5000003002,_Addendum_1.pdf

California State Teachers’ Retirement System Michael Thao, Procurement

Procurement@CalSTRS.com

November 5, 2024

TO: All Interested Parties

FROM: California State Teachers’ Retirement System

SUBJECT: ADDENDUM NUMBER 1 TO REQUEST FOR PROPOSAL 5000003002 FOR

COMPENSATION CONSULTATION SERVICES

The California State Teachers’ Retirement System, also known as CalSTRS, issued an RFP for Compensation Consultation Services on October 11, 2024.

The purpose of this Addendum 1 is to provide CalSTRS responses to questions that were received in the CalSTRS Procurement office by the Written Question Submittal Deadline.

Prospective Proposers are reminded that it is their responsibility to review the entire addendum and updated solicitation to consider these modifications when preparing their submissions.

This Addendum DOES NOT affect the final file date.

Sincerely, Michael Thao mailto:Procurement@CalSTRS.com

Request for Proposal 5000003002 Compensation Consultation Services

Addendum 1

Response to Written Questions

Request for Proposal Number 5000003002

The following answers are in response to written questions submitted by prospective vendors regarding clarification of the intent and content of the RFP. This document provides the written responses to questions that were received via email in the CalSTRS Procurement office by the written question submittal deadline stated in the RFP.

Q.1. Attachment 4: Fee Proposal asks for the weighted hourly billing rate to complete five

Work Components.

In determining the number of hours that our team will deploy to complete each Work

Component, is it appropriate to assume each of the five Work Components will be completed annually?

The Weighted Hourly Rate for each component must include any additional fees, travel, per diem amounts. To what extent has CalSTRS embraced Video Conferencing rather than in-person meetings? Are there specific aspects of the Scope of Work that have mandated requirements for in-person meetings? . Please provide an estimate of the typical number of in-person meetings anticipated for the Scope of Work described in the RFP. This will allow us to build these expenses into the Weighted Hourly Rate.

A.1. In an effort to maintain a fair and competitive process, firms are expected to familiarize themselves with publicly available guidelines, work plans, and procedures.

Q.2. Onboarding/Orientation: In the first year of the contract, what is the plan for onboarding/orientation of the new consulting team? Will this onboarding/orientation be conducted in person or through video conferencing? How, if at all, should we reflect in the Fee Proposal these “start-up” professional fees/travel expenses?

A.2. Orientation can take place either in person or virtually.

Q.3. Principal Consultant Firm Selection: You indicate that you will establish a “pool” of qualified vendors able to provide the services outlined in the Scope of Work. From this pool, our understanding is that a vendor firm will be chosen to be the Principal Consultant.

In the most recent Principal Consultant selections, what were the criteria that differentiated the selected the Principal Consultant firm from other vendors in the pool? How have these criteria been amended for the 2025 selection process. What role did fee comparisons play in the selection process?

A.3. In an effort to maintain a fair and competitive process, CalSTRS will not disclose this information.

Q.4. Same Vendor Serving Board and Management: To what extent do your governance policies allow CalSTRS to use the same vendor firm (or its subsidiaries) from the “pool” to serve the Board/Committee as its Independent Advisor with one set of consultants and also serve Management with different set of consultants? Does this situation currently exist at CalSTRS? Has it existed in the past?

A.4. Please see A.3

Q.5. Current Principal Consultant Firm: Is the current Principal Consultant firm eligible to participate in the 2025 RFP process? Which firm currently serves in this capacity? Which other qualified vendors are in the current “pool.”

A.5. Yes.

CalSTRS is unable to provide the current firm information requested at this time. You can elect to submit a Public Records Request under the Public Records Request Act.

(https://www.calstrs.com/guidelines-for-access-to-public-records#body_file-7eefb23f- 4925-4d5d-bb7d-3b14bb90fb15)

Q.6. Term Limits. Does CalSTRS have a “term limit” (consistent with accepted governance practices) that defines the number of years that the Principal Consultant firm may serve as an Independent Compensation Advisor to the Board and Compensation Committee? If so, what is that policy?

A.6. Per RFP Section B. Background, CalSTRS intends to establish a “pool” of qualified vendors that are able to provide the services outlined in Attachment 14, Scope of Work.

Award of a contract resulting from this RFP shall be made to one or more Proposers.

Proposers invited to enter into a “pool” are not guaranteed work and will be utilized on an as-needed basis. The term of the resulting agreement(s) may be for up to five (5) years.

https://www.calstrs.com/guidelines-for-access-to-public-records#body_file-7eefb23f-4925-4d5d-bb7d-3b14bb90fb15 https://www.calstrs.com/guidelines-for-access-to-public-records#body_file-7eefb23f-4925-4d5d-bb7d-3b14bb90fb15

Q.7. Attachment 4: Work Component 1

Will the Principal Consultant be responsible for independent advice/expert opinion on the analysis and recommendations provided by other consultants and staff or will the Principal Consultant also develop compensation program studies/research (e.g. labor market benchmarks, compensation policies)?

In providing “advice and recommendation for compensation packages for the Chief Executive Officer, Chief Investment Officer and other executives and investment positions” will the Principal Consultant conduct the underlying analysis/market benchmarking/market assessment, or will the Principal Consultant base the advice/recommendations based on a review of the work product of staff and other consultants? (see similar question for Work Component 2 below)

A.7. In an effort to maintain a fair and competitive process, we encourage all proposing firms to conduct independent research as needed, as all relevant information is publicly available.

Q.8. Attachment 4: Work Component 2

The task description for Work Component 2 suggest that the Principal Consultant will be responsible for conducting, independently the pay program design/pay delivery system as it affects the named CalSTRS executives and the Investment professionals. Is this correct?

What is the frequency for such compensation updates? When was the most recent update?

What changes were made to the pay program?

When will the next update take place?

In recent years what have been the challenges CalSTRS has faced in the recruitment, engagement, and retention of executive leadership and investment professionals? How have you modified your pay programs to address these challenges? How have these modifications led to successful outcomes?

A.8. In an effort to maintain a fair and competitive process, proposing firms are expected to familiarize themselves with the publicly available guidelines, workplans and procedures.

Regarding the final part of the question, specific to recruitment challenges, CalSTRS has encountered recruitment challenges in specific private asset areas.

Q.9. Attachment 4: Work Component 3

What protocols/procedures/checks and balances are in place to ensure the underlying data received by the Principal Consultant for verification are accurate?

A.9. The data undergoes thorough internal checks and is verified by the master custodian.

Q.10. Attachment 4: Work Component 4

What is CalSTRS established protocol to conduct organizational needs assessment/job analysis? To what extent is there flexibility in application of the established protocol?

What is the estimated number of jobs each year which will likely require job analysis and reclassification? How should we base our fees for this component (e.g. assume X number of jobs per year?)

A.10. CalSTRS has not established a protocol for conducting organizational or job analysis; these activities are conducted on an as-needed basis.

Q.11. Attachment 4: Work Component 5

When was the most recent review of the CEO performance evaluation process and appraisal tools conducted? What changes, if any, were made? What was the rationale for change?

Ideally, what further changes in the process would improve the efficiency and effectiveness of CEO performance evaluation at CalSTRS

A.11. The evaluation process and tools are reviewed annually by the Board’s primary governance consultant. Annually, the Board reviews and adjusts performance criteria for the CEO and CIO, based upon desired strategic outcomes.

Q.12. How would you define a successful engagement with the Principal Consultant firm and the individual who serves specifically as your Independent Principal Consultant advisor?

A.12. Please see A.3

Q.13. The Compensation Committee has been a committee of the entire board until recently when a subset of Board members were chosen to act as Compensation Committee members. With this new committee make-up, does the Board envision being more active in reviewing and updating the compensation design for covered positions under a new contract, especially given some of the changes in the setting of investment portfolio benchmarks that have been approved?

A.13. Yes.

Q.14. Does the Compensation Committee envision needing to make changes to its existing peer group methodology in the future or its it generally comfortable with the split between Public Pension Funds/Agencies and the Private Sector? Is it still comfortable with the inclusion of Canadian pension funds in the peer group?

A.14. The compensation committee is interested in a comprehensive review of the compensation policy in the coming years.

Q.15. Historically, the Compensation Committee/Board had been exploring changes to its compensation program to potentially adopt a Long-Term Incentive. That change was never adopted a few years ago. Does the Compensation Committee envision bringing discussion of Long-Term Incentive up again as part of its future work plan or is the Committee comfortable with the current incentive structure the way it is?

A.15. The compensation committee is interested in a comprehensive review of the compensation policy in the coming years.