ATTACHMENT A

THE PROPOSED DECISION

BEFORE THE

BOARD OF ADMINISTRATION CALIFORNIAPUBLICEMPLOYEES RETIREMENT SYSTEM

STATE OF CALIFORNIA

In the Matter of the Calculation of Final Compensation of Case No 2015-1236

DAVID A HALL OAH No 2016030664

Respondent

and

SILICON VALLEY CLEAN WATER

Respondent

PROPOSED DEaSION

Karl S Engeman Administrative LawJudge Office of Administrative Heai ihgs State of California heard this matter in SacramentoCalifornia on July 102017

Elizabeth Yelland Senior Staff Counsel represented petitioner Renee Ostrajnder Chief Employer Account Management Diviision California Public Employees Retirement System(CalPERS)

Steven M Berliner Attorney at Law Liebert Cassidy Whitmore representejd respondents DavidA Hall (respondent Hall) andSilicon Valley CleanWater(respondent SVCW)

Evidencewas receivedand the record was leftopen for preparationof a transcriptand to permitthe parties to file closingarguments On September IS 2017 respondent filed their closing brief that was marked exhibit W On September 152017 petitioner ^edher closingbrief that was markedexhibit 20 On September 292017 respondentsfiled their reply brief that was marked exhibit X On September292017 petitioner filed her reply briefwhich was markedexhibit21 The four briefe were madea part of the record Also made a part of the record were CalPERS Request for Official Notice marked exhi it22 Respondents Request for Official Notice marked exhibitY and Respondents Opposition to CalPERS Legal Argument in Support ofRequest for Official Notice marked e^^bit Z Official Notice was taken of all of the matters requested by the parties with the limitation

PUBLIC EMPIOYEES RETIREMENT SYSTEM

PU Pn ^ 20JIL

that only the CalPERS Precedential Decisions may beexpressly relied upon asprecedent in theresolution of thismatterpursuant toGovernment Codesection 1142560 llie matter was submitted on September292017

ISSUE PRESENTED

Whether bonus payments made by respondent SVCW torespondent Hallforhiswork asOperations Director should beconsidered in the determination of respondent HalPs final compensation for calculation of retirement benefits from CalPERS

FACTUAL FINDINGS

1 PetitionerReneeOstrander filed theStatementof Issuessolely in heroffidal capacity as ChiefEmployee Account Management Division California PublicEmployees ^tirement System

Z Respondent Hall wasemployed byrespondent SVCW as Operations Director By virtue ofhis employment respondent Hall is alo^ miscellaneous member ofCalPERS

3 OnFebruary 112015CalPERS received anapplication for service retirement from re^ondent Hall Respondent Hall retired forservice effective May 102015with30 years ofservice c^it andhasbeen receiving hisretirement allowance from thatdate

4 RespondentSVCW is a publicagsncycontractingwith CalPERSfor retirement benefitsfor its eligible employees Theprovisions ofSVCWs contractwith CalPERS are contained in theCalifornia PublicEmployees Retirement Law (PERL) (Gov Codesect2000et seq)

5 CalPERSis a definedbenefitplan Benefitsfor its members are fundedby member andemployer contrlbudons and by interest andotherearnings on those contributions The amountofa member5 contributions is determined by applymg a fixed percentage to the members compensation A publicagencyscontribution is determined by applying a rate to the agencys paymll Usingcertain actuarial assumptions specified by law the CalPERS Board ofAdministrationsets the employercontribution rates on an annual bads

6 The amountof a members service retirement is calculated by applyhig a percentage figure based on the members age on the date ofretirement to the members years ofservice and the members final compensation CalPERS staffmay review tiie salary reported by the employer for the member to ensure Uiat only those items allowed undertiiePERLare included in the membersfinal compensation for purposes ofcalculating the retirement allowance

BEFORE THE

BOARD OF ADMINISTRATION CALIFORNIAPUBLICEMPLOYEES RETIREMENT SYSTEM

STATE OF CALIFORNIA

In the Matter of the Calculation of Final Compensation of Case No 2015-1236

DAVID A HALL OAH No 2016030664

Respondent

and

SILICON VALLEY CLEAN WATER

Respondent

PROPOSED DEaSION

Karl S Engeman Administrative LawJudge Office of Administrative Heai ihgs State of California heard this matter in SacramentoCalifornia on July 102017

Elizabeth Yelland Senior Staff Counsel represented petitioner Renee Ostrajnder Chief Employer Account Management Diviision California Public Employees Retirement System(CalPERS)

Steven M Berliner Attorney at Law Liebert Cassidy Whitmore representejd respondents DavidA Hall (respondent Hall) andSilicon Valley CleanWater(respondent SVCW)

Evidencewas receivedand the record was leftopen for preparationof a transcriptand to permitthe parties to file closingarguments On September IS 2017 respondent filed their closing brief that was marked exhibit W On September 152017 petitioner ^edher closingbrief that was markedexhibit 20 On September 292017 respondentsfiled their reply brief that was marked exhibit X On September292017 petitioner filed her reply briefwhich was markedexhibit21 The four briefe were madea part of the record Also made a part of the record were CalPERS Request for Official Notice marked exhi it22 Respondents Request for Official Notice marked exhibitY and Respondents Opposition to CalPERS Legal Argument in Support ofRequest for Official Notice marked e^^bit Z Official Notice was taken of all of the matters requested by the parties with the limitation

PUBLIC EMPIOYEES RETIREMENT SYSTEM

PU Pn ^ 20JIL

that only the CalPERS Precedential Decisions may beexpressly relied upon asprecedent in theresolution of thismatterpursuant toGovernment Codesection 1142560 llie matter was submitted on September292017

ISSUE PRESENTED

Whether bonus payments made by respondent SVCW torespondent Hallforhiswork asOperations Director should beconsidered in the determination of respondent HalPs final compensation for calculation of retirement benefits from CalPERS

FACTUAL FINDINGS

1 PetitionerReneeOstrander filed theStatementof Issuessolely in heroffidal capacity as ChiefEmployee Account Management Division California PublicEmployees ^tirement System

Z Respondent Hall wasemployed byrespondent SVCW as Operations Director By virtue ofhis employment respondent Hall is alo^ miscellaneous member ofCalPERS

3 OnFebruary 112015CalPERS received anapplication for service retirement from re^ondent Hall Respondent Hall retired forservice effective May 102015with30 years ofservice c^it andhasbeen receiving hisretirement allowance from thatdate

4 RespondentSVCW is a publicagsncycontractingwith CalPERSfor retirement benefitsfor its eligible employees Theprovisions ofSVCWs contractwith CalPERS are contained in theCalifornia PublicEmployees Retirement Law (PERL) (Gov Codesect2000et seq)

5 CalPERSis a definedbenefitplan Benefitsfor its members are fundedby member andemployer contrlbudons and by interest andotherearnings on those contributions The amountofa member5 contributions is determined by applymg a fixed percentage to the members compensation A publicagencyscontribution is determined by applying a rate to the agencys paymll Usingcertain actuarial assumptions specified by law the CalPERS Board ofAdministrationsets the employercontribution rates on an annual bads

6 The amountof a members service retirement is calculated by applyhig a percentage figure based on the members age on the date ofretirement to the members years ofservice and the members final compensation CalPERS staffmay review tiie salary reported by the employer for the member to ensure Uiat only those items allowed undertiiePERLare included in the membersfinal compensation for purposes ofcalculating the retirement allowance

that only the CalPERS Precedential Decisions may beexpressly relied upon asprecedent in theresolution of thismatterpursuant toGovernment Codesection 1142560 llie matter was submitted on September292017

ISSUE PRESENTED

Whether bonus payments made by respondent SVCW torespondent Hallforhiswork asOperations Director should beconsidered in the determination of respondent HalPs final compensation for calculation of retirement benefits from CalPERS

FACTUAL FINDINGS

1 PetitionerReneeOstrander filed theStatementof Issuessolely in heroffidal capacity as ChiefEmployee Account Management Division California PublicEmployees ^tirement System

Z Respondent Hall wasemployed byrespondent SVCW as Operations Director By virtue ofhis employment respondent Hall is alo^ miscellaneous member ofCalPERS

3 OnFebruary 112015CalPERS received anapplication for service retirement from re^ondent Hall Respondent Hall retired forservice effective May 102015with30 years ofservice c^it andhasbeen receiving hisretirement allowance from thatdate

4 RespondentSVCW is a publicagsncycontractingwith CalPERSfor retirement benefitsfor its eligible employees Theprovisions ofSVCWs contractwith CalPERS are contained in theCalifornia PublicEmployees Retirement Law (PERL) (Gov Codesect2000et seq)

5 CalPERSis a definedbenefitplan Benefitsfor its members are fundedby member andemployer contrlbudons and by interest andotherearnings on those contributions The amountofa member5 contributions is determined by applymg a fixed percentage to the members compensation A publicagencyscontribution is determined by applying a rate to the agencys paymll Usingcertain actuarial assumptions specified by law the CalPERS Board ofAdministrationsets the employercontribution rates on an annual bads

6 The amountof a members service retirement is calculated by applyhig a percentage figure based on the members age on the date ofretirement to the members years ofservice and the members final compensation CalPERS staffmay review tiie salary reported by the employer for the member to ensure Uiat only those items allowed undertiiePERLare included in the membersfinal compensation for purposes ofcalculating the retirement allowance

7 During areview ofrespondent Halis reported compensation CalPEpiquestioned the special compensation identified by respondent SVCW as Peiforma^ Pay CBonus) CalPERS examined the special compensation reported byre^ndent SvpWon behalfof respondent Hallin thefonn ofPerformance Pay and determined thatthis Performance Pay(Bonus) wasnoteligible tobe included in thecalculation of resplt ndent Halls final compensation

8 By letter datedJuly282015 respondent Hall andrespondent SVCV^ were notified ofCalPERS determination andadvised of theirappeal rights By letterds ted August 242015respondents Hall and SVCW through their legal counsel filed ti nely appeals andrequested an administrative hearing

9 Theappeal is limited to tiie issuewhether respondent Halls Perfom ance Pay (Bonus) canbe induded in thecalculation ofhisfinal compensatioa

10 Respondent SVCW previously known as SouthBayside SystemAuihority provides waste water treatment services tofour entities in the San Francisco Bay Arearea

Redwood CitytheCityof San Carlos theCityof Belmont andthe WestBaySani taiy-taiy-District (Menlo Paik) Respondent SVCW treats wastewater and discharges it intoSan

Frandsco Bayexcqptfor treated wastewater usedfor inigation Re^ndent SVC V employs approximately 80employees The endty Is governed bya 0gtnmussi6n ai d management personnel indude a Manager Daniel Child fourDepartment Manage s Division Directors and Supervisors As noted respondent Hall was Operations Dif^tor (a Division Director)prior to his retirement

Evaluation Instritments

bullTRADmoNAL AnnualEvaluation

11 During the timeperiod pertinent to thecalculation ofrespondent Ha]is final compensation for retirement purposes management employees wereevaluated ann lally usingtwo somewhatoverlappinginstruments Thefirst was whatmightbe charact prized as a traditional peiformance evaluation fomiat It wasseparated intotwosections Job Expectations andObjectives Under the heading JobExpectations is a listof the possible ratugs tobe usedby theevaluator There arefiverating^ Exemplary FullySuca ssful Successful Somewhat Successful and Unsuccessful Each category is defined epoundExemplai^ isdefined as Demonstrates excq)tioiial peiformance FWy succes iful is defined asMeets all requirements and demonstrates p^ormance b^ond expectat ions and Successfur is defined as Performancemeets eiqiectations for the position The Job Expectation subcategories includeLeadership Judgement and DecisionMaking Communication Planning and Organizmg Meeting Deadlines InterpersonalSkills and Operational and Administrative Knowledge

The entity is referred to as respondent SVCW throughout the Proposed D^^ion even when events occurred under the old name

12 Under the Objectives heading is thesamemenu of possible scoresand definitions of eachof thefive possible latings Beneath thatarepreprinted areas to listup to eight goals from die last evaluation and boxes to indicate the rating for e^h from the possible five ratmgcategories from Exemplaiy toUnsuccessfid lliere is alsoan oveiall scoresectionfor this calegoxy and a place to identify the managers goalsfor tiienext evaluation period The fonn endswithareasforcomments by theemployee hisor her supervisor andthe manager below which aresignature lines foreach

13 RespondentSVCWevaluatedemployees based on a fiscal year July 1 through June30 of the nextcalendar year In the lastfoilampGai yearbefore his retirement respondent Hallwasevaluated by Monte Hamamoto his immediate supervisor Respondent Hallsigned the evduation July 32014 asdidManager Child Department Manager Hamamoto signed theevaluation onJuly52014 Under themain heading Job Expectadons re^ndent Hall scored FullySuccessfor in onecategory (Communication) andSuccessfol in the remaining six areas His overallscorewasSttcce8sfol Underthe Xgtbjectives heading are listed eight goals from thepreviousyears evaluatiotL RespondentHall receivedone Fully Successful score one SomewhatSuccessful scorefour Successful scoresand twoessentially incomplete scoreswithnorating buta conmient that thegoalshad notbeen accomplished His overall rating in the area was Successful

PERFORMANCE PAY EVALUAHON

14 Beginning in 1984the SVCW Manager announced a pay performance program in Admhiistiative Policy number 1984-01 Thepolicy was revised in 1988and approved by the SVCW Commission Itwas later revised in2012 and 2015 and both revisions wereapproved by the Commission TheApril 22015revision ofAdnunistrative Policy number 1984^1 designated Revision Dwas approved by theCommission in Resolution SVCW 15-09onApril 22015 By theterms of theResolution the Administrative Policyrevisions C (November 62012 revision) and D wereretroactively approved and adopted

15 Revision D of Administrative Policynumber 1984-01 is entitled Management Perfomumce Evaluation Compensation andAnnual Performance Incentive Thesection labeled Procedure generally describes the traditional annual performance evaluations of management personnel Thelastparagraph under this heading authorizes theSVCW Manager to adjust salaries for managers ^m the Conuni8sion8 Reference Rate for each position based on the evaluations and recommendations fromsubordinate managers regardhig their own managers and supervisors The adjustments may be no more or less than tenpercent of theReference Rates There follows tiie language relatingto performance pay which reads

As noted below the2012 revision wasnot adopted bytheCommission until 2015 when the Consmission adopted it and revision D retroactively

PERFORMANCE INCgNTiVE

Wlien applicable a PerformanceIncentivewill be given to qualifiedmanagement employees ThePeifbnnanceIncentive shallnotexceed 10percentof theemployees annual salary The amount of the annual Performance Incentive shall be determined on an individual basisbyand at the sole discretion of the SVCW Manager The SVCWCommissionhas the authorityto suspendthe Performance Incentive as part of the budgetqqgtrovaI process onan annual basis

The PerfoimanceIncentive shall be paidIn the last payroll cyde of the fiscal year The Perfonnance Incentive shall be based on theevaluation criteria in thefollowing section

EVALUATION CRITERIA

The SVCW Manager shallevaluate allSVCWDepartment Managers Directors andSupervisorson individual peifonnanoe in establishment and achievement of Authority Department and Personal goals Authority compliance with PPDES permit requirements Authority Departmental and Peisonal safety compliancepersonnel development staff managementAuthority and Department budget p^ormance and interdepartmental retotionships TttePerformance Incentive criteria will includedata fromeachemployees annual performance evaluation alongwith theevaluation of meeting other Authority and Department wide goals

16 RevisionC of the Administrative Policynumber1984-01adoptedb] the

SVCW Manager on November 62012wassubstantially identical except thatit de scribed the payments as PERFORMANCE PAYraquo and included that the payments would fie paid in July of each year

17 DanielChildwashiredas Manager forre^ndent SVCWin April o f2006

He observedthat virmally all of the management personnel were rated as outstandi igushig igush) the traditional evaluationsystem He wasinterested in creating a moreobjective s) stem for measuring their performance focused on theentitysoverallperformance and accomplishment ofeach managers identified goals Hewanted to emphasize three areas

employee safetycompliancewith applicable lawsandregulations pertainingto the ofwaste water and budget performance The second part of the revised Adminlstrfitive Policy 1984-01 reflects tfie general outline ofManager Childs new program

Authority clearly refers to respondent SVCW which as noted above wsjs known earlieras ihe South Bayside System Authority

18 The specifics of the perfonnanoe pay program are contained ina document created by Manager Child and entitled Management Perfoiroance Incentive Pay-Master Evaluation Fonn The master form for FY 2013-2014 was received in evidence and Manager Child described the manner inwhich heused the forms various criteria to determine whether a manager would receive performance incentive pay andhow much Each manager began with 10points reflecting a maximum 10percent bonus payment Points were thereafter added or subtracted for each of the seven criteria in the manner Mr C3iild outlined in his testunony Criterion 1wasfor personal goals attained or missed This was worth one pomt and each goal was a percentage of the one point so ifanemployee bad five goals eachwould be worth a plusorminus 2points Criterion 2 related to losttune acddents definedas serious injurieswhere the employee was unavailable for more thanone day If there werenone in theagency the employee received onepoint if there wasonehe orshelost 5 points if there were more than oneagency-wide theemployee lostonepoint foreach suchinjury beyond one Criterion 3 related to recordable incidents defined asan employee missing lessthan halfa day ofwork If the managers own d^artmenthad such incidents he or she lost 5 pointsfor each if the agency hadmorethan twoeach manager lost one point

19 The next criterionwas basedon respondent SVCWs woxicers compensation esqierience Theinsurance industry establishes an index (Workers CompensationE]^rience Modification Rate) to determine the percentage of the average insurance premium to charge an insured entity A 10score for anentity meant thatthestandard premium wascharged A 125 scoremeant that125 percent of thatpremium wasdue and a 50score yieldeda premiumthat was halfof thestandard charged Respondent SVCWhad a 57score in 2016 and paid thatpercentage ofthe average premium Mr Childs system deducted one pointfor all managers if therateexceeded 85an additional deduction of one point if it exceeded 10 If theratewaslessthan 6all managers received onepoint if itwas less than 4 they all received an additional one pouit

20 Criterion 5 looked at wastewaterpermitexcursionsor the number of times thatrespondent SVCWhad a permitviolation or excursion Eachsuch incident costall managers one point

21 Criterion 6 assessed budget performance Thegoalwas toset and achieve a budget withan acceptable range of plusor minus onepercent The firstareascoredwasthe managersdepartmentbudget Up to threepointscould be lost for a budgetthat was ov^ by more than five percent and up to two points could be gained by a budget that was under forecasts but no more than one percent The agencys overall budget performance also was worthup to two points for the same resultof less thanone percent under budget and all of the numagers lost up to tihree points for theagency being overbudget by more thanonepercent

22 Criterion7 was for Individual Performance which ManagerChild described asperformance above andbeyond andwasrarely rewarded in this^em He described one such instancewhen an employeedeviseda wayto neutralize ammonia in the discharge to avoida foilingscore for dischargeintofresh watercontainingtrout The ammoniareacted

withthepoundresh water and killed the fishwheieasit didnot do so when discharged ii ito the salt water of theSan Francisco Bay A supervisor could recommend up to a 10 percent total

bonus payincrease for sudi outstanding conduct

23 AfterManager Child applied hismaster evaluation foimcriteria to e ich manager those scoring at least 501points reived anannual bonus equal to thek toint scoies This cut off reflected accordmg to Child the Commissions viewofmhat constituted an exemplaiy employee In thelastfew years preceding theadminisi rative hearing approximately 20 to22employees were eligible for the performance payIonus Generally all of themreceived a bonus Thishasbeen the historical pattern excep Iin 2010 when theCommission decided not to fimd theprogram due tofinancial difficulties related to thecountryseconomicdownturn An employee mustcomplete the fiscalyear to r iceive a bonus so respondent Hall did not receive abonus in fiscal year 2014-2015 becauscj he retired before the SscsH year ended

Respondent Hails 2013^2014 PerformancePay Bonus

24 MrChilddescribed themanner in which hissystem rewarded respoi ident Hall witha 6225bonus in this fiscalyear Re^ndent Hallhadeightgoalsfor the yeai each worth 1^ points He lost 275 points for unmet and partially met gpals^ There wsre no ag^ncy-wiltte lost time accidents so he gained a point Therewere no pointslost foragency or departmental recordable incidents Hie Workers Compensation Esqierience M(dification ratingfor respondent SVCWwas 31 so hegained onepoint in thiscategory Thei e were twopemiitexcursions by theagency so respondent Hallwaspenalized twopoints for this

area Req)ondent Halls D^iartmentalbudget wasover-budget by more than5 per raquont so he lost three points No points were added or deducted for the accuracy ofthe agency bult^et The total thusforwasa minus 3275(from thestarting 10points) Underthe indivdual performance category respondent Hallwasdeducted 5 points which thechartexp] ained was for ampilure to check ftec^culations for annual biosolids production and drying be1 cleaning The totaldeductionswere therefore 3775whidi whendeducted from t le starting 10 pointsprovided respondentHall witha performance payscoreof 6225 As tha figure exceeded thethreshold of501 respondent Hall received a bonus of 6^225 percent ltgtf his 2013-2014 FYsalary Thisyielded a bonus of ^proxunateiy $10740 toMr Hall forfiscal year2013-2014

25 Respondent Hall received a bonus in eachyearof his employment si icethe inception of the program except in 2010 when no one received a bonus In 2013-2(114 all of the eligible managers received at least a 5 percent bonus Mr Child was also eligit le and received annual bonuses firom respondent SVCW

26 On March 171993 the Commission adopted Resolution SBSA 93-(6 regarding pay and related compensation for management employees The resoluticjn

^It isunclear how Manager Child arrived athis number for one unmet goal land two thatwere50 percent completed This wouldseem toequate to a 250 deduction

12 Under the Objectives heading is thesamemenu of possible scoresand definitions of eachof thefive possible latings Beneath thatarepreprinted areas to listup to eight goals from die last evaluation and boxes to indicate the rating for e^h from the possible five ratmgcategories from Exemplaiy toUnsuccessfid lliere is alsoan oveiall scoresectionfor this calegoxy and a place to identify the managers goalsfor tiienext evaluation period The fonn endswithareasforcomments by theemployee hisor her supervisor andthe manager below which aresignature lines foreach

13 RespondentSVCWevaluatedemployees based on a fiscal year July 1 through June30 of the nextcalendar year In the lastfoilampGai yearbefore his retirement respondent Hallwasevaluated by Monte Hamamoto his immediate supervisor Respondent Hallsigned the evduation July 32014 asdidManager Child Department Manager Hamamoto signed theevaluation onJuly52014 Under themain heading Job Expectadons re^ndent Hall scored FullySuccessfor in onecategory (Communication) andSuccessfol in the remaining six areas His overallscorewasSttcce8sfol Underthe Xgtbjectives heading are listed eight goals from thepreviousyears evaluatiotL RespondentHall receivedone Fully Successful score one SomewhatSuccessful scorefour Successful scoresand twoessentially incomplete scoreswithnorating buta conmient that thegoalshad notbeen accomplished His overall rating in the area was Successful

PERFORMANCE PAY EVALUAHON

14 Beginning in 1984the SVCW Manager announced a pay performance program in Admhiistiative Policy number 1984-01 Thepolicy was revised in 1988and approved by the SVCW Commission Itwas later revised in2012 and 2015 and both revisions wereapproved by the Commission TheApril 22015revision ofAdnunistrative Policy number 1984^1 designated Revision Dwas approved by theCommission in Resolution SVCW 15-09onApril 22015 By theterms of theResolution the Administrative Policyrevisions C (November 62012 revision) and D wereretroactively approved and adopted

15 Revision D of Administrative Policynumber 1984-01 is entitled Management Perfomumce Evaluation Compensation andAnnual Performance Incentive Thesection labeled Procedure generally describes the traditional annual performance evaluations of management personnel Thelastparagraph under this heading authorizes theSVCW Manager to adjust salaries for managers ^m the Conuni8sion8 Reference Rate for each position based on the evaluations and recommendations fromsubordinate managers regardhig their own managers and supervisors The adjustments may be no more or less than tenpercent of theReference Rates There follows tiie language relatingto performance pay which reads

As noted below the2012 revision wasnot adopted bytheCommission until 2015 when the Consmission adopted it and revision D retroactively

PERFORMANCE INCgNTiVE

Wlien applicable a PerformanceIncentivewill be given to qualifiedmanagement employees ThePeifbnnanceIncentive shallnotexceed 10percentof theemployees annual salary The amount of the annual Performance Incentive shall be determined on an individual basisbyand at the sole discretion of the SVCW Manager The SVCWCommissionhas the authorityto suspendthe Performance Incentive as part of the budgetqqgtrovaI process onan annual basis

The PerfoimanceIncentive shall be paidIn the last payroll cyde of the fiscal year The Perfonnance Incentive shall be based on theevaluation criteria in thefollowing section

EVALUATION CRITERIA

The SVCW Manager shallevaluate allSVCWDepartment Managers Directors andSupervisorson individual peifonnanoe in establishment and achievement of Authority Department and Personal goals Authority compliance with PPDES permit requirements Authority Departmental and Peisonal safety compliancepersonnel development staff managementAuthority and Department budget p^ormance and interdepartmental retotionships TttePerformance Incentive criteria will includedata fromeachemployees annual performance evaluation alongwith theevaluation of meeting other Authority and Department wide goals

16 RevisionC of the Administrative Policynumber1984-01adoptedb] the

SVCW Manager on November 62012wassubstantially identical except thatit de scribed the payments as PERFORMANCE PAYraquo and included that the payments would fie paid in July of each year

17 DanielChildwashiredas Manager forre^ndent SVCWin April o f2006

He observedthat virmally all of the management personnel were rated as outstandi igushig igush) the traditional evaluationsystem He wasinterested in creating a moreobjective s) stem for measuring their performance focused on theentitysoverallperformance and accomplishment ofeach managers identified goals Hewanted to emphasize three areas

employee safetycompliancewith applicable lawsandregulations pertainingto the ofwaste water and budget performance The second part of the revised Adminlstrfitive Policy 1984-01 reflects tfie general outline ofManager Childs new program

Authority clearly refers to respondent SVCW which as noted above wsjs known earlieras ihe South Bayside System Authority

18 The specifics of the perfonnanoe pay program are contained ina document created by Manager Child and entitled Management Perfoiroance Incentive Pay-Master Evaluation Fonn The master form for FY 2013-2014 was received in evidence and Manager Child described the manner inwhich heused the forms various criteria to determine whether a manager would receive performance incentive pay andhow much Each manager began with 10points reflecting a maximum 10percent bonus payment Points were thereafter added or subtracted for each of the seven criteria in the manner Mr C3iild outlined in his testunony Criterion 1wasfor personal goals attained or missed This was worth one pomt and each goal was a percentage of the one point so ifanemployee bad five goals eachwould be worth a plusorminus 2points Criterion 2 related to losttune acddents definedas serious injurieswhere the employee was unavailable for more thanone day If there werenone in theagency the employee received onepoint if there wasonehe orshelost 5 points if there were more than oneagency-wide theemployee lostonepoint foreach suchinjury beyond one Criterion 3 related to recordable incidents defined asan employee missing lessthan halfa day ofwork If the managers own d^artmenthad such incidents he or she lost 5 pointsfor each if the agency hadmorethan twoeach manager lost one point

19 The next criterionwas basedon respondent SVCWs woxicers compensation esqierience Theinsurance industry establishes an index (Workers CompensationE]^rience Modification Rate) to determine the percentage of the average insurance premium to charge an insured entity A 10score for anentity meant thatthestandard premium wascharged A 125 scoremeant that125 percent of thatpremium wasdue and a 50score yieldeda premiumthat was halfof thestandard charged Respondent SVCWhad a 57score in 2016 and paid thatpercentage ofthe average premium Mr Childs system deducted one pointfor all managers if therateexceeded 85an additional deduction of one point if it exceeded 10 If theratewaslessthan 6all managers received onepoint if itwas less than 4 they all received an additional one pouit

20 Criterion 5 looked at wastewaterpermitexcursionsor the number of times thatrespondent SVCWhad a permitviolation or excursion Eachsuch incident costall managers one point

21 Criterion 6 assessed budget performance Thegoalwas toset and achieve a budget withan acceptable range of plusor minus onepercent The firstareascoredwasthe managersdepartmentbudget Up to threepointscould be lost for a budgetthat was ov^ by more than five percent and up to two points could be gained by a budget that was under forecasts but no more than one percent The agencys overall budget performance also was worthup to two points for the same resultof less thanone percent under budget and all of the numagers lost up to tihree points for theagency being overbudget by more thanonepercent

22 Criterion7 was for Individual Performance which ManagerChild described asperformance above andbeyond andwasrarely rewarded in this^em He described one such instancewhen an employeedeviseda wayto neutralize ammonia in the discharge to avoida foilingscore for dischargeintofresh watercontainingtrout The ammoniareacted

withthepoundresh water and killed the fishwheieasit didnot do so when discharged ii ito the salt water of theSan Francisco Bay A supervisor could recommend up to a 10 percent total

bonus payincrease for sudi outstanding conduct

23 AfterManager Child applied hismaster evaluation foimcriteria to e ich manager those scoring at least 501points reived anannual bonus equal to thek toint scoies This cut off reflected accordmg to Child the Commissions viewofmhat constituted an exemplaiy employee In thelastfew years preceding theadminisi rative hearing approximately 20 to22employees were eligible for the performance payIonus Generally all of themreceived a bonus Thishasbeen the historical pattern excep Iin 2010 when theCommission decided not to fimd theprogram due tofinancial difficulties related to thecountryseconomicdownturn An employee mustcomplete the fiscalyear to r iceive a bonus so respondent Hall did not receive abonus in fiscal year 2014-2015 becauscj he retired before the SscsH year ended

Respondent Hails 2013^2014 PerformancePay Bonus

24 MrChilddescribed themanner in which hissystem rewarded respoi ident Hall witha 6225bonus in this fiscalyear Re^ndent Hallhadeightgoalsfor the yeai each worth 1^ points He lost 275 points for unmet and partially met gpals^ There wsre no ag^ncy-wiltte lost time accidents so he gained a point Therewere no pointslost foragency or departmental recordable incidents Hie Workers Compensation Esqierience M(dification ratingfor respondent SVCWwas 31 so hegained onepoint in thiscategory Thei e were twopemiitexcursions by theagency so respondent Hallwaspenalized twopoints for this

area Req)ondent Halls D^iartmentalbudget wasover-budget by more than5 per raquont so he lost three points No points were added or deducted for the accuracy ofthe agency bult^et The total thusforwasa minus 3275(from thestarting 10points) Underthe indivdual performance category respondent Hallwasdeducted 5 points which thechartexp] ained was for ampilure to check ftec^culations for annual biosolids production and drying be1 cleaning The totaldeductionswere therefore 3775whidi whendeducted from t le starting 10 pointsprovided respondentHall witha performance payscoreof 6225 As tha figure exceeded thethreshold of501 respondent Hall received a bonus of 6^225 percent ltgtf his 2013-2014 FYsalary Thisyielded a bonus of ^proxunateiy $10740 toMr Hall forfiscal year2013-2014

25 Respondent Hall received a bonus in eachyearof his employment si icethe inception of the program except in 2010 when no one received a bonus In 2013-2(114 all of the eligible managers received at least a 5 percent bonus Mr Child was also eligit le and received annual bonuses firom respondent SVCW

26 On March 171993 the Commission adopted Resolution SBSA 93-(6 regarding pay and related compensation for management employees The resoluticjn

^It isunclear how Manager Child arrived athis number for one unmet goal land two thatwere50 percent completed This wouldseem toequate to a 250 deduction

PERFORMANCE INCgNTiVE

Wlien applicable a PerformanceIncentivewill be given to qualifiedmanagement employees ThePeifbnnanceIncentive shallnotexceed 10percentof theemployees annual salary The amount of the annual Performance Incentive shall be determined on an individual basisbyand at the sole discretion of the SVCW Manager The SVCWCommissionhas the authorityto suspendthe Performance Incentive as part of the budgetqqgtrovaI process onan annual basis

The PerfoimanceIncentive shall be paidIn the last payroll cyde of the fiscal year The Perfonnance Incentive shall be based on theevaluation criteria in thefollowing section

EVALUATION CRITERIA

The SVCW Manager shallevaluate allSVCWDepartment Managers Directors andSupervisorson individual peifonnanoe in establishment and achievement of Authority Department and Personal goals Authority compliance with PPDES permit requirements Authority Departmental and Peisonal safety compliancepersonnel development staff managementAuthority and Department budget p^ormance and interdepartmental retotionships TttePerformance Incentive criteria will includedata fromeachemployees annual performance evaluation alongwith theevaluation of meeting other Authority and Department wide goals

16 RevisionC of the Administrative Policynumber1984-01adoptedb] the

SVCW Manager on November 62012wassubstantially identical except thatit de scribed the payments as PERFORMANCE PAYraquo and included that the payments would fie paid in July of each year

17 DanielChildwashiredas Manager forre^ndent SVCWin April o f2006

He observedthat virmally all of the management personnel were rated as outstandi igushig igush) the traditional evaluationsystem He wasinterested in creating a moreobjective s) stem for measuring their performance focused on theentitysoverallperformance and accomplishment ofeach managers identified goals Hewanted to emphasize three areas

employee safetycompliancewith applicable lawsandregulations pertainingto the ofwaste water and budget performance The second part of the revised Adminlstrfitive Policy 1984-01 reflects tfie general outline ofManager Childs new program

Authority clearly refers to respondent SVCW which as noted above wsjs known earlieras ihe South Bayside System Authority

18 The specifics of the perfonnanoe pay program are contained ina document created by Manager Child and entitled Management Perfoiroance Incentive Pay-Master Evaluation Fonn The master form for FY 2013-2014 was received in evidence and Manager Child described the manner inwhich heused the forms various criteria to determine whether a manager would receive performance incentive pay andhow much Each manager began with 10points reflecting a maximum 10percent bonus payment Points were thereafter added or subtracted for each of the seven criteria in the manner Mr C3iild outlined in his testunony Criterion 1wasfor personal goals attained or missed This was worth one pomt and each goal was a percentage of the one point so ifanemployee bad five goals eachwould be worth a plusorminus 2points Criterion 2 related to losttune acddents definedas serious injurieswhere the employee was unavailable for more thanone day If there werenone in theagency the employee received onepoint if there wasonehe orshelost 5 points if there were more than oneagency-wide theemployee lostonepoint foreach suchinjury beyond one Criterion 3 related to recordable incidents defined asan employee missing lessthan halfa day ofwork If the managers own d^artmenthad such incidents he or she lost 5 pointsfor each if the agency hadmorethan twoeach manager lost one point

19 The next criterionwas basedon respondent SVCWs woxicers compensation esqierience Theinsurance industry establishes an index (Workers CompensationE]^rience Modification Rate) to determine the percentage of the average insurance premium to charge an insured entity A 10score for anentity meant thatthestandard premium wascharged A 125 scoremeant that125 percent of thatpremium wasdue and a 50score yieldeda premiumthat was halfof thestandard charged Respondent SVCWhad a 57score in 2016 and paid thatpercentage ofthe average premium Mr Childs system deducted one pointfor all managers if therateexceeded 85an additional deduction of one point if it exceeded 10 If theratewaslessthan 6all managers received onepoint if itwas less than 4 they all received an additional one pouit

20 Criterion 5 looked at wastewaterpermitexcursionsor the number of times thatrespondent SVCWhad a permitviolation or excursion Eachsuch incident costall managers one point

21 Criterion 6 assessed budget performance Thegoalwas toset and achieve a budget withan acceptable range of plusor minus onepercent The firstareascoredwasthe managersdepartmentbudget Up to threepointscould be lost for a budgetthat was ov^ by more than five percent and up to two points could be gained by a budget that was under forecasts but no more than one percent The agencys overall budget performance also was worthup to two points for the same resultof less thanone percent under budget and all of the numagers lost up to tihree points for theagency being overbudget by more thanonepercent

22 Criterion7 was for Individual Performance which ManagerChild described asperformance above andbeyond andwasrarely rewarded in this^em He described one such instancewhen an employeedeviseda wayto neutralize ammonia in the discharge to avoida foilingscore for dischargeintofresh watercontainingtrout The ammoniareacted

withthepoundresh water and killed the fishwheieasit didnot do so when discharged ii ito the salt water of theSan Francisco Bay A supervisor could recommend up to a 10 percent total

bonus payincrease for sudi outstanding conduct

23 AfterManager Child applied hismaster evaluation foimcriteria to e ich manager those scoring at least 501points reived anannual bonus equal to thek toint scoies This cut off reflected accordmg to Child the Commissions viewofmhat constituted an exemplaiy employee In thelastfew years preceding theadminisi rative hearing approximately 20 to22employees were eligible for the performance payIonus Generally all of themreceived a bonus Thishasbeen the historical pattern excep Iin 2010 when theCommission decided not to fimd theprogram due tofinancial difficulties related to thecountryseconomicdownturn An employee mustcomplete the fiscalyear to r iceive a bonus so respondent Hall did not receive abonus in fiscal year 2014-2015 becauscj he retired before the SscsH year ended

Respondent Hails 2013^2014 PerformancePay Bonus

24 MrChilddescribed themanner in which hissystem rewarded respoi ident Hall witha 6225bonus in this fiscalyear Re^ndent Hallhadeightgoalsfor the yeai each worth 1^ points He lost 275 points for unmet and partially met gpals^ There wsre no ag^ncy-wiltte lost time accidents so he gained a point Therewere no pointslost foragency or departmental recordable incidents Hie Workers Compensation Esqierience M(dification ratingfor respondent SVCWwas 31 so hegained onepoint in thiscategory Thei e were twopemiitexcursions by theagency so respondent Hallwaspenalized twopoints for this

area Req)ondent Halls D^iartmentalbudget wasover-budget by more than5 per raquont so he lost three points No points were added or deducted for the accuracy ofthe agency bult^et The total thusforwasa minus 3275(from thestarting 10points) Underthe indivdual performance category respondent Hallwasdeducted 5 points which thechartexp] ained was for ampilure to check ftec^culations for annual biosolids production and drying be1 cleaning The totaldeductionswere therefore 3775whidi whendeducted from t le starting 10 pointsprovided respondentHall witha performance payscoreof 6225 As tha figure exceeded thethreshold of501 respondent Hall received a bonus of 6^225 percent ltgtf his 2013-2014 FYsalary Thisyielded a bonus of ^proxunateiy $10740 toMr Hall forfiscal year2013-2014

25 Respondent Hall received a bonus in eachyearof his employment si icethe inception of the program except in 2010 when no one received a bonus In 2013-2(114 all of the eligible managers received at least a 5 percent bonus Mr Child was also eligit le and received annual bonuses firom respondent SVCW

26 On March 171993 the Commission adopted Resolution SBSA 93-(6 regarding pay and related compensation for management employees The resoluticjn

^It isunclear how Manager Child arrived athis number for one unmet goal land two thatwere50 percent completed This wouldseem toequate to a 250 deduction

18 The specifics of the perfonnanoe pay program are contained ina document created by Manager Child and entitled Management Perfoiroance Incentive Pay-Master Evaluation Fonn The master form for FY 2013-2014 was received in evidence and Manager Child described the manner inwhich heused the forms various criteria to determine whether a manager would receive performance incentive pay andhow much Each manager began with 10points reflecting a maximum 10percent bonus payment Points were thereafter added or subtracted for each of the seven criteria in the manner Mr C3iild outlined in his testunony Criterion 1wasfor personal goals attained or missed This was worth one pomt and each goal was a percentage of the one point so ifanemployee bad five goals eachwould be worth a plusorminus 2points Criterion 2 related to losttune acddents definedas serious injurieswhere the employee was unavailable for more thanone day If there werenone in theagency the employee received onepoint if there wasonehe orshelost 5 points if there were more than oneagency-wide theemployee lostonepoint foreach suchinjury beyond one Criterion 3 related to recordable incidents defined asan employee missing lessthan halfa day ofwork If the managers own d^artmenthad such incidents he or she lost 5 pointsfor each if the agency hadmorethan twoeach manager lost one point

19 The next criterionwas basedon respondent SVCWs woxicers compensation esqierience Theinsurance industry establishes an index (Workers CompensationE]^rience Modification Rate) to determine the percentage of the average insurance premium to charge an insured entity A 10score for anentity meant thatthestandard premium wascharged A 125 scoremeant that125 percent of thatpremium wasdue and a 50score yieldeda premiumthat was halfof thestandard charged Respondent SVCWhad a 57score in 2016 and paid thatpercentage ofthe average premium Mr Childs system deducted one pointfor all managers if therateexceeded 85an additional deduction of one point if it exceeded 10 If theratewaslessthan 6all managers received onepoint if itwas less than 4 they all received an additional one pouit

20 Criterion 5 looked at wastewaterpermitexcursionsor the number of times thatrespondent SVCWhad a permitviolation or excursion Eachsuch incident costall managers one point

21 Criterion 6 assessed budget performance Thegoalwas toset and achieve a budget withan acceptable range of plusor minus onepercent The firstareascoredwasthe managersdepartmentbudget Up to threepointscould be lost for a budgetthat was ov^ by more than five percent and up to two points could be gained by a budget that was under forecasts but no more than one percent The agencys overall budget performance also was worthup to two points for the same resultof less thanone percent under budget and all of the numagers lost up to tihree points for theagency being overbudget by more thanonepercent

22 Criterion7 was for Individual Performance which ManagerChild described asperformance above andbeyond andwasrarely rewarded in this^em He described one such instancewhen an employeedeviseda wayto neutralize ammonia in the discharge to avoida foilingscore for dischargeintofresh watercontainingtrout The ammoniareacted

withthepoundresh water and killed the fishwheieasit didnot do so when discharged ii ito the salt water of theSan Francisco Bay A supervisor could recommend up to a 10 percent total

bonus payincrease for sudi outstanding conduct

23 AfterManager Child applied hismaster evaluation foimcriteria to e ich manager those scoring at least 501points reived anannual bonus equal to thek toint scoies This cut off reflected accordmg to Child the Commissions viewofmhat constituted an exemplaiy employee In thelastfew years preceding theadminisi rative hearing approximately 20 to22employees were eligible for the performance payIonus Generally all of themreceived a bonus Thishasbeen the historical pattern excep Iin 2010 when theCommission decided not to fimd theprogram due tofinancial difficulties related to thecountryseconomicdownturn An employee mustcomplete the fiscalyear to r iceive a bonus so respondent Hall did not receive abonus in fiscal year 2014-2015 becauscj he retired before the SscsH year ended

Respondent Hails 2013^2014 PerformancePay Bonus

24 MrChilddescribed themanner in which hissystem rewarded respoi ident Hall witha 6225bonus in this fiscalyear Re^ndent Hallhadeightgoalsfor the yeai each worth 1^ points He lost 275 points for unmet and partially met gpals^ There wsre no ag^ncy-wiltte lost time accidents so he gained a point Therewere no pointslost foragency or departmental recordable incidents Hie Workers Compensation Esqierience M(dification ratingfor respondent SVCWwas 31 so hegained onepoint in thiscategory Thei e were twopemiitexcursions by theagency so respondent Hallwaspenalized twopoints for this

area Req)ondent Halls D^iartmentalbudget wasover-budget by more than5 per raquont so he lost three points No points were added or deducted for the accuracy ofthe agency bult^et The total thusforwasa minus 3275(from thestarting 10points) Underthe indivdual performance category respondent Hallwasdeducted 5 points which thechartexp] ained was for ampilure to check ftec^culations for annual biosolids production and drying be1 cleaning The totaldeductionswere therefore 3775whidi whendeducted from t le starting 10 pointsprovided respondentHall witha performance payscoreof 6225 As tha figure exceeded thethreshold of501 respondent Hall received a bonus of 6^225 percent ltgtf his 2013-2014 FYsalary Thisyielded a bonus of ^proxunateiy $10740 toMr Hall forfiscal year2013-2014

25 Respondent Hall received a bonus in eachyearof his employment si icethe inception of the program except in 2010 when no one received a bonus In 2013-2(114 all of the eligible managers received at least a 5 percent bonus Mr Child was also eligit le and received annual bonuses firom respondent SVCW

26 On March 171993 the Commission adopted Resolution SBSA 93-(6 regarding pay and related compensation for management employees The resoluticjn

^It isunclear how Manager Child arrived athis number for one unmet goal land two thatwere50 percent completed This wouldseem toequate to a 250 deduction

withthepoundresh water and killed the fishwheieasit didnot do so when discharged ii ito the salt water of theSan Francisco Bay A supervisor could recommend up to a 10 percent total

bonus payincrease for sudi outstanding conduct

23 AfterManager Child applied hismaster evaluation foimcriteria to e ich manager those scoring at least 501points reived anannual bonus equal to thek toint scoies This cut off reflected accordmg to Child the Commissions viewofmhat constituted an exemplaiy employee In thelastfew years preceding theadminisi rative hearing approximately 20 to22employees were eligible for the performance payIonus Generally all of themreceived a bonus Thishasbeen the historical pattern excep Iin 2010 when theCommission decided not to fimd theprogram due tofinancial difficulties related to thecountryseconomicdownturn An employee mustcomplete the fiscalyear to r iceive a bonus so respondent Hall did not receive abonus in fiscal year 2014-2015 becauscj he retired before the SscsH year ended

Respondent Hails 2013^2014 PerformancePay Bonus

24 MrChilddescribed themanner in which hissystem rewarded respoi ident Hall witha 6225bonus in this fiscalyear Re^ndent Hallhadeightgoalsfor the yeai each worth 1^ points He lost 275 points for unmet and partially met gpals^ There wsre no ag^ncy-wiltte lost time accidents so he gained a point Therewere no pointslost foragency or departmental recordable incidents Hie Workers Compensation Esqierience M(dification ratingfor respondent SVCWwas 31 so hegained onepoint in thiscategory Thei e were twopemiitexcursions by theagency so respondent Hallwaspenalized twopoints for this

area Req)ondent Halls D^iartmentalbudget wasover-budget by more than5 per raquont so he lost three points No points were added or deducted for the accuracy ofthe agency bult^et The total thusforwasa minus 3275(from thestarting 10points) Underthe indivdual performance category respondent Hallwasdeducted 5 points which thechartexp] ained was for ampilure to check ftec^culations for annual biosolids production and drying be1 cleaning The totaldeductionswere therefore 3775whidi whendeducted from t le starting 10 pointsprovided respondentHall witha performance payscoreof 6225 As tha figure exceeded thethreshold of501 respondent Hall received a bonus of 6^225 percent ltgtf his 2013-2014 FYsalary Thisyielded a bonus of ^proxunateiy $10740 toMr Hall forfiscal year2013-2014

25 Respondent Hall received a bonus in eachyearof his employment si icethe inception of the program except in 2010 when no one received a bonus In 2013-2(114 all of the eligible managers received at least a 5 percent bonus Mr Child was also eligit le and received annual bonuses firom respondent SVCW

26 On March 171993 the Commission adopted Resolution SBSA 93-(6 regarding pay and related compensation for management employees The resoluticjn

^It isunclear how Manager Child arrived athis number for one unmet goal land two thatwere50 percent completed This wouldseem toequate to a 250 deduction

established reference payfor themanagement staffandauthorized the Commissions Manager toadjust thereference pay up ordown no more than 10percent TheCommission also included a paragraph announcing itsintention todevelop an incentive compensation plan for Management ]^ployees during the eisuing 12-monamp period As atransition the Manager wasauthorized to approve a lump sum payment tomanagement employees for extraordinary performance of dutyand outstanding managerial achievements for the Authority Unlike subsequent such resolutions there wasno reference to Administrative Policy number 1984-01 Theevidence did notestablish how ifat all this expression of intent ledto the Commissionsadoption of the revised 1984Administrative Policy thatmore specifically laid out the performance pay program Given that Manager Child did not begin until 2006 and implemented hispayperfonnance plan thereafter the Commission was necessarily referring to the traditional evaluation plan as thebasisfor bonuspayments for extraordinary performance ofduty and outstanding managerial achievements m the1993 Resolution

CalPERS HistoricalApproval ofSpecial Compensationfor Performance Pay for RespondentSVCWRetirees

27 LindaBruemmer respondent SVCWs Administrative Services Director since 2000 testified and established that CalFERS had inquired about the inclusionof perfonnance pay in the calculation of retirement benefits onmany occasions prior to the disallowance of such payfor respondent Hall In approximately 15instances CdPERS sought additional documents from respondent SVCWwhichwere provided There were no follow-up inquiries from CalPERS after thedocuments were provided Ms Bruemmer recalled that su^ inquiries occurred in all but three cases in which amanager retired Linda Bmemmer was aware of two retirees who received retroactive increases in their retirement allowances basedon the inclusion of the performance payafter additional documentation was provided to CalPERS Prior to a CalPERS audit in 2015 no one from CalPERS disallowed the inclusion of performance payin retirees final compensation calculations

28 On or about June 162014 a CalPERSrepresentative emailed Ms Bruenuner regarding performance payments Ms Bruemmer responded and attachedCommission policystatementsand resolutionsaddressing the issue Ms Bruemmernoted that there was no standalone resolution specifically addressing the issuebut the payments had been reported as PERSable^ compensation to CalPERS The CalPERS representative responded by email that the documents looked fine but the criteriafor paymentwere a little vague He added that according to the applicable regulation the bonus pay is only for Superior^ performance He closed by stating that theredid nothave to be a standalone resolutionfor perfonnance pay

29 Ms Bruemmer confirmed that all ofthe Conunissions Policy statements and Resolutions were available for inspection by the public However neither her testimony nor

^This is a shorthand reference to compensation that may beused todetermine a members retirement allowance

any other evidence established that Manager Childs master spreadsheet for the calculation of peifomiance payfor managers wasavailable forpublic scrutiny

LEGAL CONCLUSIONS

1 Govenunent Code section 20636 subdivisions (a) through (Qreads

(a) Compensation eamable a member means thepayrateand spec^ compensation ofthe member^ as defined by subdivisions (b)(c)and(^ andas limited bySection 21752^

(bXOPayrate means the normal monthly rate ofpayor base payof themember paid incash tosimilarly situated members of thesamegroupor dass of employment forservices rendered on afoil-time ba^ during noimal woridng hours pursuant to publicly available payschedules Payrate fora member who IsnotIna group orclass means the monthly rate ofpayor base payof the member paidincashandpursuant topublicly availablepayschedules forservices rendered on a foil-time basisduring normal working hours subject to the limitations of paragraph (2)of subdivision (e)

(2) Payrate shall includean amountdeducted from a members salary for any of the following

(A)Participation Ina deferred compensation plan

(B) Payment forpartidpation Ina retirement plan thatmeets the requirements ofSection 401(a) ofTitle 26of the Umted States Code

(Q Payment Intoa money purchase pension planand trust that meets the requirements of Section401(a)ofTitle 26 of the United States Code

p) Partidpation hia flexible benefits program

(3)The computation for a leavewithout payof a member shall be basedon the compensation eamable by him or her at the beginning of the absence

(4)The computation for time priortoentering state service shall bebasedon thecompensation eaniable byhimor her in the positionfirst heldby him or herin stateservice

(cXl)Special compensation ofa member includes a payment reived forspecial skills knowledge abilities work assignment workdays or hours or otherworkconditions

(2)Special compensation shall be Umited to thatwhidi is receivedby a memberpursuant to a laborpolicyor agreementor as otherwiserequired by stateor federal law to similarly situatedmembersof a groupor classof employment that is in addition to payrate If anindividual tsnotpartof a group or class special compensation shall be limited to that which the boarddetermines is leceived by similarly situated members in theclosest related group orclass that is inaddition topayrate subject to thelimitations ofparagraph (2)of subdivision (e)

(3)Spedal compensation shall be forservices rendered during normal workmg hours and when reported to the board the employer shall identify the payperiod inwhich thespecial compensation was earned

(4)Special compensation may include the full monetary value of normal contramputions paid to the board by the employer on behalfof themember andpursuant toSection 20691 if the employer^ labor policy oragreement ^dfically provides for the inclusionof the normal contribution payment in compensation eamable

(5) The monetary value ofaservice ornoncash advantage furnished by the employer tothe member except asexpressly and specifically provided inthis part isnot ^tecial compensation unless regulations promulg^ited bythe board specificaUy determme that value to be special compensatioii

(6)Theboard shall promulgate regulations that delineate more specificaUy and exclusively what constitutes spedal compensation asused in this section Auniform allowance the monetary value of employerprovided uniforms holiday pay and premium payforhours worked within thenormally raquoplusmneduled or regular working hoursthatare in excessof the statutory maximum workweek or work period applicable to the employee under Section 201 etseqofHtle 29of theUnited

10

States Code shall beincluded as^dal compensation and appropriately defined In those regulations

(7) Spedal compensation does not include anyofthe following

(A)Finalsettlement pay

(B) Payments madefor additional services rendered outsideof normal working hours whether paid inlump sum or otherwise

(C) Other payments the board has not affirmatively determined to be special compensation

(d) Notwithstanding any other provision of law payrate and specialcompensation schedules ordinances or similar documents shall be public records available forpublic scrutiny

(e)(1)As used in this part gioup or classofemployment means a riumber ofemployees considered together because they share similarities in job duties worklocation collective bargainingunitor other logical work-related grouping One employeemay not be considered a group or dass

(2) Inaeases incompensaUon eamable granted to anemployee whois not in a groupor classshallbelimited duringthe final compensation period applicable to the employees as wellas the twoyearsimmediately preceding theiSnal compensation period to the average increaseincompensation earnableduring the sameperiodreported by the employer forall employees whoare in thesamemembership classification exc^t asmay otherwl^ bedetermined pursuant toregulations adopted by theboard that establishreasonable standards forgranting exceptions

(f)As used in thispart final settlement pa means payor cash conversions ofemployee benefits that areinexcess of compensation eamable that aregranted or awarded to a member in connectionwith or in antidpadonof a separationfrom employment The boardshall promulgate regulations that delineate more specificallywhat constitutesfinal settlement pay

2 TheBoard of Administration of CalPERS haspromulgated a regulat^nthat exdustvely and definitively delineates special compensation California Code oi Regulations title2 section571 reads in pertfaient part

11

(a)The following list exclusively identifies and defines spedal compensation items formembers employed bycontracting agency and^ool employers that must be reported to CalPERS if theyare contained ina written labor poli^ or agreement

(1) INCENTIVE PAY

Bonus-Compensation toemployees forsuperior performance suchas annual perfoimance bonus or merit pay Ifprovided onlyduring themembers final compensation period it shall be excluded fiom final compensation as finalsettlement pay A program or system mustbe inplacetoplanand identify performance goals and objectives

ra-ra

(b)The Board hasdetermined thatall items of special compensation listedin subsecdon (a)ate

(1) Containedin a written laborpoli^ or agreement as defined at Government Code section2Q049 providedthat the document

(A)Has beenduly approved andadopted by theemployers governing bodyin accordance with requhements of applicable publicmeetingslaws

(B) Indicates the conditions forpayment of theitemof special compensation including butnot limited toeligibility for and amountof thespecialcompensation

(C)Is posted at theoffice of theemployer or immediately accessible andavailable forpublicreview fromtheemployer during normalbusinesshours or posted on theemployer^ internet website

(D)Indicates an effective dateand date of any revisions

(E) Is retainedby the employer andavailablefor publicin^)ectioo for not less thim five years and

(F) Does not reference anotherdocumentin lieu of disclosing tte item ofspecial compensation

(2) Available to all members in thegroupor class

12

(3) Part ofnonnally required duties

(4) Performed during normal hours ofemployment

(5)Paid periodically asearned

(6) Historically consistent with prior paymeAts for the job classification

(7) Not paid exclusively in the final compensation period

(8) Not final settlement pay and

(9)Notcreating an unfunded liability overandabove PERS actuarial assumptions

(c)Only items listed insubsection (a) have been affirmatively determined tobespecial compensation All items ofspecial compensation reported toPERS wOl besubject to review for continuedconfoiroitywithall of thestandardslistedin subsection(b)

(d) If an item of specialcompensation is not listed in subsection (a)or is out of compliance withanyof thestandards in subsection (b) as reported foran individual thenit shall notbe used to calculatefinal compensation for that individual

3 An applicant for retirement benefits has the burden of proof to estab^ aright to theentitlement absenta statutoiy provision to the contrary preatorexv Boardof Administration (1979)91 CalApp3d 57) Anyambiguity or uncertainty in the mlt aning of pension legislation must be resolved In fevor of the pensioner butsuch constnictio must be consistent with theclear language and purpose of thestatute (Venmra County uty SheriffsAssn v BoardofRetirement (1997) 16 Cal4th 483490)^

4 The parties agreed that the Inclusion ofrespondent Halls performai tee pay asspecial compensation depends upon whether itmeets the requirements for a boi lus as wellas the restrictions applicable to all special compensation set out Insubdivision (b)of California Code of Regulations tiUe 2 section 571 As explained below the pexfo mance

^The parties disagreed about who carried the burden ofproof In this matter and adidressed the issue at length in their respective briefs However burden of proof v as of littleconsequence in the resolution of thismatteras thefocts werevirtually undi^i tedand whether the performance paywas a legitimate bonusunderapplicable lawwas an i sue of law not fact

13

paydoes notqualify as a bonus thatmay beproperly considered as special compensation in the calculationofrespondentHalls retirement tenefits

5 Government Code section 20636 subdivision (a) readin conjunction with subdivision (cXi)gt authorizes theconsideration ofspecial compensation in theform or payments to an employee forspecal skills knowledge abilities Subdivision (cX2) requires that^t all special compensation be paid pursuant to a laborpolicy or agreement or asotherwise required bystateor federal lawtosimilarly situated members of a group or dass of employment that is in addition topayrate Thestatute directs in subdivision (cXlt9gttiiat CalPE^ promulgate regulations that delineate more specifically and exdusively what constitutes specialcompensation as usedin Ms section Finally thestatute in subdivision (cX7)(C)makes dear that only thosepayments that CalPERS has affimuitively detennined to ^dal compensation are tobe considered in thecalculation of retirement benefits (SeeDiCarlo v County ofMonterey (1971) 12 CalApp5th 468483-484Cityof Pleasantonv Board ofAdministration ofthe California PublicEmployees Retirement System (2012) 211Cal App4th 522527)

6 CalPERS promulgated a regulation more specifically definmg specialcompensation and the requirements for conaderation ofsuch payments as sucL Under the heading INCENTIVE in subdivision (a)(1) of California CodeofRegulations title2 section 571 isthe deflation ofaBonus redted above authorizing compensation to employees for superior performance Subdivision (b)of theimplementing regulation lists the requirements forall spedal compensation Those pertinent to respondent Halls performance pay arethat such bonus payments be (1)contained in a written labor policy or agreement thatisdidyapproved andadopted by the entitys governing body (2) thatsuch document indicate the conditions for payment of thebonusinduding eligiWityfor and the amount of the special compensation (3)thatthedocument is posted at theentitysoffice or immediately accessible for publicreview and(4) thatthedocument doesnot reference anotherdocument to satisfy diese conditions Subdivisions (c) and (d) of ttte regulation clarify thatonlyitemslistedin the regulation andcomplying witii therequirements of subdivision (b)qualify as special compensation forcalculation offinalcompensation for retirement purposes

SuperiorPerformanceRequirement

7 Thefirst problem witiitiie performance payprovided respondent Hallis ttat it wasnotbasedon re^ndent Halls superior performance Respondent Halls traditional evaluation prepared by his immediate supervisor and approved by respondent SVCWs Manager rated him overallas successful for fiscal year 2013-2014 In the individual categories his best score was a single fullysuccessful His scoresfor having met tiie years goals for him ranged firom fiillysuccessful to somewhatsuccessful witii two incompletes Re^ondent Hallreceived no exemplary ratingin any evaluation category a score that is essentiaUy the equivalent ofsuperiorperformance

14

8 Respondent SVCWs Manager explained that only respondent Hall perfoimance relating to his goals was used to deteimine whether he received peifo manoe pay and the amount However asnoted respondents perfoimance inthis one aie iwas hudly superor having ftiled to accompli^ cme goal and only partially partoftwo othergoals ofthe eight goals for the fiscal year In ampct he lost points in thi sarea in Mr Childs system Respondent also fared poorly in the Managers system for his budgetaiy projections and individual perfoimanoe He lost the maximum three points for his ^ure to forecast hisdepartments budget accurately ashewas over-budget bymore than 5 leroent In the category thatMrChild described as rewarding above and beyond perfom ance re^ndent HaU was actually penalized 5 points for failure to check required calcu iadons which contributed to his department excee^g its forecasted budget

9 There areat least two other problems with using Manager CMdsspreadsheet tojustify performance payfor respondent Hall Thefirstrelates to thewayin whic lithe managers were assessed Ofthe seven criteriausedto assessa managers performs neeonly threeassessed themanagers individual performance TheDther four werebased rholly or inpart on thepeiformance of respondent SVCW asa whole Thismaybe a veryeCfective wayto bolstercohesiveness amongmanagers and foster recognition of theirre^ec ive roles in theentitysoverall success butsucha system is notdesigned to isolate individu ilsuperior perfommnce In fact thissystem resulted inperformance payforallor virtually a 1 of respondent SVCW management personnel year-to-year The second pndilem relat is toMr Childs attempt to differentiate hisprogram fiomthe traditional evaluations provid 4 nianagers gt^ile Mr Qiild may be conect in describing his system as more objec ive than the subjective traditional evaluation byrespondent Halls supervisor thelatter was focused exclusively on respondent Halls perfomiance as a department duector

ProgramRequirementsforSpecialCompetition

10 Respondent SVCW adopted Administrative Policy 1984-01 address ng management petforaiance evaluations The original document was notintroduced nto evidence but Revisions C andD werereceived inevidence Revision C was apprc vedby Manager Child onNovember 62012and Revision Dwas iqiproved byManager (hOdon April 22015 before respondent Hall retired butafter hereceived hispeifonnance pay bonus for fiscal year2013-2014 Asnoted above apart from minordifferences he documents areessentially identical OnApril 22015 theCommisaon of respond nt SVCW adopted revisions C and DofAdministrative Policy 1984-01 retroactivel On December 62012 the Commission without referring to Administrative Policy 1914-01 Revision C authorized the Manager in accordance withthe Authoritys Performai ce Compensation Policy an administrative policy approved by the Authoritys Conrni ission to approve a lump sum payment ofno more than 10 percent ofamanagers salary Resolution SBSA13-31 adopted by the Commission on July 112013 includes the same

11 The relevant portions ofAdministradve Policy number 1984-01 mdashy and D describe in a veiy general manner the structure of re^ndent SVCWs pr ^ payprogram formanagers Theyprovide thatmanagers weretobe evaluated on idividual

15

peifonnance in establishment and achievement ofAuthority Department andPersonal goals Authority compliance with PPDES permit requirements Authority Departmental and Personal safetycompliance personnel development staffmanagement Authority and Department budgetperformance and Interdepartmental relationships The Performance Incentive criteria will include datafrom each employees annual performance evaluation along with theevaluation ofmeeting other Authority and Department wide goals

12 Respondent SVCWs Administrative Policy 84-01 as revised doesgenerally describe the performancepay programandmaybe fledrly characterized as a labor policy TheConunission of respondent SVCW retroactively adopted theAdministrative Policy as revised by the identified Resolutions Both theAdministrative Policyand Resolutions are readily accessible to the public Thusthese requirements for any formof special compensation outlinedin subdivision (b)of California Codeof Regulations title2 section 571 are satisfiedas they relate to Administrative Policy 844)1

13 Howeversubdivision (b)subsection (IXB) has not been satisfied As quoted above this provision requires that the labor polilt^ in^cates theconditions for payment of the item ofspecial compensation including but not Ihnited to eilgibility for and amount of the ^ledal compensation Here these elementsare only discemable by access to respondent SVlt^ Managers Management Performance Incentive Pay-Master Evaluation Form This is thedocument that encompasses theconditions for payment of a management bonus including the method of calculating whether a bonusis dueand Ifso how much Hieie is nothing in the record tosuggest thattheSVCW Conunission approved theprogram cryptically described in theManagers spreadsheet Moreover even thisdocument does not includethat managersbegin with 10pouitsand the plusesand minusesfor each category are added to or subtracted from that number The documentdoes not convey that the end number provides thepercentage increase of the management employees salaryas a performance paybonus Most importantly thedocument doesnot include thevery critical 501 points threshold for anyperformance pay bonus Manager Child testified thatthis threshold was establishedby the Commission to reflect superior^ performance but thereis no document in evidenceconfiimlng tiieCommisaons decision to set sucha threshold Even ifevidence existed that the Commisdon Bad properly established such a threshold a threshold score of 501 ofa possible 10pointsdoesnotconnotesuperior performance

14 In summaryrespondent SVCW Manager^s spreadsheet is respondent SVCWs actualperformance pay program Theevidence did notestablish whenItwas first created other thansome timeafter Aprilof 2006andwhetherthe Managerwas solely responsible for Itscreationandany modifications hefelt appropriate This document wasthe basis for year-to-year bonus payments to all management personnel Includingthe Manager himself There was no documented approval by theSVCWCommission for the program and no document^ approval for the threshold 501 score used to determine when a bonus was payable

15 There was also no evidence esta)gtlishing that the SVCW Managers spreadsheet was readily available for public scrutfaiy The CalPERS Board ofAdministration

16

any other evidence established that Manager Childs master spreadsheet for the calculation of peifomiance payfor managers wasavailable forpublic scrutiny

LEGAL CONCLUSIONS

1 Govenunent Code section 20636 subdivisions (a) through (Qreads

(a) Compensation eamable a member means thepayrateand spec^ compensation ofthe member^ as defined by subdivisions (b)(c)and(^ andas limited bySection 21752^

(bXOPayrate means the normal monthly rate ofpayor base payof themember paid incash tosimilarly situated members of thesamegroupor dass of employment forservices rendered on afoil-time ba^ during noimal woridng hours pursuant to publicly available payschedules Payrate fora member who IsnotIna group orclass means the monthly rate ofpayor base payof the member paidincashandpursuant topublicly availablepayschedules forservices rendered on a foil-time basisduring normal working hours subject to the limitations of paragraph (2)of subdivision (e)

(2) Payrate shall includean amountdeducted from a members salary for any of the following

(A)Participation Ina deferred compensation plan

(B) Payment forpartidpation Ina retirement plan thatmeets the requirements ofSection 401(a) ofTitle 26of the Umted States Code

(Q Payment Intoa money purchase pension planand trust that meets the requirements of Section401(a)ofTitle 26 of the United States Code

p) Partidpation hia flexible benefits program

(3)The computation for a leavewithout payof a member shall be basedon the compensation eamable by him or her at the beginning of the absence

(4)The computation for time priortoentering state service shall bebasedon thecompensation eaniable byhimor her in the positionfirst heldby him or herin stateservice

(cXl)Special compensation ofa member includes a payment reived forspecial skills knowledge abilities work assignment workdays or hours or otherworkconditions

(2)Special compensation shall be Umited to thatwhidi is receivedby a memberpursuant to a laborpolicyor agreementor as otherwiserequired by stateor federal law to similarly situatedmembersof a groupor classof employment that is in addition to payrate If anindividual tsnotpartof a group or class special compensation shall be limited to that which the boarddetermines is leceived by similarly situated members in theclosest related group orclass that is inaddition topayrate subject to thelimitations ofparagraph (2)of subdivision (e)

(3)Spedal compensation shall be forservices rendered during normal workmg hours and when reported to the board the employer shall identify the payperiod inwhich thespecial compensation was earned

(4)Special compensation may include the full monetary value of normal contramputions paid to the board by the employer on behalfof themember andpursuant toSection 20691 if the employer^ labor policy oragreement ^dfically provides for the inclusionof the normal contribution payment in compensation eamable

(5) The monetary value ofaservice ornoncash advantage furnished by the employer tothe member except asexpressly and specifically provided inthis part isnot ^tecial compensation unless regulations promulg^ited bythe board specificaUy determme that value to be special compensatioii

(6)Theboard shall promulgate regulations that delineate more specificaUy and exclusively what constitutes spedal compensation asused in this section Auniform allowance the monetary value of employerprovided uniforms holiday pay and premium payforhours worked within thenormally raquoplusmneduled or regular working hoursthatare in excessof the statutory maximum workweek or work period applicable to the employee under Section 201 etseqofHtle 29of theUnited

10

States Code shall beincluded as^dal compensation and appropriately defined In those regulations

(7) Spedal compensation does not include anyofthe following

(A)Finalsettlement pay

(B) Payments madefor additional services rendered outsideof normal working hours whether paid inlump sum or otherwise

(C) Other payments the board has not affirmatively determined to be special compensation

(d) Notwithstanding any other provision of law payrate and specialcompensation schedules ordinances or similar documents shall be public records available forpublic scrutiny

(e)(1)As used in this part gioup or classofemployment means a riumber ofemployees considered together because they share similarities in job duties worklocation collective bargainingunitor other logical work-related grouping One employeemay not be considered a group or dass

(2) Inaeases incompensaUon eamable granted to anemployee whois not in a groupor classshallbelimited duringthe final compensation period applicable to the employees as wellas the twoyearsimmediately preceding theiSnal compensation period to the average increaseincompensation earnableduring the sameperiodreported by the employer forall employees whoare in thesamemembership classification exc^t asmay otherwl^ bedetermined pursuant toregulations adopted by theboard that establishreasonable standards forgranting exceptions

(f)As used in thispart final settlement pa means payor cash conversions ofemployee benefits that areinexcess of compensation eamable that aregranted or awarded to a member in connectionwith or in antidpadonof a separationfrom employment The boardshall promulgate regulations that delineate more specificallywhat constitutesfinal settlement pay

2 TheBoard of Administration of CalPERS haspromulgated a regulat^nthat exdustvely and definitively delineates special compensation California Code oi Regulations title2 section571 reads in pertfaient part

11

(a)The following list exclusively identifies and defines spedal compensation items formembers employed bycontracting agency and^ool employers that must be reported to CalPERS if theyare contained ina written labor poli^ or agreement

(1) INCENTIVE PAY

Bonus-Compensation toemployees forsuperior performance suchas annual perfoimance bonus or merit pay Ifprovided onlyduring themembers final compensation period it shall be excluded fiom final compensation as finalsettlement pay A program or system mustbe inplacetoplanand identify performance goals and objectives

ra-ra

(b)The Board hasdetermined thatall items of special compensation listedin subsecdon (a)ate

(1) Containedin a written laborpoli^ or agreement as defined at Government Code section2Q049 providedthat the document

(A)Has beenduly approved andadopted by theemployers governing bodyin accordance with requhements of applicable publicmeetingslaws

(B) Indicates the conditions forpayment of theitemof special compensation including butnot limited toeligibility for and amountof thespecialcompensation

(C)Is posted at theoffice of theemployer or immediately accessible andavailable forpublicreview fromtheemployer during normalbusinesshours or posted on theemployer^ internet website

(D)Indicates an effective dateand date of any revisions

(E) Is retainedby the employer andavailablefor publicin^)ectioo for not less thim five years and

(F) Does not reference anotherdocumentin lieu of disclosing tte item ofspecial compensation

(2) Available to all members in thegroupor class

12

(3) Part ofnonnally required duties

(4) Performed during normal hours ofemployment

(5)Paid periodically asearned

(6) Historically consistent with prior paymeAts for the job classification

(7) Not paid exclusively in the final compensation period

(8) Not final settlement pay and

(9)Notcreating an unfunded liability overandabove PERS actuarial assumptions

(c)Only items listed insubsection (a) have been affirmatively determined tobespecial compensation All items ofspecial compensation reported toPERS wOl besubject to review for continuedconfoiroitywithall of thestandardslistedin subsection(b)

(d) If an item of specialcompensation is not listed in subsection (a)or is out of compliance withanyof thestandards in subsection (b) as reported foran individual thenit shall notbe used to calculatefinal compensation for that individual

3 An applicant for retirement benefits has the burden of proof to estab^ aright to theentitlement absenta statutoiy provision to the contrary preatorexv Boardof Administration (1979)91 CalApp3d 57) Anyambiguity or uncertainty in the mlt aning of pension legislation must be resolved In fevor of the pensioner butsuch constnictio must be consistent with theclear language and purpose of thestatute (Venmra County uty SheriffsAssn v BoardofRetirement (1997) 16 Cal4th 483490)^

4 The parties agreed that the Inclusion ofrespondent Halls performai tee pay asspecial compensation depends upon whether itmeets the requirements for a boi lus as wellas the restrictions applicable to all special compensation set out Insubdivision (b)of California Code of Regulations tiUe 2 section 571 As explained below the pexfo mance

^The parties disagreed about who carried the burden ofproof In this matter and adidressed the issue at length in their respective briefs However burden of proof v as of littleconsequence in the resolution of thismatteras thefocts werevirtually undi^i tedand whether the performance paywas a legitimate bonusunderapplicable lawwas an i sue of law not fact

13

paydoes notqualify as a bonus thatmay beproperly considered as special compensation in the calculationofrespondentHalls retirement tenefits

5 Government Code section 20636 subdivision (a) readin conjunction with subdivision (cXi)gt authorizes theconsideration ofspecial compensation in theform or payments to an employee forspecal skills knowledge abilities Subdivision (cX2) requires that^t all special compensation be paid pursuant to a laborpolicy or agreement or asotherwise required bystateor federal lawtosimilarly situated members of a group or dass of employment that is in addition topayrate Thestatute directs in subdivision (cXlt9gttiiat CalPE^ promulgate regulations that delineate more specifically and exdusively what constitutes specialcompensation as usedin Ms section Finally thestatute in subdivision (cX7)(C)makes dear that only thosepayments that CalPERS has affimuitively detennined to ^dal compensation are tobe considered in thecalculation of retirement benefits (SeeDiCarlo v County ofMonterey (1971) 12 CalApp5th 468483-484Cityof Pleasantonv Board ofAdministration ofthe California PublicEmployees Retirement System (2012) 211Cal App4th 522527)

6 CalPERS promulgated a regulation more specifically definmg specialcompensation and the requirements for conaderation ofsuch payments as sucL Under the heading INCENTIVE in subdivision (a)(1) of California CodeofRegulations title2 section 571 isthe deflation ofaBonus redted above authorizing compensation to employees for superior performance Subdivision (b)of theimplementing regulation lists the requirements forall spedal compensation Those pertinent to respondent Halls performance pay arethat such bonus payments be (1)contained in a written labor policy or agreement thatisdidyapproved andadopted by the entitys governing body (2) thatsuch document indicate the conditions for payment of thebonusinduding eligiWityfor and the amount of the special compensation (3)thatthedocument is posted at theentitysoffice or immediately accessible for publicreview and(4) thatthedocument doesnot reference anotherdocument to satisfy diese conditions Subdivisions (c) and (d) of ttte regulation clarify thatonlyitemslistedin the regulation andcomplying witii therequirements of subdivision (b)qualify as special compensation forcalculation offinalcompensation for retirement purposes

SuperiorPerformanceRequirement

7 Thefirst problem witiitiie performance payprovided respondent Hallis ttat it wasnotbasedon re^ndent Halls superior performance Respondent Halls traditional evaluation prepared by his immediate supervisor and approved by respondent SVCWs Manager rated him overallas successful for fiscal year 2013-2014 In the individual categories his best score was a single fullysuccessful His scoresfor having met tiie years goals for him ranged firom fiillysuccessful to somewhatsuccessful witii two incompletes Re^ondent Hallreceived no exemplary ratingin any evaluation category a score that is essentiaUy the equivalent ofsuperiorperformance

14

8 Respondent SVCWs Manager explained that only respondent Hall perfoimance relating to his goals was used to deteimine whether he received peifo manoe pay and the amount However asnoted respondents perfoimance inthis one aie iwas hudly superor having ftiled to accompli^ cme goal and only partially partoftwo othergoals ofthe eight goals for the fiscal year In ampct he lost points in thi sarea in Mr Childs system Respondent also fared poorly in the Managers system for his budgetaiy projections and individual perfoimanoe He lost the maximum three points for his ^ure to forecast hisdepartments budget accurately ashewas over-budget bymore than 5 leroent In the category thatMrChild described as rewarding above and beyond perfom ance re^ndent HaU was actually penalized 5 points for failure to check required calcu iadons which contributed to his department excee^g its forecasted budget

9 There areat least two other problems with using Manager CMdsspreadsheet tojustify performance payfor respondent Hall Thefirstrelates to thewayin whic lithe managers were assessed Ofthe seven criteriausedto assessa managers performs neeonly threeassessed themanagers individual performance TheDther four werebased rholly or inpart on thepeiformance of respondent SVCW asa whole Thismaybe a veryeCfective wayto bolstercohesiveness amongmanagers and foster recognition of theirre^ec ive roles in theentitysoverall success butsucha system is notdesigned to isolate individu ilsuperior perfommnce In fact thissystem resulted inperformance payforallor virtually a 1 of respondent SVCW management personnel year-to-year The second pndilem relat is toMr Childs attempt to differentiate hisprogram fiomthe traditional evaluations provid 4 nianagers gt^ile Mr Qiild may be conect in describing his system as more objec ive than the subjective traditional evaluation byrespondent Halls supervisor thelatter was focused exclusively on respondent Halls perfomiance as a department duector

ProgramRequirementsforSpecialCompetition

10 Respondent SVCW adopted Administrative Policy 1984-01 address ng management petforaiance evaluations The original document was notintroduced nto evidence but Revisions C andD werereceived inevidence Revision C was apprc vedby Manager Child onNovember 62012and Revision Dwas iqiproved byManager (hOdon April 22015 before respondent Hall retired butafter hereceived hispeifonnance pay bonus for fiscal year2013-2014 Asnoted above apart from minordifferences he documents areessentially identical OnApril 22015 theCommisaon of respond nt SVCW adopted revisions C and DofAdministrative Policy 1984-01 retroactivel On December 62012 the Commission without referring to Administrative Policy 1914-01 Revision C authorized the Manager in accordance withthe Authoritys Performai ce Compensation Policy an administrative policy approved by the Authoritys Conrni ission to approve a lump sum payment ofno more than 10 percent ofamanagers salary Resolution SBSA13-31 adopted by the Commission on July 112013 includes the same

11 The relevant portions ofAdministradve Policy number 1984-01 mdashy and D describe in a veiy general manner the structure of re^ndent SVCWs pr ^ payprogram formanagers Theyprovide thatmanagers weretobe evaluated on idividual

15

peifonnance in establishment and achievement ofAuthority Department andPersonal goals Authority compliance with PPDES permit requirements Authority Departmental and Personal safetycompliance personnel development staffmanagement Authority and Department budgetperformance and Interdepartmental relationships The Performance Incentive criteria will include datafrom each employees annual performance evaluation along with theevaluation ofmeeting other Authority and Department wide goals

12 Respondent SVCWs Administrative Policy 84-01 as revised doesgenerally describe the performancepay programandmaybe fledrly characterized as a labor policy TheConunission of respondent SVCW retroactively adopted theAdministrative Policy as revised by the identified Resolutions Both theAdministrative Policyand Resolutions are readily accessible to the public Thusthese requirements for any formof special compensation outlinedin subdivision (b)of California Codeof Regulations title2 section 571 are satisfiedas they relate to Administrative Policy 844)1

13 Howeversubdivision (b)subsection (IXB) has not been satisfied As quoted above this provision requires that the labor polilt^ in^cates theconditions for payment of the item ofspecial compensation including but not Ihnited to eilgibility for and amount of the ^ledal compensation Here these elementsare only discemable by access to respondent SVlt^ Managers Management Performance Incentive Pay-Master Evaluation Form This is thedocument that encompasses theconditions for payment of a management bonus including the method of calculating whether a bonusis dueand Ifso how much Hieie is nothing in the record tosuggest thattheSVCW Conunission approved theprogram cryptically described in theManagers spreadsheet Moreover even thisdocument does not includethat managersbegin with 10pouitsand the plusesand minusesfor each category are added to or subtracted from that number The documentdoes not convey that the end number provides thepercentage increase of the management employees salaryas a performance paybonus Most importantly thedocument doesnot include thevery critical 501 points threshold for anyperformance pay bonus Manager Child testified thatthis threshold was establishedby the Commission to reflect superior^ performance but thereis no document in evidenceconfiimlng tiieCommisaons decision to set sucha threshold Even ifevidence existed that the Commisdon Bad properly established such a threshold a threshold score of 501 ofa possible 10pointsdoesnotconnotesuperior performance

14 In summaryrespondent SVCW Manager^s spreadsheet is respondent SVCWs actualperformance pay program Theevidence did notestablish whenItwas first created other thansome timeafter Aprilof 2006andwhetherthe Managerwas solely responsible for Itscreationandany modifications hefelt appropriate This document wasthe basis for year-to-year bonus payments to all management personnel Includingthe Manager himself There was no documented approval by theSVCWCommission for the program and no document^ approval for the threshold 501 score used to determine when a bonus was payable

15 There was also no evidence esta)gtlishing that the SVCW Managers spreadsheet was readily available for public scrutfaiy The CalPERS Board ofAdministration

16

(4)The computation for time priortoentering state service shall bebasedon thecompensation eaniable byhimor her in the positionfirst heldby him or herin stateservice

(cXl)Special compensation ofa member includes a payment reived forspecial skills knowledge abilities work assignment workdays or hours or otherworkconditions

(2)Special compensation shall be Umited to thatwhidi is receivedby a memberpursuant to a laborpolicyor agreementor as otherwiserequired by stateor federal law to similarly situatedmembersof a groupor classof employment that is in addition to payrate If anindividual tsnotpartof a group or class special compensation shall be limited to that which the boarddetermines is leceived by similarly situated members in theclosest related group orclass that is inaddition topayrate subject to thelimitations ofparagraph (2)of subdivision (e)

(3)Spedal compensation shall be forservices rendered during normal workmg hours and when reported to the board the employer shall identify the payperiod inwhich thespecial compensation was earned

(4)Special compensation may include the full monetary value of normal contramputions paid to the board by the employer on behalfof themember andpursuant toSection 20691 if the employer^ labor policy oragreement ^dfically provides for the inclusionof the normal contribution payment in compensation eamable

(5) The monetary value ofaservice ornoncash advantage furnished by the employer tothe member except asexpressly and specifically provided inthis part isnot ^tecial compensation unless regulations promulg^ited bythe board specificaUy determme that value to be special compensatioii

(6)Theboard shall promulgate regulations that delineate more specificaUy and exclusively what constitutes spedal compensation asused in this section Auniform allowance the monetary value of employerprovided uniforms holiday pay and premium payforhours worked within thenormally raquoplusmneduled or regular working hoursthatare in excessof the statutory maximum workweek or work period applicable to the employee under Section 201 etseqofHtle 29of theUnited

10

States Code shall beincluded as^dal compensation and appropriately defined In those regulations

(7) Spedal compensation does not include anyofthe following

(A)Finalsettlement pay

(B) Payments madefor additional services rendered outsideof normal working hours whether paid inlump sum or otherwise

(C) Other payments the board has not affirmatively determined to be special compensation

(d) Notwithstanding any other provision of law payrate and specialcompensation schedules ordinances or similar documents shall be public records available forpublic scrutiny

(e)(1)As used in this part gioup or classofemployment means a riumber ofemployees considered together because they share similarities in job duties worklocation collective bargainingunitor other logical work-related grouping One employeemay not be considered a group or dass

(2) Inaeases incompensaUon eamable granted to anemployee whois not in a groupor classshallbelimited duringthe final compensation period applicable to the employees as wellas the twoyearsimmediately preceding theiSnal compensation period to the average increaseincompensation earnableduring the sameperiodreported by the employer forall employees whoare in thesamemembership classification exc^t asmay otherwl^ bedetermined pursuant toregulations adopted by theboard that establishreasonable standards forgranting exceptions

(f)As used in thispart final settlement pa means payor cash conversions ofemployee benefits that areinexcess of compensation eamable that aregranted or awarded to a member in connectionwith or in antidpadonof a separationfrom employment The boardshall promulgate regulations that delineate more specificallywhat constitutesfinal settlement pay

2 TheBoard of Administration of CalPERS haspromulgated a regulat^nthat exdustvely and definitively delineates special compensation California Code oi Regulations title2 section571 reads in pertfaient part

11

(a)The following list exclusively identifies and defines spedal compensation items formembers employed bycontracting agency and^ool employers that must be reported to CalPERS if theyare contained ina written labor poli^ or agreement

(1) INCENTIVE PAY

Bonus-Compensation toemployees forsuperior performance suchas annual perfoimance bonus or merit pay Ifprovided onlyduring themembers final compensation period it shall be excluded fiom final compensation as finalsettlement pay A program or system mustbe inplacetoplanand identify performance goals and objectives

ra-ra

(b)The Board hasdetermined thatall items of special compensation listedin subsecdon (a)ate

(1) Containedin a written laborpoli^ or agreement as defined at Government Code section2Q049 providedthat the document

(A)Has beenduly approved andadopted by theemployers governing bodyin accordance with requhements of applicable publicmeetingslaws

(B) Indicates the conditions forpayment of theitemof special compensation including butnot limited toeligibility for and amountof thespecialcompensation

(C)Is posted at theoffice of theemployer or immediately accessible andavailable forpublicreview fromtheemployer during normalbusinesshours or posted on theemployer^ internet website

(D)Indicates an effective dateand date of any revisions

(E) Is retainedby the employer andavailablefor publicin^)ectioo for not less thim five years and

(F) Does not reference anotherdocumentin lieu of disclosing tte item ofspecial compensation

(2) Available to all members in thegroupor class

12

(3) Part ofnonnally required duties

(4) Performed during normal hours ofemployment

(5)Paid periodically asearned

(6) Historically consistent with prior paymeAts for the job classification

(7) Not paid exclusively in the final compensation period

(8) Not final settlement pay and

(9)Notcreating an unfunded liability overandabove PERS actuarial assumptions

(c)Only items listed insubsection (a) have been affirmatively determined tobespecial compensation All items ofspecial compensation reported toPERS wOl besubject to review for continuedconfoiroitywithall of thestandardslistedin subsection(b)

(d) If an item of specialcompensation is not listed in subsection (a)or is out of compliance withanyof thestandards in subsection (b) as reported foran individual thenit shall notbe used to calculatefinal compensation for that individual

3 An applicant for retirement benefits has the burden of proof to estab^ aright to theentitlement absenta statutoiy provision to the contrary preatorexv Boardof Administration (1979)91 CalApp3d 57) Anyambiguity or uncertainty in the mlt aning of pension legislation must be resolved In fevor of the pensioner butsuch constnictio must be consistent with theclear language and purpose of thestatute (Venmra County uty SheriffsAssn v BoardofRetirement (1997) 16 Cal4th 483490)^

4 The parties agreed that the Inclusion ofrespondent Halls performai tee pay asspecial compensation depends upon whether itmeets the requirements for a boi lus as wellas the restrictions applicable to all special compensation set out Insubdivision (b)of California Code of Regulations tiUe 2 section 571 As explained below the pexfo mance

^The parties disagreed about who carried the burden ofproof In this matter and adidressed the issue at length in their respective briefs However burden of proof v as of littleconsequence in the resolution of thismatteras thefocts werevirtually undi^i tedand whether the performance paywas a legitimate bonusunderapplicable lawwas an i sue of law not fact

13

paydoes notqualify as a bonus thatmay beproperly considered as special compensation in the calculationofrespondentHalls retirement tenefits

5 Government Code section 20636 subdivision (a) readin conjunction with subdivision (cXi)gt authorizes theconsideration ofspecial compensation in theform or payments to an employee forspecal skills knowledge abilities Subdivision (cX2) requires that^t all special compensation be paid pursuant to a laborpolicy or agreement or asotherwise required bystateor federal lawtosimilarly situated members of a group or dass of employment that is in addition topayrate Thestatute directs in subdivision (cXlt9gttiiat CalPE^ promulgate regulations that delineate more specifically and exdusively what constitutes specialcompensation as usedin Ms section Finally thestatute in subdivision (cX7)(C)makes dear that only thosepayments that CalPERS has affimuitively detennined to ^dal compensation are tobe considered in thecalculation of retirement benefits (SeeDiCarlo v County ofMonterey (1971) 12 CalApp5th 468483-484Cityof Pleasantonv Board ofAdministration ofthe California PublicEmployees Retirement System (2012) 211Cal App4th 522527)

6 CalPERS promulgated a regulation more specifically definmg specialcompensation and the requirements for conaderation ofsuch payments as sucL Under the heading INCENTIVE in subdivision (a)(1) of California CodeofRegulations title2 section 571 isthe deflation ofaBonus redted above authorizing compensation to employees for superior performance Subdivision (b)of theimplementing regulation lists the requirements forall spedal compensation Those pertinent to respondent Halls performance pay arethat such bonus payments be (1)contained in a written labor policy or agreement thatisdidyapproved andadopted by the entitys governing body (2) thatsuch document indicate the conditions for payment of thebonusinduding eligiWityfor and the amount of the special compensation (3)thatthedocument is posted at theentitysoffice or immediately accessible for publicreview and(4) thatthedocument doesnot reference anotherdocument to satisfy diese conditions Subdivisions (c) and (d) of ttte regulation clarify thatonlyitemslistedin the regulation andcomplying witii therequirements of subdivision (b)qualify as special compensation forcalculation offinalcompensation for retirement purposes

SuperiorPerformanceRequirement

7 Thefirst problem witiitiie performance payprovided respondent Hallis ttat it wasnotbasedon re^ndent Halls superior performance Respondent Halls traditional evaluation prepared by his immediate supervisor and approved by respondent SVCWs Manager rated him overallas successful for fiscal year 2013-2014 In the individual categories his best score was a single fullysuccessful His scoresfor having met tiie years goals for him ranged firom fiillysuccessful to somewhatsuccessful witii two incompletes Re^ondent Hallreceived no exemplary ratingin any evaluation category a score that is essentiaUy the equivalent ofsuperiorperformance

14

8 Respondent SVCWs Manager explained that only respondent Hall perfoimance relating to his goals was used to deteimine whether he received peifo manoe pay and the amount However asnoted respondents perfoimance inthis one aie iwas hudly superor having ftiled to accompli^ cme goal and only partially partoftwo othergoals ofthe eight goals for the fiscal year In ampct he lost points in thi sarea in Mr Childs system Respondent also fared poorly in the Managers system for his budgetaiy projections and individual perfoimanoe He lost the maximum three points for his ^ure to forecast hisdepartments budget accurately ashewas over-budget bymore than 5 leroent In the category thatMrChild described as rewarding above and beyond perfom ance re^ndent HaU was actually penalized 5 points for failure to check required calcu iadons which contributed to his department excee^g its forecasted budget

9 There areat least two other problems with using Manager CMdsspreadsheet tojustify performance payfor respondent Hall Thefirstrelates to thewayin whic lithe managers were assessed Ofthe seven criteriausedto assessa managers performs neeonly threeassessed themanagers individual performance TheDther four werebased rholly or inpart on thepeiformance of respondent SVCW asa whole Thismaybe a veryeCfective wayto bolstercohesiveness amongmanagers and foster recognition of theirre^ec ive roles in theentitysoverall success butsucha system is notdesigned to isolate individu ilsuperior perfommnce In fact thissystem resulted inperformance payforallor virtually a 1 of respondent SVCW management personnel year-to-year The second pndilem relat is toMr Childs attempt to differentiate hisprogram fiomthe traditional evaluations provid 4 nianagers gt^ile Mr Qiild may be conect in describing his system as more objec ive than the subjective traditional evaluation byrespondent Halls supervisor thelatter was focused exclusively on respondent Halls perfomiance as a department duector

ProgramRequirementsforSpecialCompetition

10 Respondent SVCW adopted Administrative Policy 1984-01 address ng management petforaiance evaluations The original document was notintroduced nto evidence but Revisions C andD werereceived inevidence Revision C was apprc vedby Manager Child onNovember 62012and Revision Dwas iqiproved byManager (hOdon April 22015 before respondent Hall retired butafter hereceived hispeifonnance pay bonus for fiscal year2013-2014 Asnoted above apart from minordifferences he documents areessentially identical OnApril 22015 theCommisaon of respond nt SVCW adopted revisions C and DofAdministrative Policy 1984-01 retroactivel On December 62012 the Commission without referring to Administrative Policy 1914-01 Revision C authorized the Manager in accordance withthe Authoritys Performai ce Compensation Policy an administrative policy approved by the Authoritys Conrni ission to approve a lump sum payment ofno more than 10 percent ofamanagers salary Resolution SBSA13-31 adopted by the Commission on July 112013 includes the same

11 The relevant portions ofAdministradve Policy number 1984-01 mdashy and D describe in a veiy general manner the structure of re^ndent SVCWs pr ^ payprogram formanagers Theyprovide thatmanagers weretobe evaluated on idividual

15

peifonnance in establishment and achievement ofAuthority Department andPersonal goals Authority compliance with PPDES permit requirements Authority Departmental and Personal safetycompliance personnel development staffmanagement Authority and Department budgetperformance and Interdepartmental relationships The Performance Incentive criteria will include datafrom each employees annual performance evaluation along with theevaluation ofmeeting other Authority and Department wide goals

12 Respondent SVCWs Administrative Policy 84-01 as revised doesgenerally describe the performancepay programandmaybe fledrly characterized as a labor policy TheConunission of respondent SVCW retroactively adopted theAdministrative Policy as revised by the identified Resolutions Both theAdministrative Policyand Resolutions are readily accessible to the public Thusthese requirements for any formof special compensation outlinedin subdivision (b)of California Codeof Regulations title2 section 571 are satisfiedas they relate to Administrative Policy 844)1

13 Howeversubdivision (b)subsection (IXB) has not been satisfied As quoted above this provision requires that the labor polilt^ in^cates theconditions for payment of the item ofspecial compensation including but not Ihnited to eilgibility for and amount of the ^ledal compensation Here these elementsare only discemable by access to respondent SVlt^ Managers Management Performance Incentive Pay-Master Evaluation Form This is thedocument that encompasses theconditions for payment of a management bonus including the method of calculating whether a bonusis dueand Ifso how much Hieie is nothing in the record tosuggest thattheSVCW Conunission approved theprogram cryptically described in theManagers spreadsheet Moreover even thisdocument does not includethat managersbegin with 10pouitsand the plusesand minusesfor each category are added to or subtracted from that number The documentdoes not convey that the end number provides thepercentage increase of the management employees salaryas a performance paybonus Most importantly thedocument doesnot include thevery critical 501 points threshold for anyperformance pay bonus Manager Child testified thatthis threshold was establishedby the Commission to reflect superior^ performance but thereis no document in evidenceconfiimlng tiieCommisaons decision to set sucha threshold Even ifevidence existed that the Commisdon Bad properly established such a threshold a threshold score of 501 ofa possible 10pointsdoesnotconnotesuperior performance

14 In summaryrespondent SVCW Manager^s spreadsheet is respondent SVCWs actualperformance pay program Theevidence did notestablish whenItwas first created other thansome timeafter Aprilof 2006andwhetherthe Managerwas solely responsible for Itscreationandany modifications hefelt appropriate This document wasthe basis for year-to-year bonus payments to all management personnel Includingthe Manager himself There was no documented approval by theSVCWCommission for the program and no document^ approval for the threshold 501 score used to determine when a bonus was payable

15 There was also no evidence esta)gtlishing that the SVCW Managers spreadsheet was readily available for public scrutfaiy The CalPERS Board ofAdministration

16

States Code shall beincluded as^dal compensation and appropriately defined In those regulations

(7) Spedal compensation does not include anyofthe following

(A)Finalsettlement pay

(B) Payments madefor additional services rendered outsideof normal working hours whether paid inlump sum or otherwise

(C) Other payments the board has not affirmatively determined to be special compensation

(d) Notwithstanding any other provision of law payrate and specialcompensation schedules ordinances or similar documents shall be public records available forpublic scrutiny

(e)(1)As used in this part gioup or classofemployment means a riumber ofemployees considered together because they share similarities in job duties worklocation collective bargainingunitor other logical work-related grouping One employeemay not be considered a group or dass

(2) Inaeases incompensaUon eamable granted to anemployee whois not in a groupor classshallbelimited duringthe final compensation period applicable to the employees as wellas the twoyearsimmediately preceding theiSnal compensation period to the average increaseincompensation earnableduring the sameperiodreported by the employer forall employees whoare in thesamemembership classification exc^t asmay otherwl^ bedetermined pursuant toregulations adopted by theboard that establishreasonable standards forgranting exceptions

(f)As used in thispart final settlement pa means payor cash conversions ofemployee benefits that areinexcess of compensation eamable that aregranted or awarded to a member in connectionwith or in antidpadonof a separationfrom employment The boardshall promulgate regulations that delineate more specificallywhat constitutesfinal settlement pay

2 TheBoard of Administration of CalPERS haspromulgated a regulat^nthat exdustvely and definitively delineates special compensation California Code oi Regulations title2 section571 reads in pertfaient part

11

(a)The following list exclusively identifies and defines spedal compensation items formembers employed bycontracting agency and^ool employers that must be reported to CalPERS if theyare contained ina written labor poli^ or agreement

(1) INCENTIVE PAY

Bonus-Compensation toemployees forsuperior performance suchas annual perfoimance bonus or merit pay Ifprovided onlyduring themembers final compensation period it shall be excluded fiom final compensation as finalsettlement pay A program or system mustbe inplacetoplanand identify performance goals and objectives

ra-ra

(b)The Board hasdetermined thatall items of special compensation listedin subsecdon (a)ate

(1) Containedin a written laborpoli^ or agreement as defined at Government Code section2Q049 providedthat the document

(A)Has beenduly approved andadopted by theemployers governing bodyin accordance with requhements of applicable publicmeetingslaws

(B) Indicates the conditions forpayment of theitemof special compensation including butnot limited toeligibility for and amountof thespecialcompensation

(C)Is posted at theoffice of theemployer or immediately accessible andavailable forpublicreview fromtheemployer during normalbusinesshours or posted on theemployer^ internet website

(D)Indicates an effective dateand date of any revisions

(E) Is retainedby the employer andavailablefor publicin^)ectioo for not less thim five years and

(F) Does not reference anotherdocumentin lieu of disclosing tte item ofspecial compensation

(2) Available to all members in thegroupor class

12

(3) Part ofnonnally required duties

(4) Performed during normal hours ofemployment

(5)Paid periodically asearned

(6) Historically consistent with prior paymeAts for the job classification

(7) Not paid exclusively in the final compensation period

(8) Not final settlement pay and

(9)Notcreating an unfunded liability overandabove PERS actuarial assumptions

(c)Only items listed insubsection (a) have been affirmatively determined tobespecial compensation All items ofspecial compensation reported toPERS wOl besubject to review for continuedconfoiroitywithall of thestandardslistedin subsection(b)

(d) If an item of specialcompensation is not listed in subsection (a)or is out of compliance withanyof thestandards in subsection (b) as reported foran individual thenit shall notbe used to calculatefinal compensation for that individual

3 An applicant for retirement benefits has the burden of proof to estab^ aright to theentitlement absenta statutoiy provision to the contrary preatorexv Boardof Administration (1979)91 CalApp3d 57) Anyambiguity or uncertainty in the mlt aning of pension legislation must be resolved In fevor of the pensioner butsuch constnictio must be consistent with theclear language and purpose of thestatute (Venmra County uty SheriffsAssn v BoardofRetirement (1997) 16 Cal4th 483490)^

4 The parties agreed that the Inclusion ofrespondent Halls performai tee pay asspecial compensation depends upon whether itmeets the requirements for a boi lus as wellas the restrictions applicable to all special compensation set out Insubdivision (b)of California Code of Regulations tiUe 2 section 571 As explained below the pexfo mance

^The parties disagreed about who carried the burden ofproof In this matter and adidressed the issue at length in their respective briefs However burden of proof v as of littleconsequence in the resolution of thismatteras thefocts werevirtually undi^i tedand whether the performance paywas a legitimate bonusunderapplicable lawwas an i sue of law not fact

13

paydoes notqualify as a bonus thatmay beproperly considered as special compensation in the calculationofrespondentHalls retirement tenefits

5 Government Code section 20636 subdivision (a) readin conjunction with subdivision (cXi)gt authorizes theconsideration ofspecial compensation in theform or payments to an employee forspecal skills knowledge abilities Subdivision (cX2) requires that^t all special compensation be paid pursuant to a laborpolicy or agreement or asotherwise required bystateor federal lawtosimilarly situated members of a group or dass of employment that is in addition topayrate Thestatute directs in subdivision (cXlt9gttiiat CalPE^ promulgate regulations that delineate more specifically and exdusively what constitutes specialcompensation as usedin Ms section Finally thestatute in subdivision (cX7)(C)makes dear that only thosepayments that CalPERS has affimuitively detennined to ^dal compensation are tobe considered in thecalculation of retirement benefits (SeeDiCarlo v County ofMonterey (1971) 12 CalApp5th 468483-484Cityof Pleasantonv Board ofAdministration ofthe California PublicEmployees Retirement System (2012) 211Cal App4th 522527)

6 CalPERS promulgated a regulation more specifically definmg specialcompensation and the requirements for conaderation ofsuch payments as sucL Under the heading INCENTIVE in subdivision (a)(1) of California CodeofRegulations title2 section 571 isthe deflation ofaBonus redted above authorizing compensation to employees for superior performance Subdivision (b)of theimplementing regulation lists the requirements forall spedal compensation Those pertinent to respondent Halls performance pay arethat such bonus payments be (1)contained in a written labor policy or agreement thatisdidyapproved andadopted by the entitys governing body (2) thatsuch document indicate the conditions for payment of thebonusinduding eligiWityfor and the amount of the special compensation (3)thatthedocument is posted at theentitysoffice or immediately accessible for publicreview and(4) thatthedocument doesnot reference anotherdocument to satisfy diese conditions Subdivisions (c) and (d) of ttte regulation clarify thatonlyitemslistedin the regulation andcomplying witii therequirements of subdivision (b)qualify as special compensation forcalculation offinalcompensation for retirement purposes

SuperiorPerformanceRequirement

7 Thefirst problem witiitiie performance payprovided respondent Hallis ttat it wasnotbasedon re^ndent Halls superior performance Respondent Halls traditional evaluation prepared by his immediate supervisor and approved by respondent SVCWs Manager rated him overallas successful for fiscal year 2013-2014 In the individual categories his best score was a single fullysuccessful His scoresfor having met tiie years goals for him ranged firom fiillysuccessful to somewhatsuccessful witii two incompletes Re^ondent Hallreceived no exemplary ratingin any evaluation category a score that is essentiaUy the equivalent ofsuperiorperformance

14

8 Respondent SVCWs Manager explained that only respondent Hall perfoimance relating to his goals was used to deteimine whether he received peifo manoe pay and the amount However asnoted respondents perfoimance inthis one aie iwas hudly superor having ftiled to accompli^ cme goal and only partially partoftwo othergoals ofthe eight goals for the fiscal year In ampct he lost points in thi sarea in Mr Childs system Respondent also fared poorly in the Managers system for his budgetaiy projections and individual perfoimanoe He lost the maximum three points for his ^ure to forecast hisdepartments budget accurately ashewas over-budget bymore than 5 leroent In the category thatMrChild described as rewarding above and beyond perfom ance re^ndent HaU was actually penalized 5 points for failure to check required calcu iadons which contributed to his department excee^g its forecasted budget

9 There areat least two other problems with using Manager CMdsspreadsheet tojustify performance payfor respondent Hall Thefirstrelates to thewayin whic lithe managers were assessed Ofthe seven criteriausedto assessa managers performs neeonly threeassessed themanagers individual performance TheDther four werebased rholly or inpart on thepeiformance of respondent SVCW asa whole Thismaybe a veryeCfective wayto bolstercohesiveness amongmanagers and foster recognition of theirre^ec ive roles in theentitysoverall success butsucha system is notdesigned to isolate individu ilsuperior perfommnce In fact thissystem resulted inperformance payforallor virtually a 1 of respondent SVCW management personnel year-to-year The second pndilem relat is toMr Childs attempt to differentiate hisprogram fiomthe traditional evaluations provid 4 nianagers gt^ile Mr Qiild may be conect in describing his system as more objec ive than the subjective traditional evaluation byrespondent Halls supervisor thelatter was focused exclusively on respondent Halls perfomiance as a department duector

ProgramRequirementsforSpecialCompetition

10 Respondent SVCW adopted Administrative Policy 1984-01 address ng management petforaiance evaluations The original document was notintroduced nto evidence but Revisions C andD werereceived inevidence Revision C was apprc vedby Manager Child onNovember 62012and Revision Dwas iqiproved byManager (hOdon April 22015 before respondent Hall retired butafter hereceived hispeifonnance pay bonus for fiscal year2013-2014 Asnoted above apart from minordifferences he documents areessentially identical OnApril 22015 theCommisaon of respond nt SVCW adopted revisions C and DofAdministrative Policy 1984-01 retroactivel On December 62012 the Commission without referring to Administrative Policy 1914-01 Revision C authorized the Manager in accordance withthe Authoritys Performai ce Compensation Policy an administrative policy approved by the Authoritys Conrni ission to approve a lump sum payment ofno more than 10 percent ofamanagers salary Resolution SBSA13-31 adopted by the Commission on July 112013 includes the same

11 The relevant portions ofAdministradve Policy number 1984-01 mdashy and D describe in a veiy general manner the structure of re^ndent SVCWs pr ^ payprogram formanagers Theyprovide thatmanagers weretobe evaluated on idividual

15

peifonnance in establishment and achievement ofAuthority Department andPersonal goals Authority compliance with PPDES permit requirements Authority Departmental and Personal safetycompliance personnel development staffmanagement Authority and Department budgetperformance and Interdepartmental relationships The Performance Incentive criteria will include datafrom each employees annual performance evaluation along with theevaluation ofmeeting other Authority and Department wide goals

12 Respondent SVCWs Administrative Policy 84-01 as revised doesgenerally describe the performancepay programandmaybe fledrly characterized as a labor policy TheConunission of respondent SVCW retroactively adopted theAdministrative Policy as revised by the identified Resolutions Both theAdministrative Policyand Resolutions are readily accessible to the public Thusthese requirements for any formof special compensation outlinedin subdivision (b)of California Codeof Regulations title2 section 571 are satisfiedas they relate to Administrative Policy 844)1

13 Howeversubdivision (b)subsection (IXB) has not been satisfied As quoted above this provision requires that the labor polilt^ in^cates theconditions for payment of the item ofspecial compensation including but not Ihnited to eilgibility for and amount of the ^ledal compensation Here these elementsare only discemable by access to respondent SVlt^ Managers Management Performance Incentive Pay-Master Evaluation Form This is thedocument that encompasses theconditions for payment of a management bonus including the method of calculating whether a bonusis dueand Ifso how much Hieie is nothing in the record tosuggest thattheSVCW Conunission approved theprogram cryptically described in theManagers spreadsheet Moreover even thisdocument does not includethat managersbegin with 10pouitsand the plusesand minusesfor each category are added to or subtracted from that number The documentdoes not convey that the end number provides thepercentage increase of the management employees salaryas a performance paybonus Most importantly thedocument doesnot include thevery critical 501 points threshold for anyperformance pay bonus Manager Child testified thatthis threshold was establishedby the Commission to reflect superior^ performance but thereis no document in evidenceconfiimlng tiieCommisaons decision to set sucha threshold Even ifevidence existed that the Commisdon Bad properly established such a threshold a threshold score of 501 ofa possible 10pointsdoesnotconnotesuperior performance

14 In summaryrespondent SVCW Manager^s spreadsheet is respondent SVCWs actualperformance pay program Theevidence did notestablish whenItwas first created other thansome timeafter Aprilof 2006andwhetherthe Managerwas solely responsible for Itscreationandany modifications hefelt appropriate This document wasthe basis for year-to-year bonus payments to all management personnel Includingthe Manager himself There was no documented approval by theSVCWCommission for the program and no document^ approval for the threshold 501 score used to determine when a bonus was payable

15 There was also no evidence esta)gtlishing that the SVCW Managers spreadsheet was readily available for public scrutfaiy The CalPERS Board ofAdministration

16

(a)The following list exclusively identifies and defines spedal compensation items formembers employed bycontracting agency and^ool employers that must be reported to CalPERS if theyare contained ina written labor poli^ or agreement

(1) INCENTIVE PAY

Bonus-Compensation toemployees forsuperior performance suchas annual perfoimance bonus or merit pay Ifprovided onlyduring themembers final compensation period it shall be excluded fiom final compensation as finalsettlement pay A program or system mustbe inplacetoplanand identify performance goals and objectives

ra-ra

(b)The Board hasdetermined thatall items of special compensation listedin subsecdon (a)ate

(1) Containedin a written laborpoli^ or agreement as defined at Government Code section2Q049 providedthat the document

(A)Has beenduly approved andadopted by theemployers governing bodyin accordance with requhements of applicable publicmeetingslaws

(B) Indicates the conditions forpayment of theitemof special compensation including butnot limited toeligibility for and amountof thespecialcompensation

(C)Is posted at theoffice of theemployer or immediately accessible andavailable forpublicreview fromtheemployer during normalbusinesshours or posted on theemployer^ internet website

(D)Indicates an effective dateand date of any revisions

(E) Is retainedby the employer andavailablefor publicin^)ectioo for not less thim five years and

(F) Does not reference anotherdocumentin lieu of disclosing tte item ofspecial compensation

(2) Available to all members in thegroupor class

12

(3) Part ofnonnally required duties

(4) Performed during normal hours ofemployment

(5)Paid periodically asearned

(6) Historically consistent with prior paymeAts for the job classification

(7) Not paid exclusively in the final compensation period

(8) Not final settlement pay and

(9)Notcreating an unfunded liability overandabove PERS actuarial assumptions

(c)Only items listed insubsection (a) have been affirmatively determined tobespecial compensation All items ofspecial compensation reported toPERS wOl besubject to review for continuedconfoiroitywithall of thestandardslistedin subsection(b)

(d) If an item of specialcompensation is not listed in subsection (a)or is out of compliance withanyof thestandards in subsection (b) as reported foran individual thenit shall notbe used to calculatefinal compensation for that individual

3 An applicant for retirement benefits has the burden of proof to estab^ aright to theentitlement absenta statutoiy provision to the contrary preatorexv Boardof Administration (1979)91 CalApp3d 57) Anyambiguity or uncertainty in the mlt aning of pension legislation must be resolved In fevor of the pensioner butsuch constnictio must be consistent with theclear language and purpose of thestatute (Venmra County uty SheriffsAssn v BoardofRetirement (1997) 16 Cal4th 483490)^

4 The parties agreed that the Inclusion ofrespondent Halls performai tee pay asspecial compensation depends upon whether itmeets the requirements for a boi lus as wellas the restrictions applicable to all special compensation set out Insubdivision (b)of California Code of Regulations tiUe 2 section 571 As explained below the pexfo mance

^The parties disagreed about who carried the burden ofproof In this matter and adidressed the issue at length in their respective briefs However burden of proof v as of littleconsequence in the resolution of thismatteras thefocts werevirtually undi^i tedand whether the performance paywas a legitimate bonusunderapplicable lawwas an i sue of law not fact

13

paydoes notqualify as a bonus thatmay beproperly considered as special compensation in the calculationofrespondentHalls retirement tenefits

5 Government Code section 20636 subdivision (a) readin conjunction with subdivision (cXi)gt authorizes theconsideration ofspecial compensation in theform or payments to an employee forspecal skills knowledge abilities Subdivision (cX2) requires that^t all special compensation be paid pursuant to a laborpolicy or agreement or asotherwise required bystateor federal lawtosimilarly situated members of a group or dass of employment that is in addition topayrate Thestatute directs in subdivision (cXlt9gttiiat CalPE^ promulgate regulations that delineate more specifically and exdusively what constitutes specialcompensation as usedin Ms section Finally thestatute in subdivision (cX7)(C)makes dear that only thosepayments that CalPERS has affimuitively detennined to ^dal compensation are tobe considered in thecalculation of retirement benefits (SeeDiCarlo v County ofMonterey (1971) 12 CalApp5th 468483-484Cityof Pleasantonv Board ofAdministration ofthe California PublicEmployees Retirement System (2012) 211Cal App4th 522527)

6 CalPERS promulgated a regulation more specifically definmg specialcompensation and the requirements for conaderation ofsuch payments as sucL Under the heading INCENTIVE in subdivision (a)(1) of California CodeofRegulations title2 section 571 isthe deflation ofaBonus redted above authorizing compensation to employees for superior performance Subdivision (b)of theimplementing regulation lists the requirements forall spedal compensation Those pertinent to respondent Halls performance pay arethat such bonus payments be (1)contained in a written labor policy or agreement thatisdidyapproved andadopted by the entitys governing body (2) thatsuch document indicate the conditions for payment of thebonusinduding eligiWityfor and the amount of the special compensation (3)thatthedocument is posted at theentitysoffice or immediately accessible for publicreview and(4) thatthedocument doesnot reference anotherdocument to satisfy diese conditions Subdivisions (c) and (d) of ttte regulation clarify thatonlyitemslistedin the regulation andcomplying witii therequirements of subdivision (b)qualify as special compensation forcalculation offinalcompensation for retirement purposes

SuperiorPerformanceRequirement

7 Thefirst problem witiitiie performance payprovided respondent Hallis ttat it wasnotbasedon re^ndent Halls superior performance Respondent Halls traditional evaluation prepared by his immediate supervisor and approved by respondent SVCWs Manager rated him overallas successful for fiscal year 2013-2014 In the individual categories his best score was a single fullysuccessful His scoresfor having met tiie years goals for him ranged firom fiillysuccessful to somewhatsuccessful witii two incompletes Re^ondent Hallreceived no exemplary ratingin any evaluation category a score that is essentiaUy the equivalent ofsuperiorperformance

14

8 Respondent SVCWs Manager explained that only respondent Hall perfoimance relating to his goals was used to deteimine whether he received peifo manoe pay and the amount However asnoted respondents perfoimance inthis one aie iwas hudly superor having ftiled to accompli^ cme goal and only partially partoftwo othergoals ofthe eight goals for the fiscal year In ampct he lost points in thi sarea in Mr Childs system Respondent also fared poorly in the Managers system for his budgetaiy projections and individual perfoimanoe He lost the maximum three points for his ^ure to forecast hisdepartments budget accurately ashewas over-budget bymore than 5 leroent In the category thatMrChild described as rewarding above and beyond perfom ance re^ndent HaU was actually penalized 5 points for failure to check required calcu iadons which contributed to his department excee^g its forecasted budget

9 There areat least two other problems with using Manager CMdsspreadsheet tojustify performance payfor respondent Hall Thefirstrelates to thewayin whic lithe managers were assessed Ofthe seven criteriausedto assessa managers performs neeonly threeassessed themanagers individual performance TheDther four werebased rholly or inpart on thepeiformance of respondent SVCW asa whole Thismaybe a veryeCfective wayto bolstercohesiveness amongmanagers and foster recognition of theirre^ec ive roles in theentitysoverall success butsucha system is notdesigned to isolate individu ilsuperior perfommnce In fact thissystem resulted inperformance payforallor virtually a 1 of respondent SVCW management personnel year-to-year The second pndilem relat is toMr Childs attempt to differentiate hisprogram fiomthe traditional evaluations provid 4 nianagers gt^ile Mr Qiild may be conect in describing his system as more objec ive than the subjective traditional evaluation byrespondent Halls supervisor thelatter was focused exclusively on respondent Halls perfomiance as a department duector

ProgramRequirementsforSpecialCompetition

10 Respondent SVCW adopted Administrative Policy 1984-01 address ng management petforaiance evaluations The original document was notintroduced nto evidence but Revisions C andD werereceived inevidence Revision C was apprc vedby Manager Child onNovember 62012and Revision Dwas iqiproved byManager (hOdon April 22015 before respondent Hall retired butafter hereceived hispeifonnance pay bonus for fiscal year2013-2014 Asnoted above apart from minordifferences he documents areessentially identical OnApril 22015 theCommisaon of respond nt SVCW adopted revisions C and DofAdministrative Policy 1984-01 retroactivel On December 62012 the Commission without referring to Administrative Policy 1914-01 Revision C authorized the Manager in accordance withthe Authoritys Performai ce Compensation Policy an administrative policy approved by the Authoritys Conrni ission to approve a lump sum payment ofno more than 10 percent ofamanagers salary Resolution SBSA13-31 adopted by the Commission on July 112013 includes the same

11 The relevant portions ofAdministradve Policy number 1984-01 mdashy and D describe in a veiy general manner the structure of re^ndent SVCWs pr ^ payprogram formanagers Theyprovide thatmanagers weretobe evaluated on idividual

15

peifonnance in establishment and achievement ofAuthority Department andPersonal goals Authority compliance with PPDES permit requirements Authority Departmental and Personal safetycompliance personnel development staffmanagement Authority and Department budgetperformance and Interdepartmental relationships The Performance Incentive criteria will include datafrom each employees annual performance evaluation along with theevaluation ofmeeting other Authority and Department wide goals

12 Respondent SVCWs Administrative Policy 84-01 as revised doesgenerally describe the performancepay programandmaybe fledrly characterized as a labor policy TheConunission of respondent SVCW retroactively adopted theAdministrative Policy as revised by the identified Resolutions Both theAdministrative Policyand Resolutions are readily accessible to the public Thusthese requirements for any formof special compensation outlinedin subdivision (b)of California Codeof Regulations title2 section 571 are satisfiedas they relate to Administrative Policy 844)1

13 Howeversubdivision (b)subsection (IXB) has not been satisfied As quoted above this provision requires that the labor polilt^ in^cates theconditions for payment of the item ofspecial compensation including but not Ihnited to eilgibility for and amount of the ^ledal compensation Here these elementsare only discemable by access to respondent SVlt^ Managers Management Performance Incentive Pay-Master Evaluation Form This is thedocument that encompasses theconditions for payment of a management bonus including the method of calculating whether a bonusis dueand Ifso how much Hieie is nothing in the record tosuggest thattheSVCW Conunission approved theprogram cryptically described in theManagers spreadsheet Moreover even thisdocument does not includethat managersbegin with 10pouitsand the plusesand minusesfor each category are added to or subtracted from that number The documentdoes not convey that the end number provides thepercentage increase of the management employees salaryas a performance paybonus Most importantly thedocument doesnot include thevery critical 501 points threshold for anyperformance pay bonus Manager Child testified thatthis threshold was establishedby the Commission to reflect superior^ performance but thereis no document in evidenceconfiimlng tiieCommisaons decision to set sucha threshold Even ifevidence existed that the Commisdon Bad properly established such a threshold a threshold score of 501 ofa possible 10pointsdoesnotconnotesuperior performance

14 In summaryrespondent SVCW Manager^s spreadsheet is respondent SVCWs actualperformance pay program Theevidence did notestablish whenItwas first created other thansome timeafter Aprilof 2006andwhetherthe Managerwas solely responsible for Itscreationandany modifications hefelt appropriate This document wasthe basis for year-to-year bonus payments to all management personnel Includingthe Manager himself There was no documented approval by theSVCWCommission for the program and no document^ approval for the threshold 501 score used to determine when a bonus was payable

15 There was also no evidence esta)gtlishing that the SVCW Managers spreadsheet was readily available for public scrutfaiy The CalPERS Board ofAdministration

16

(3) Part ofnonnally required duties

(4) Performed during normal hours ofemployment

(5)Paid periodically asearned

(6) Historically consistent with prior paymeAts for the job classification

(7) Not paid exclusively in the final compensation period

(8) Not final settlement pay and

(9)Notcreating an unfunded liability overandabove PERS actuarial assumptions

(c)Only items listed insubsection (a) have been affirmatively determined tobespecial compensation All items ofspecial compensation reported toPERS wOl besubject to review for continuedconfoiroitywithall of thestandardslistedin subsection(b)

(d) If an item of specialcompensation is not listed in subsection (a)or is out of compliance withanyof thestandards in subsection (b) as reported foran individual thenit shall notbe used to calculatefinal compensation for that individual

3 An applicant for retirement benefits has the burden of proof to estab^ aright to theentitlement absenta statutoiy provision to the contrary preatorexv Boardof Administration (1979)91 CalApp3d 57) Anyambiguity or uncertainty in the mlt aning of pension legislation must be resolved In fevor of the pensioner butsuch constnictio must be consistent with theclear language and purpose of thestatute (Venmra County uty SheriffsAssn v BoardofRetirement (1997) 16 Cal4th 483490)^

4 The parties agreed that the Inclusion ofrespondent Halls performai tee pay asspecial compensation depends upon whether itmeets the requirements for a boi lus as wellas the restrictions applicable to all special compensation set out Insubdivision (b)of California Code of Regulations tiUe 2 section 571 As explained below the pexfo mance

^The parties disagreed about who carried the burden ofproof In this matter and adidressed the issue at length in their respective briefs However burden of proof v as of littleconsequence in the resolution of thismatteras thefocts werevirtually undi^i tedand whether the performance paywas a legitimate bonusunderapplicable lawwas an i sue of law not fact

13

paydoes notqualify as a bonus thatmay beproperly considered as special compensation in the calculationofrespondentHalls retirement tenefits

5 Government Code section 20636 subdivision (a) readin conjunction with subdivision (cXi)gt authorizes theconsideration ofspecial compensation in theform or payments to an employee forspecal skills knowledge abilities Subdivision (cX2) requires that^t all special compensation be paid pursuant to a laborpolicy or agreement or asotherwise required bystateor federal lawtosimilarly situated members of a group or dass of employment that is in addition topayrate Thestatute directs in subdivision (cXlt9gttiiat CalPE^ promulgate regulations that delineate more specifically and exdusively what constitutes specialcompensation as usedin Ms section Finally thestatute in subdivision (cX7)(C)makes dear that only thosepayments that CalPERS has affimuitively detennined to ^dal compensation are tobe considered in thecalculation of retirement benefits (SeeDiCarlo v County ofMonterey (1971) 12 CalApp5th 468483-484Cityof Pleasantonv Board ofAdministration ofthe California PublicEmployees Retirement System (2012) 211Cal App4th 522527)

6 CalPERS promulgated a regulation more specifically definmg specialcompensation and the requirements for conaderation ofsuch payments as sucL Under the heading INCENTIVE in subdivision (a)(1) of California CodeofRegulations title2 section 571 isthe deflation ofaBonus redted above authorizing compensation to employees for superior performance Subdivision (b)of theimplementing regulation lists the requirements forall spedal compensation Those pertinent to respondent Halls performance pay arethat such bonus payments be (1)contained in a written labor policy or agreement thatisdidyapproved andadopted by the entitys governing body (2) thatsuch document indicate the conditions for payment of thebonusinduding eligiWityfor and the amount of the special compensation (3)thatthedocument is posted at theentitysoffice or immediately accessible for publicreview and(4) thatthedocument doesnot reference anotherdocument to satisfy diese conditions Subdivisions (c) and (d) of ttte regulation clarify thatonlyitemslistedin the regulation andcomplying witii therequirements of subdivision (b)qualify as special compensation forcalculation offinalcompensation for retirement purposes

SuperiorPerformanceRequirement

7 Thefirst problem witiitiie performance payprovided respondent Hallis ttat it wasnotbasedon re^ndent Halls superior performance Respondent Halls traditional evaluation prepared by his immediate supervisor and approved by respondent SVCWs Manager rated him overallas successful for fiscal year 2013-2014 In the individual categories his best score was a single fullysuccessful His scoresfor having met tiie years goals for him ranged firom fiillysuccessful to somewhatsuccessful witii two incompletes Re^ondent Hallreceived no exemplary ratingin any evaluation category a score that is essentiaUy the equivalent ofsuperiorperformance

14

8 Respondent SVCWs Manager explained that only respondent Hall perfoimance relating to his goals was used to deteimine whether he received peifo manoe pay and the amount However asnoted respondents perfoimance inthis one aie iwas hudly superor having ftiled to accompli^ cme goal and only partially partoftwo othergoals ofthe eight goals for the fiscal year In ampct he lost points in thi sarea in Mr Childs system Respondent also fared poorly in the Managers system for his budgetaiy projections and individual perfoimanoe He lost the maximum three points for his ^ure to forecast hisdepartments budget accurately ashewas over-budget bymore than 5 leroent In the category thatMrChild described as rewarding above and beyond perfom ance re^ndent HaU was actually penalized 5 points for failure to check required calcu iadons which contributed to his department excee^g its forecasted budget

9 There areat least two other problems with using Manager CMdsspreadsheet tojustify performance payfor respondent Hall Thefirstrelates to thewayin whic lithe managers were assessed Ofthe seven criteriausedto assessa managers performs neeonly threeassessed themanagers individual performance TheDther four werebased rholly or inpart on thepeiformance of respondent SVCW asa whole Thismaybe a veryeCfective wayto bolstercohesiveness amongmanagers and foster recognition of theirre^ec ive roles in theentitysoverall success butsucha system is notdesigned to isolate individu ilsuperior perfommnce In fact thissystem resulted inperformance payforallor virtually a 1 of respondent SVCW management personnel year-to-year The second pndilem relat is toMr Childs attempt to differentiate hisprogram fiomthe traditional evaluations provid 4 nianagers gt^ile Mr Qiild may be conect in describing his system as more objec ive than the subjective traditional evaluation byrespondent Halls supervisor thelatter was focused exclusively on respondent Halls perfomiance as a department duector

ProgramRequirementsforSpecialCompetition

10 Respondent SVCW adopted Administrative Policy 1984-01 address ng management petforaiance evaluations The original document was notintroduced nto evidence but Revisions C andD werereceived inevidence Revision C was apprc vedby Manager Child onNovember 62012and Revision Dwas iqiproved byManager (hOdon April 22015 before respondent Hall retired butafter hereceived hispeifonnance pay bonus for fiscal year2013-2014 Asnoted above apart from minordifferences he documents areessentially identical OnApril 22015 theCommisaon of respond nt SVCW adopted revisions C and DofAdministrative Policy 1984-01 retroactivel On December 62012 the Commission without referring to Administrative Policy 1914-01 Revision C authorized the Manager in accordance withthe Authoritys Performai ce Compensation Policy an administrative policy approved by the Authoritys Conrni ission to approve a lump sum payment ofno more than 10 percent ofamanagers salary Resolution SBSA13-31 adopted by the Commission on July 112013 includes the same

11 The relevant portions ofAdministradve Policy number 1984-01 mdashy and D describe in a veiy general manner the structure of re^ndent SVCWs pr ^ payprogram formanagers Theyprovide thatmanagers weretobe evaluated on idividual

15

peifonnance in establishment and achievement ofAuthority Department andPersonal goals Authority compliance with PPDES permit requirements Authority Departmental and Personal safetycompliance personnel development staffmanagement Authority and Department budgetperformance and Interdepartmental relationships The Performance Incentive criteria will include datafrom each employees annual performance evaluation along with theevaluation ofmeeting other Authority and Department wide goals

12 Respondent SVCWs Administrative Policy 84-01 as revised doesgenerally describe the performancepay programandmaybe fledrly characterized as a labor policy TheConunission of respondent SVCW retroactively adopted theAdministrative Policy as revised by the identified Resolutions Both theAdministrative Policyand Resolutions are readily accessible to the public Thusthese requirements for any formof special compensation outlinedin subdivision (b)of California Codeof Regulations title2 section 571 are satisfiedas they relate to Administrative Policy 844)1

13 Howeversubdivision (b)subsection (IXB) has not been satisfied As quoted above this provision requires that the labor polilt^ in^cates theconditions for payment of the item ofspecial compensation including but not Ihnited to eilgibility for and amount of the ^ledal compensation Here these elementsare only discemable by access to respondent SVlt^ Managers Management Performance Incentive Pay-Master Evaluation Form This is thedocument that encompasses theconditions for payment of a management bonus including the method of calculating whether a bonusis dueand Ifso how much Hieie is nothing in the record tosuggest thattheSVCW Conunission approved theprogram cryptically described in theManagers spreadsheet Moreover even thisdocument does not includethat managersbegin with 10pouitsand the plusesand minusesfor each category are added to or subtracted from that number The documentdoes not convey that the end number provides thepercentage increase of the management employees salaryas a performance paybonus Most importantly thedocument doesnot include thevery critical 501 points threshold for anyperformance pay bonus Manager Child testified thatthis threshold was establishedby the Commission to reflect superior^ performance but thereis no document in evidenceconfiimlng tiieCommisaons decision to set sucha threshold Even ifevidence existed that the Commisdon Bad properly established such a threshold a threshold score of 501 ofa possible 10pointsdoesnotconnotesuperior performance

14 In summaryrespondent SVCW Manager^s spreadsheet is respondent SVCWs actualperformance pay program Theevidence did notestablish whenItwas first created other thansome timeafter Aprilof 2006andwhetherthe Managerwas solely responsible for Itscreationandany modifications hefelt appropriate This document wasthe basis for year-to-year bonus payments to all management personnel Includingthe Manager himself There was no documented approval by theSVCWCommission for the program and no document^ approval for the threshold 501 score used to determine when a bonus was payable

15 There was also no evidence esta)gtlishing that the SVCW Managers spreadsheet was readily available for public scrutfaiy The CalPERS Board ofAdministration

16

paydoes notqualify as a bonus thatmay beproperly considered as special compensation in the calculationofrespondentHalls retirement tenefits

5 Government Code section 20636 subdivision (a) readin conjunction with subdivision (cXi)gt authorizes theconsideration ofspecial compensation in theform or payments to an employee forspecal skills knowledge abilities Subdivision (cX2) requires that^t all special compensation be paid pursuant to a laborpolicy or agreement or asotherwise required bystateor federal lawtosimilarly situated members of a group or dass of employment that is in addition topayrate Thestatute directs in subdivision (cXlt9gttiiat CalPE^ promulgate regulations that delineate more specifically and exdusively what constitutes specialcompensation as usedin Ms section Finally thestatute in subdivision (cX7)(C)makes dear that only thosepayments that CalPERS has affimuitively detennined to ^dal compensation are tobe considered in thecalculation of retirement benefits (SeeDiCarlo v County ofMonterey (1971) 12 CalApp5th 468483-484Cityof Pleasantonv Board ofAdministration ofthe California PublicEmployees Retirement System (2012) 211Cal App4th 522527)

6 CalPERS promulgated a regulation more specifically definmg specialcompensation and the requirements for conaderation ofsuch payments as sucL Under the heading INCENTIVE in subdivision (a)(1) of California CodeofRegulations title2 section 571 isthe deflation ofaBonus redted above authorizing compensation to employees for superior performance Subdivision (b)of theimplementing regulation lists the requirements forall spedal compensation Those pertinent to respondent Halls performance pay arethat such bonus payments be (1)contained in a written labor policy or agreement thatisdidyapproved andadopted by the entitys governing body (2) thatsuch document indicate the conditions for payment of thebonusinduding eligiWityfor and the amount of the special compensation (3)thatthedocument is posted at theentitysoffice or immediately accessible for publicreview and(4) thatthedocument doesnot reference anotherdocument to satisfy diese conditions Subdivisions (c) and (d) of ttte regulation clarify thatonlyitemslistedin the regulation andcomplying witii therequirements of subdivision (b)qualify as special compensation forcalculation offinalcompensation for retirement purposes

SuperiorPerformanceRequirement

7 Thefirst problem witiitiie performance payprovided respondent Hallis ttat it wasnotbasedon re^ndent Halls superior performance Respondent Halls traditional evaluation prepared by his immediate supervisor and approved by respondent SVCWs Manager rated him overallas successful for fiscal year 2013-2014 In the individual categories his best score was a single fullysuccessful His scoresfor having met tiie years goals for him ranged firom fiillysuccessful to somewhatsuccessful witii two incompletes Re^ondent Hallreceived no exemplary ratingin any evaluation category a score that is essentiaUy the equivalent ofsuperiorperformance

14

8 Respondent SVCWs Manager explained that only respondent Hall perfoimance relating to his goals was used to deteimine whether he received peifo manoe pay and the amount However asnoted respondents perfoimance inthis one aie iwas hudly superor having ftiled to accompli^ cme goal and only partially partoftwo othergoals ofthe eight goals for the fiscal year In ampct he lost points in thi sarea in Mr Childs system Respondent also fared poorly in the Managers system for his budgetaiy projections and individual perfoimanoe He lost the maximum three points for his ^ure to forecast hisdepartments budget accurately ashewas over-budget bymore than 5 leroent In the category thatMrChild described as rewarding above and beyond perfom ance re^ndent HaU was actually penalized 5 points for failure to check required calcu iadons which contributed to his department excee^g its forecasted budget

9 There areat least two other problems with using Manager CMdsspreadsheet tojustify performance payfor respondent Hall Thefirstrelates to thewayin whic lithe managers were assessed Ofthe seven criteriausedto assessa managers performs neeonly threeassessed themanagers individual performance TheDther four werebased rholly or inpart on thepeiformance of respondent SVCW asa whole Thismaybe a veryeCfective wayto bolstercohesiveness amongmanagers and foster recognition of theirre^ec ive roles in theentitysoverall success butsucha system is notdesigned to isolate individu ilsuperior perfommnce In fact thissystem resulted inperformance payforallor virtually a 1 of respondent SVCW management personnel year-to-year The second pndilem relat is toMr Childs attempt to differentiate hisprogram fiomthe traditional evaluations provid 4 nianagers gt^ile Mr Qiild may be conect in describing his system as more objec ive than the subjective traditional evaluation byrespondent Halls supervisor thelatter was focused exclusively on respondent Halls perfomiance as a department duector

ProgramRequirementsforSpecialCompetition

10 Respondent SVCW adopted Administrative Policy 1984-01 address ng management petforaiance evaluations The original document was notintroduced nto evidence but Revisions C andD werereceived inevidence Revision C was apprc vedby Manager Child onNovember 62012and Revision Dwas iqiproved byManager (hOdon April 22015 before respondent Hall retired butafter hereceived hispeifonnance pay bonus for fiscal year2013-2014 Asnoted above apart from minordifferences he documents areessentially identical OnApril 22015 theCommisaon of respond nt SVCW adopted revisions C and DofAdministrative Policy 1984-01 retroactivel On December 62012 the Commission without referring to Administrative Policy 1914-01 Revision C authorized the Manager in accordance withthe Authoritys Performai ce Compensation Policy an administrative policy approved by the Authoritys Conrni ission to approve a lump sum payment ofno more than 10 percent ofamanagers salary Resolution SBSA13-31 adopted by the Commission on July 112013 includes the same

11 The relevant portions ofAdministradve Policy number 1984-01 mdashy and D describe in a veiy general manner the structure of re^ndent SVCWs pr ^ payprogram formanagers Theyprovide thatmanagers weretobe evaluated on idividual

15

peifonnance in establishment and achievement ofAuthority Department andPersonal goals Authority compliance with PPDES permit requirements Authority Departmental and Personal safetycompliance personnel development staffmanagement Authority and Department budgetperformance and Interdepartmental relationships The Performance Incentive criteria will include datafrom each employees annual performance evaluation along with theevaluation ofmeeting other Authority and Department wide goals

12 Respondent SVCWs Administrative Policy 84-01 as revised doesgenerally describe the performancepay programandmaybe fledrly characterized as a labor policy TheConunission of respondent SVCW retroactively adopted theAdministrative Policy as revised by the identified Resolutions Both theAdministrative Policyand Resolutions are readily accessible to the public Thusthese requirements for any formof special compensation outlinedin subdivision (b)of California Codeof Regulations title2 section 571 are satisfiedas they relate to Administrative Policy 844)1

13 Howeversubdivision (b)subsection (IXB) has not been satisfied As quoted above this provision requires that the labor polilt^ in^cates theconditions for payment of the item ofspecial compensation including but not Ihnited to eilgibility for and amount of the ^ledal compensation Here these elementsare only discemable by access to respondent SVlt^ Managers Management Performance Incentive Pay-Master Evaluation Form This is thedocument that encompasses theconditions for payment of a management bonus including the method of calculating whether a bonusis dueand Ifso how much Hieie is nothing in the record tosuggest thattheSVCW Conunission approved theprogram cryptically described in theManagers spreadsheet Moreover even thisdocument does not includethat managersbegin with 10pouitsand the plusesand minusesfor each category are added to or subtracted from that number The documentdoes not convey that the end number provides thepercentage increase of the management employees salaryas a performance paybonus Most importantly thedocument doesnot include thevery critical 501 points threshold for anyperformance pay bonus Manager Child testified thatthis threshold was establishedby the Commission to reflect superior^ performance but thereis no document in evidenceconfiimlng tiieCommisaons decision to set sucha threshold Even ifevidence existed that the Commisdon Bad properly established such a threshold a threshold score of 501 ofa possible 10pointsdoesnotconnotesuperior performance

14 In summaryrespondent SVCW Manager^s spreadsheet is respondent SVCWs actualperformance pay program Theevidence did notestablish whenItwas first created other thansome timeafter Aprilof 2006andwhetherthe Managerwas solely responsible for Itscreationandany modifications hefelt appropriate This document wasthe basis for year-to-year bonus payments to all management personnel Includingthe Manager himself There was no documented approval by theSVCWCommission for the program and no document^ approval for the threshold 501 score used to determine when a bonus was payable

15 There was also no evidence esta)gtlishing that the SVCW Managers spreadsheet was readily available for public scrutfaiy The CalPERS Board ofAdministration

16

8 Respondent SVCWs Manager explained that only respondent Hall perfoimance relating to his goals was used to deteimine whether he received peifo manoe pay and the amount However asnoted respondents perfoimance inthis one aie iwas hudly superor having ftiled to accompli^ cme goal and only partially partoftwo othergoals ofthe eight goals for the fiscal year In ampct he lost points in thi sarea in Mr Childs system Respondent also fared poorly in the Managers system for his budgetaiy projections and individual perfoimanoe He lost the maximum three points for his ^ure to forecast hisdepartments budget accurately ashewas over-budget bymore than 5 leroent In the category thatMrChild described as rewarding above and beyond perfom ance re^ndent HaU was actually penalized 5 points for failure to check required calcu iadons which contributed to his department excee^g its forecasted budget

9 There areat least two other problems with using Manager CMdsspreadsheet tojustify performance payfor respondent Hall Thefirstrelates to thewayin whic lithe managers were assessed Ofthe seven criteriausedto assessa managers performs neeonly threeassessed themanagers individual performance TheDther four werebased rholly or inpart on thepeiformance of respondent SVCW asa whole Thismaybe a veryeCfective wayto bolstercohesiveness amongmanagers and foster recognition of theirre^ec ive roles in theentitysoverall success butsucha system is notdesigned to isolate individu ilsuperior perfommnce In fact thissystem resulted inperformance payforallor virtually a 1 of respondent SVCW management personnel year-to-year The second pndilem relat is toMr Childs attempt to differentiate hisprogram fiomthe traditional evaluations provid 4 nianagers gt^ile Mr Qiild may be conect in describing his system as more objec ive than the subjective traditional evaluation byrespondent Halls supervisor thelatter was focused exclusively on respondent Halls perfomiance as a department duector

ProgramRequirementsforSpecialCompetition

10 Respondent SVCW adopted Administrative Policy 1984-01 address ng management petforaiance evaluations The original document was notintroduced nto evidence but Revisions C andD werereceived inevidence Revision C was apprc vedby Manager Child onNovember 62012and Revision Dwas iqiproved byManager (hOdon April 22015 before respondent Hall retired butafter hereceived hispeifonnance pay bonus for fiscal year2013-2014 Asnoted above apart from minordifferences he documents areessentially identical OnApril 22015 theCommisaon of respond nt SVCW adopted revisions C and DofAdministrative Policy 1984-01 retroactivel On December 62012 the Commission without referring to Administrative Policy 1914-01 Revision C authorized the Manager in accordance withthe Authoritys Performai ce Compensation Policy an administrative policy approved by the Authoritys Conrni ission to approve a lump sum payment ofno more than 10 percent ofamanagers salary Resolution SBSA13-31 adopted by the Commission on July 112013 includes the same

11 The relevant portions ofAdministradve Policy number 1984-01 mdashy and D describe in a veiy general manner the structure of re^ndent SVCWs pr ^ payprogram formanagers Theyprovide thatmanagers weretobe evaluated on idividual

15

peifonnance in establishment and achievement ofAuthority Department andPersonal goals Authority compliance with PPDES permit requirements Authority Departmental and Personal safetycompliance personnel development staffmanagement Authority and Department budgetperformance and Interdepartmental relationships The Performance Incentive criteria will include datafrom each employees annual performance evaluation along with theevaluation ofmeeting other Authority and Department wide goals

12 Respondent SVCWs Administrative Policy 84-01 as revised doesgenerally describe the performancepay programandmaybe fledrly characterized as a labor policy TheConunission of respondent SVCW retroactively adopted theAdministrative Policy as revised by the identified Resolutions Both theAdministrative Policyand Resolutions are readily accessible to the public Thusthese requirements for any formof special compensation outlinedin subdivision (b)of California Codeof Regulations title2 section 571 are satisfiedas they relate to Administrative Policy 844)1

13 Howeversubdivision (b)subsection (IXB) has not been satisfied As quoted above this provision requires that the labor polilt^ in^cates theconditions for payment of the item ofspecial compensation including but not Ihnited to eilgibility for and amount of the ^ledal compensation Here these elementsare only discemable by access to respondent SVlt^ Managers Management Performance Incentive Pay-Master Evaluation Form This is thedocument that encompasses theconditions for payment of a management bonus including the method of calculating whether a bonusis dueand Ifso how much Hieie is nothing in the record tosuggest thattheSVCW Conunission approved theprogram cryptically described in theManagers spreadsheet Moreover even thisdocument does not includethat managersbegin with 10pouitsand the plusesand minusesfor each category are added to or subtracted from that number The documentdoes not convey that the end number provides thepercentage increase of the management employees salaryas a performance paybonus Most importantly thedocument doesnot include thevery critical 501 points threshold for anyperformance pay bonus Manager Child testified thatthis threshold was establishedby the Commission to reflect superior^ performance but thereis no document in evidenceconfiimlng tiieCommisaons decision to set sucha threshold Even ifevidence existed that the Commisdon Bad properly established such a threshold a threshold score of 501 ofa possible 10pointsdoesnotconnotesuperior performance

14 In summaryrespondent SVCW Manager^s spreadsheet is respondent SVCWs actualperformance pay program Theevidence did notestablish whenItwas first created other thansome timeafter Aprilof 2006andwhetherthe Managerwas solely responsible for Itscreationandany modifications hefelt appropriate This document wasthe basis for year-to-year bonus payments to all management personnel Includingthe Manager himself There was no documented approval by theSVCWCommission for the program and no document^ approval for the threshold 501 score used to determine when a bonus was payable

15 There was also no evidence esta)gtlishing that the SVCW Managers spreadsheet was readily available for public scrutfaiy The CalPERS Board ofAdministration

16

peifonnance in establishment and achievement ofAuthority Department andPersonal goals Authority compliance with PPDES permit requirements Authority Departmental and Personal safetycompliance personnel development staffmanagement Authority and Department budgetperformance and Interdepartmental relationships The Performance Incentive criteria will include datafrom each employees annual performance evaluation along with theevaluation ofmeeting other Authority and Department wide goals

12 Respondent SVCWs Administrative Policy 84-01 as revised doesgenerally describe the performancepay programandmaybe fledrly characterized as a labor policy TheConunission of respondent SVCW retroactively adopted theAdministrative Policy as revised by the identified Resolutions Both theAdministrative Policyand Resolutions are readily accessible to the public Thusthese requirements for any formof special compensation outlinedin subdivision (b)of California Codeof Regulations title2 section 571 are satisfiedas they relate to Administrative Policy 844)1

13 Howeversubdivision (b)subsection (IXB) has not been satisfied As quoted above this provision requires that the labor polilt^ in^cates theconditions for payment of the item ofspecial compensation including but not Ihnited to eilgibility for and amount of the ^ledal compensation Here these elementsare only discemable by access to respondent SVlt^ Managers Management Performance Incentive Pay-Master Evaluation Form This is thedocument that encompasses theconditions for payment of a management bonus including the method of calculating whether a bonusis dueand Ifso how much Hieie is nothing in the record tosuggest thattheSVCW Conunission approved theprogram cryptically described in theManagers spreadsheet Moreover even thisdocument does not includethat managersbegin with 10pouitsand the plusesand minusesfor each category are added to or subtracted from that number The documentdoes not convey that the end number provides thepercentage increase of the management employees salaryas a performance paybonus Most importantly thedocument doesnot include thevery critical 501 points threshold for anyperformance pay bonus Manager Child testified thatthis threshold was establishedby the Commission to reflect superior^ performance but thereis no document in evidenceconfiimlng tiieCommisaons decision to set sucha threshold Even ifevidence existed that the Commisdon Bad properly established such a threshold a threshold score of 501 ofa possible 10pointsdoesnotconnotesuperior performance

14 In summaryrespondent SVCW Manager^s spreadsheet is respondent SVCWs actualperformance pay program Theevidence did notestablish whenItwas first created other thansome timeafter Aprilof 2006andwhetherthe Managerwas solely responsible for Itscreationandany modifications hefelt appropriate This document wasthe basis for year-to-year bonus payments to all management personnel Includingthe Manager himself There was no documented approval by theSVCWCommission for the program and no document^ approval for the threshold 501 score used to determine when a bonus was payable

15 There was also no evidence esta)gtlishing that the SVCW Managers spreadsheet was readily available for public scrutfaiy The CalPERS Board ofAdministration

16

adopted aspiecedential the decision entitled Inthe Matter of theCalculation ofthi Final Compensation of Randy a Adams (CalPERS Precedential Dec No 1501 (20l4) On page 19 ofthe Precedential Decision isthe following language

The Legislature Intended that a public employees payrate be readily available toan interested person without unreasonable difficulty Hiis concept (toes not apply toa situation inwhich a public employees p^te isburied In a carefully crafted agreement that is privately maintained and Isnotbasedon a published pay schedule orapproved ina public mani^r and that is not subject to public exposure except through afonn^ public records request subpoena or other legal process

16 Here evenif theSVCW Managers master program were available i craquor inspection it would have been incomprehensible toany member of the public with mt the complicated explanation provided by the Manager during his testimony at tiie admi nistrative hearing Thisdoes notsatisfy therequirement that thepayperformance program b i publicfy available

EquUabh Estoppel

17 Equitable estoppel maybeasserted against a government agent^ (C Uy of LongBeach v Mansell(1970) 3 Cal3d 462493) Theelements are (1) tiiepartytobe estopped was apprised of the facts (2) the party to be estopped intended by oonducjt to Induce reliance by theother party or acted soas tocause the otherparty reasonabl^f to believe reliance was Intended (3) Uie partyasserting estoppel was Ignorant of the facts and (4)the party asserting estoppel suffered injury inreliance ondie conduct (Id atpi4S9) Theapplication of equitable estoppel in thegovernment pension rights context hasfteenapproved by the California Supreme Court (Longshore v County ofVentura (197^) 25 Cal3d 1428) However estoppel may not be applied against die government whep doing so Iscontraryto public policy (Mansell supra at p493)

18 Estoppel cannot be used to enlarge tiie powers ofCalPERS (Page vl City of Monebello (1981) 112Cal ^p 3rd658667 BoardofAdministration State EmmyeesRetirement System vAmes (1963) 215 Cal App2d 215230) The equitable rem^ yalso cannot support providing a benefit toa member towhich heorsheis nototherwise statutorily authorized because publicemployee benefits are wholly statutory (Hudson v PosQ(1967) 255 Cal App2d 89)

19 Regarding tiiefourelements toestablish equitable estoppel it is notdear whetiierCalPERS was aware ofall of tiiesalient fectswhen it included pay peifonnance payments as special compensation for re^ndent SVCW retirees preceding responpent Hall The revisedAdministrative Policy84-01and the BoardResolutions adoptingtheAdministrative Policy as noted above did not Include tiie specifics oftiie programJIncluding the manner in which points were calculated the fact that tiie point total reflected

17

theamount ofthe bonusandthe threshold of501 thatwas theproductofdiscussion^ between theSVCWManagermd its Cbmniission OnceaU of thedocuments were reviewed during theCalPERS audit thepayperformance wasdisallowed It follows that ignorance on thepartof CalPERS cannot be thebasis foranyinducement to re^ndent SVCW to continue the practiceofconsidering theperformance payas PERSable special compensation Respondent SVCW wascertainly notignorant of the trueampcts Their manager constructed the performance pay program and the requirements for special compensation in the formof a bonusarespelled outin Califiomia Codeof Regulations title 2 section 571 There wasalsono detrimental reliance by respondent SVCW Anypayments erroneously madeto CalPERS as contributions based on theperformance paywill presumably be returned to respondent SVCW Re^ndent Halldid not testify and there was no other evidence that he reli^upon the performance payments and the manner in which theyenhancedhis retirementbenefitswhenhe choseto retire Moreover respondent Hall received all of theperformance payments in theyears that the program existed and this matteronlyaffectsthe inclusion of suchbenefits forretirement purposes

20 Even ifall of the four basicelements of equitable estoppelwere established including theperformance payas special compensation would violate public policy and exceed thepowers accorded CalPERS bytheLegislature Therecited statute and implementing regulation could notbeclearer only those items thatmeet thecriteria for special compensation may beconsidered in the calculation ofa members retirement The performance pay did not fulfill the requisite requirements as explaiUied and should not therefore be considered in the calculation ofrespondent HalPs retirement

Laches

21 Laches is another equitable defense which may beasserted against a government entity if theparty asserting the defense establishes both of thetwoelements Thefirst is an unreasonable delay by the agency mprosecuting theaction Thesecond element is demonstrated prejudice Offered as aresult ofsuch delay generallyinthe partys ability toadequately mount adefense because ofthe delay (Gates v DMV(1979) 94Cal AppJrd 921925 Green v BoardofDental Exam rs (1996) 47Cal App4th 786795)

22 Respondent Hall filed his application for retirement onFebruary 112015 After reviewing information relating tothe inclusion ofperformance pay asspecial compensation CalPERS notified respondent byletter dated July 282015 that the performance pay would be disallow^ The Statement of Issues was filed on February 19 2016 after respondents Hall and SVCW filed appeals

23 Otherthanraising thelaches issue respondents made no claim of prejudice in theirabilityto fully litigate theirposition regarding theperformance payquestionby reason of any allegeddelay on CalPERS part

24 Thus respondents havetilled to establish eitherof the two required laches elements The contention is thereforerejected

18

theamount ofthe bonusandthe threshold of501 thatwas theproductofdiscussion^ between theSVCWManagermd its Cbmniission OnceaU of thedocuments were reviewed during theCalPERS audit thepayperformance wasdisallowed It follows that ignorance on thepartof CalPERS cannot be thebasis foranyinducement to re^ndent SVCW to continue the practiceofconsidering theperformance payas PERSable special compensation Respondent SVCW wascertainly notignorant of the trueampcts Their manager constructed the performance pay program and the requirements for special compensation in the formof a bonusarespelled outin Califiomia Codeof Regulations title 2 section 571 There wasalsono detrimental reliance by respondent SVCW Anypayments erroneously madeto CalPERS as contributions based on theperformance paywill presumably be returned to respondent SVCW Re^ndent Halldid not testify and there was no other evidence that he reli^upon the performance payments and the manner in which theyenhancedhis retirementbenefitswhenhe choseto retire Moreover respondent Hall received all of theperformance payments in theyears that the program existed and this matteronlyaffectsthe inclusion of suchbenefits forretirement purposes

20 Even ifall of the four basicelements of equitable estoppelwere established including theperformance payas special compensation would violate public policy and exceed thepowers accorded CalPERS bytheLegislature Therecited statute and implementing regulation could notbeclearer only those items thatmeet thecriteria for special compensation may beconsidered in the calculation ofa members retirement The performance pay did not fulfill the requisite requirements as explaiUied and should not therefore be considered in the calculation ofrespondent HalPs retirement

Laches

21 Laches is another equitable defense which may beasserted against a government entity if theparty asserting the defense establishes both of thetwoelements Thefirst is an unreasonable delay by the agency mprosecuting theaction Thesecond element is demonstrated prejudice Offered as aresult ofsuch delay generallyinthe partys ability toadequately mount adefense because ofthe delay (Gates v DMV(1979) 94Cal AppJrd 921925 Green v BoardofDental Exam rs (1996) 47Cal App4th 786795)

22 Respondent Hall filed his application for retirement onFebruary 112015 After reviewing information relating tothe inclusion ofperformance pay asspecial compensation CalPERS notified respondent byletter dated July 282015 that the performance pay would be disallow^ The Statement of Issues was filed on February 19 2016 after respondents Hall and SVCW filed appeals

23 Otherthanraising thelaches issue respondents made no claim of prejudice in theirabilityto fully litigate theirposition regarding theperformance payquestionby reason of any allegeddelay on CalPERS part

24 Thus respondents havetilled to establish eitherof the two required laches elements The contention is thereforerejected

18

ORDER

1 Thepayments made by respondent Silicon Valley Clean Water to re^ndent David A Hall as performance payments onus) shall not be considered in the determination ofrespondent Hallsretirement benefits from CalPERS

2 The appeals ofrespondent David A Hall and respondent Silicon Val ley Clean Water are denied

Dated October 272017

nnriwOflpBdbyi

iUtKJL

VmdashBsasspssTcnBaL

KARLSENGEMAN Administrative LawJudge 0poundBce of Administrative Hearings

19