yves Smith (aka Susan Webber) at Naked Capitalism pointed something iffy out in the CEO’s resume.

In the last one, I noted:

It was mentioned that Marcie Frost has a performance review coming up at the end of September, so I’ll keep my eyes out for that, and there is talk of various bishops/cardinals resigning in the U.S.

Well, I don’t know about the bishop/cardinals thing (and it seems they’re still missing the point – it’s about corruption now, not the original abuse), but the performance review has come and gone.


CalPERS board rewards CEO with $84,000 bonus, 4 percent raise

bq..In a vote of confidence for its embattled chief executive, the CalPERS Board of Administration on Tuesday awarded Marcie Frost a 4 percent raise and an $84,873 bonus.

Frost’s base pay now is $330,720.

Board member Bill Slaton said the board would not discuss Frost’s performance review at the public board meeting where it set her new salary.

“In closed session, we spent a long time reviewing all matters regarding Ms. Frost’s performance and now in open session we are convening in compliance with our policy regarding personnel matters to discuss compensation only,” he said.

So, they’re obviously sticking with her for now.


Investigate hiring of CalPERS CEO, John Chiang says

California State Treasurer John Chiang on Wednesday called for an independent investigation into the hiring of CalPERS Chief Executive Officer Marcie Frost to resolve questions about whether she misinformed the $360 billion pension fund when she applied for her job.

Chiang stressed in announcing his call for an investigation that he has a “favorable opinion” of Frost. He worries, he says, that the questions about Frost will discredit the pension fund if they are not addressed in a manner that restores public trust.

As state treasurer, Chiang is a member of the CalPERS Board of Administration. He joins CalPERS board member Margaret Brown in calling for an investigation into Frost’s hiring.

So… being on the board, he was part of the decision to hire her back in 2016, right?

Other board members have said they were well aware of Frost’s credentials when they hired her and have reiterated their support for her in public comments. Chiang was on the board in 2016 and voted to hire Frost. Chiang through a spokesman declined to say whether Chiang felt misled by Frost.

I’m going to be charitable and assume that most of the interview/hiring process was about Frost’s activities in her immediately prior job post at the Washington state pension system. I bet Chiang doesn’t remember any discussion of educational or any other credentials (it looks like Frost has none of any sort… (which reminds me, you don’t need to have a college degree to get an actuarial credential. It’s not required. The real requirements are a bit harder to fulfill than getting an undergrad degree, though.))

Here’s the problem the board has (excepting Margaret Brown, who is a new member, and has been calling things into question): if it turns out that not only the education but also other items on Marcie Frost’s resume are a little different from reality, and she was hired on these misrepresentations… this makes the board look bad.

Yes, it makes Frost look bad, too, but given someone who has less resources at hand uncovered these issues, it calls into question if the board had done due diligence in selecting a CEO for the largest non-federal public pension fund in the U.S.

You think the board wants to admit they screwed this one up?


So now they are in a position where they have to say one of two things:

1. Yes, we knew she had no college degree or other educational credentials, and we hired her anyway (this is their current line)
2. We thought she had the usual sort of 4-year degree, even if not all that challenging, because people expect that sort of thing for the largest state pension fund top spot…and we’re not firing her because… uh…it’s not her fault that we’re so dumb we didn’t notice that she had no college degree

Yeah, they can’t go with the second choice, because that makes them look really bad. Maybe they need to be dumped out of their board seats… which is far less attractive a choice for them than dumping the CEO, and they’re obviously not going to dump the CEO. Unless forced to.

Given they are going with the first line, some Calpers participants, many of who are/were in positions of less importance that required college degrees, are asking why someone with a fairly thin background got hired for a job very important to their own retirement security.

Now, I don’t think public pension funds fire CEOs that frequently for underperformance in the first place, but the issue is that the board basically would have to admit that it is at fault for hiring Frost if they dump her at this time if there’s no obvious bad performance (and even if there were bad performance, they still might be hesitant.) And most of the people currently on the board were on the board when Frost was hired, so they can’t say “Don’t look at me — it’s that other person’s fault!”

Anyway, now they’re having to defend hiring someone to a top spot with no degree or credentials, by pointing to her accomplishments at her prior jobs. And what if those turn out to be different from advertised…


Leo Kolivakis takes a different line on Frost: CalPERS CEO Under Fire?

You can also read Susan Webber’s (aka Yves Smith) comment on the naked capitalism blog here going over how Marcie Frost supposedly misrepresented her education.

I stopped reading Yves’ grossly biased and unreasonably critical comments on CalPERS a long time ago. Someone should ask her straight out: “Who is paying you to attack CalPERS every chance you get?” (I’m dead serious)

Oh, she definitely has an axe to grind. Some of the stuff she posts is ridiculous (I read it, and sometimes even link to the stuff I find ridiculous… so I can say why I think it’s ridiculous).

But it wasn’t ridiculous when she dug up the prior CFO’s questionable resume claims.

But let’s see what Kolivakis has to defend Frost:

Anyway, this is another much ado about nothing questionning the credentials of CalPERS’ CEO Marcie Frost.

The lady did not lie about not having a college degree, she made it clear to CalPERS’ board a few times and yet they hired her because of her commitment to engaging with retirees and public employers, as well as her track record leading Washington state’s public pension fund, the $90 billion Department of Retirement Systems.

As far as I am aware, she did a great job there and that is why she was hired as the CEO of CalPERS.

I have no idea how Frost did at the Washington state Dept. of Retirement Systems. May have been fabulous – and maybe it was mediocre. Maybe the kind of job she had at DRS was of a very different nature from Calpers CEO.

Don’t get me wrong, having a college degree is important but she was honest and has great experience and a proven track record so I don’t understand why naked capitalism and others are questionning her or CalPERS’ board.

It’s ridiculous especially during a time when we need more women as CEOs of major corporations and public pension plans.

It’s also worth noting that Mrs. Frost is not the highest paid employee at CalPERS, that honor deservedly goes to the fund’s CIO as they have tremendous responsibility overseeing $360 billion in assets.

Still, she gets paid very well and has done a great job at CalPERS as far as I can tell so this really is another naked capitalism hatchet job which should be ignored.

That’s all I will say on this latest CalPERS smear job. When you’re reporting or blogging on something, make sure you have all the facts or risk looking like a total ass.

Well, here’s a thing. I’m wondering if what I just bolded is related to the whole brou-ha-ha… but I can think of some other very good explanations. Calpers definitely is pushing the diversity racket (you will see this in a link below), but looking at their slate of executive officers, they have plenty of female C-suite people – but maybe they think 4 out of 10 is more comfy than 3 out of 10. I don’t think it’s because they were desperate for a woman in the position (I could be wrong).

It may be something much simpler: I have no idea how many credible applicants they had for the CEO, but it would not necessarily surprise me that the compensation offered was considered very low ball among those who really did have the qualifications and experience for the job.. and they passed.

Heck, it can be the pool of qualified people don’t want to have anything to do with a system that has its decisions so obviously politically driven. What do we have to divest from this week?

And there is going to be nothing but trouble coming up with escalating required contributions from participating employers, and you’re going to be the public face explaining why contribution rates have jumped so much.

No thanks to that thankless job.

In any case, I don’t see what facts Yves Smith supposedly got wrong. She posted the actual documents from various applications. You may think Smith is blowing up something very small, and some of the other stuff she has posted I find iffy (I don’t post info from anonymous sources for a reason — sure, email me if you want, but I’m not going to post it unless I can find some public stuff with named people.)

The end of the post:

Update: Yves Smith is back at it Wednesday, doubling down on her attacks on Marcie Frost. In my opinion, it’s time CalPERS sues her for defamation, she obviously has an agenda and doesn’t understand the role and responsibilities of the CEO position at CalPERS.

I think Calpers is not going to sue for defamation or libel or whatever. For one, that would allow Smith to do some juicy discovery, and she’s gotten her hands on enough Calpers docs, thank you very much.

This is the Naked Capitalism post Kolivakis links to: Marcie Frost‘s Poor Job as CalPERS CEO – “The Place is Being Run Like a High School, Not a Business,” IT and Operational Failings

The post is one of those “anonymous sources” type of things, with purported insiders from the prior job at Washington DRS…though there are a few other things that are publicly documented, since she came to Calpers. Though, obviously, some of it has nothing to do with the CEO position. If the website goes down, that is not the purview of the CEO. Jeez.


I’ve also thrown in some of their investment decisions re: ESG in here as well.

I’ve got one more item, that was part of public information.


From ai-CIO: CalPERS Gets a D for Fixed Income Management

The main investment consultant for the California Public Employees’ Retirement System (CalPERS) has issued a D grade regarding the quality and stability of leadership for the system’s $79.1 billion global fixed income portfolio.

Wilshire Associates, CalPERS’s general investment consultant, in a report scheduled to be discussed today at the system’s investment committee meeting, also rated the entire CalPERS investment organization. Its finding: a lackluster C grade because of senior management changes, including the impending departure of Chief Investment Officer Ted Eliopoulos.

The D rating for fixed income comes in part because of the lack of a replacement for Curtis Ishii, the managing investment director who retired in July after 40 years as the top fixed income chief, the consulting firm said.

Wilshire expressed concern that Ishii’s departure could cause other departures. “The impact on mid-level staff and a potential increase in turnover as with any significant organizational changes could be a challenge,” it said.
CalPERS officials announced the appointment of Swiss pension executive Elisabeth Bourqui as chief administrative investment officer in April. The position had been open since January, when Wylie Tollette stepped down.

The report hammered several times on compensation for CalPERS investment personnel. (Portfolio managers at CalPERS can earn several hundred thousand dollars a year compared to $1 million or more of other investment managers). It said that the lack of pay incentives can expose CalPERS to losing senior staff.

“There is a lack of long-term ownership opportunities such as direct ownership, phantom stock, and other incentive-based compensation practices,” the report said. “These long-term forms of incentives are common within private sector investment organizations and can serve as significant retention incentives.”

So… direct ownership and phantom stock are not doable at all, but I see where Wilshire is coming from.

As I have pointed out before:

Of course, there’s more assets now ($360 billion as of today), but I only had a world ranking for pension funds as of midyear 2014. It’s definitely in the top ten.

And the compensation is not commensurate with similar positions at insurance companies, investment banks, etc.


This is a board matter, not a CEO matter. But if there’s an issue with this CEO, it really is the board’s fault.

And if the board screwed this one up… well. There are a total of 13 members, of which 9 were around for the Frost hire.

So you think they’re going to call “oops” on themselves?

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