The Advisors' Blog

CalPERS has posted new “April 2026” versions of its proxy voting guidelines and executive compensation analysis framework, as previewed at a recent Investment Committee meeting.

According to the Investment Committee presentation, the updated framework is intended to further align the interests of executives with long-term shareholders. My take in looking at the framework’s “foundational priorities” is that CalPERS wants more than just alignment between pay and long-term performance – it also wants pay programs to be transparent and understandable. This isn’t a huge substantive change, but it’s spelled out more clearly now. Here’s the full list of these priorities:

• The design and structure of compensation plans should promote long-term shareholder value creation.

• Compensation should not be overly volatile, as significant fluctuations in compensation can undermine the stability and focus required for long-term strategic execution.

• Long-term incentive compensation should be designed to reward senior executives for above market performance, not overall market appreciation.

• Compensation plans should be straightforward and easily understood by both shareholders and executives, avoiding unnecessary complexity that can obscure true performance objectives.

• Compensation plans should not be excessively dilutive to existing shareholders, ensuring that equity awards are granted judiciously and in a manner that preserves long-term value.

• Equity awards should have long multi-year vesting periods to promote a long-term perspective.

• CEOs and senior executives should have significant personal stock ownership in the company.

CalPERS’ quantitative analysis will continue to be in a scorecard format, based on five-year performance and Equilar’s P4P formula. The P4P score looks at realizable pay vs. five-year cumulative TSR. Although that element of the scorecard doesn’t refer to grant date target pay, the overall scorecard continues to look at grant date target pay to assess whether CEO pay incentivizes excessive risk-taking.

The updated framework (and the proxy voting guidelines) also list examples of plan design and governance issues that may result in an “against” vote for say-on-pay. Here are a few factors that might warrant special consideration if CalPERS is a significant shareholder for your company:

• Overly complex plan design

• Excessively high CEO compensation relative to other named executive officers (NEOs)

• Majority of annual equity grants are to NEOs

• CEO-to-median employee pay ratio is disproportionately high

The FAQs are attached as an appendix and give more detail about CalPERS’ preferences for equity award holding periods, peer group benchmarking practices, etc.

Compensation committees with oversight responsibility for human capital management should also know that HCM is one of CalPERS’ three key priorities for 2026. Specifically, as flagged in this presentation, the pension fund is prioritizing:

• Board Oversight of Human Capital Management

•Human Rights and Workforce Disclosure

•Support for social-related/HCM related shareowner proposals consistent with CalPERS Governance & Sustainability Principles and Labor Principles: Artificial Intelligence Reporting/Oversight, Freedom of Association, Labor/Human Rights, Racial Equity Audits

– Liz Dunshee