§21–122.

    (a)    (1)    There is an Investment Division in the State Retirement Agency.

        (2)    Subject to subsection (f) of this section, the Board of Trustees shall determine the qualifications and compensation for positions within the Investment Division.

        (3)    The Board of Trustees:

            (i)    may determine and create the type and number of positions necessary for carrying out the professional investment functions of the Investment Division; and

            (ii)    shall adopt objective criteria to be followed when exercising its authority under item (i) of this paragraph and paragraph (2) of this subsection.

        (4)    On or before October 1, 2012, and each October 1 thereafter, the Board of Trustees shall report to the Senate Budget and Taxation Committee, the House Appropriations Committee, and the Joint Committee on Pensions, in accordance with § 2–1257 of the State Government Article on:

            (i)    the current compensation of the Chief Investment Officer and employees of the Investment Division;

            (ii)    any compensation increases the Chief Investment Officer and employees of the Investment Division have received in the fiscal year immediately preceding that October 1;

            (iii)    1.    the number of individuals in the Investment Division of the State Retirement Agency who were employed as professional investment staff and terminated employment with the State Retirement Agency in the fiscal year immediately preceding that October 1;

                2.    the number of years of employment an individual described in item 1 of this item had accrued with the State Retirement Agency at the time the individual terminated employment with the State Retirement Agency; and

                3.    to the extent possible, the new employer, position, and compensation the individual described in item 1 of this item accepted upon terminating employment with the State Retirement Agency;

            (iv)    the criteria used to set the compensation of employees of the Investment Division;

            (v)    the criteria used to determine the type and number of positions necessary to carry out the functions of the Investment Division;

            (vi)    the number of employees eligible for financial incentives, and the financial incentives paid in the current fiscal year; and

            (vii)    the net impact on system investment returns attributable to the costs of the Investment Division for the preceding fiscal year.

    (b)    As the Board of Trustees specifies, the Investment Division shall invest the assets of the several systems.

    (c)    (1)    Quarterly, the Investment Division shall submit to the Board of Trustees a report about the commissions that the State Retirement Agency pays on investments.

        (2)    The report shall detail:

            (i)    the identity of each recipient of a commission that the State Retirement Agency paid during the previous quarter;

            (ii)    the dollar amount of commission business that each recipient performs;

            (iii)    the average price–per–share each recipient charged or, if the commission was paid on a net basis, the markup or markdown that the recipient uses; and

            (iv)    a reasonable history of the allocation of commissions.

    (d)    On behalf of the several systems, the Chief Investment Officer:

        (1)    may hire external investment managers to invest the assets of the several systems;

        (2)    may select and invest in specific investment vehicles, including limited partnerships, private equity fund investments, and private real estate fund investments; and

        (3)    may terminate the appointment of an external investment manager.

    (e)    Prior to terminating the appointment of an external investment manager under subsection (d)(2) of this section, the Chief Investment Officer shall provide written documentation to the Board of Trustees and the Investment Committee explaining the basis for the termination.

    (f)    (1)    (i)    1.    The Board of Trustees shall adopt objective criteria for setting the qualifications and compensation of positions under subsection (a) of this section.

                2.    The Board shall consider the recommendations of the Objective Criteria Committee under subsection (g) of this section before adopting objective criteria for setting compensation.

            (ii)    The criteria adopted under subparagraph (i) of this paragraph shall include:

                1.    consideration of the comparative qualifications and compensation of employees serving in similar positions and discharging similar duties at comparable public pension funds;

                2.    limitations on the amount by which the compensation for a position may be increased each fiscal year, not to exceed 10%; and

                3.    objective benchmarks of investment performance that shall be met or exceeded by an individual to be eligible for an increase in compensation.

            (iii)    The Board of Trustees may not grant any increases in compensation in a fiscal year in which State employees are subject to a furlough.

            (iv)    For positions that do not involve discretion over investment–related decisions, the Board of Trustees may not set compensation that exceeds compensation for providing comparable services in other State employment.

            (v)    Except for positions under subparagraph (iv) of this paragraph, the compensation of an employee may not be adjusted in accordance with cost–of–living adjustments and merit increases available to State employees.

        (2)    (i)    1.    The Board of Trustees shall adopt objective criteria for awarding financial incentives under subsection (a) of this section.

                2.    The Board shall consider the recommendations of the Objective Criteria Committee under subsection (g) of this section before adopting objective criteria for awarding financial incentives.

            (ii)    Financial incentives may only be awarded based on the objective criteria adopted in accordance with subparagraph (i) of this paragraph.

            (iii)    The criteria adopted under subparagraph (i) of this paragraph shall include:

                1.    limitations on the amount of financial incentives for a position in a fiscal year, not to exceed 33% of a position’s compensation, exclusive of financial incentives; and

                2.    objective benchmarks of investment performance that shall be met or exceeded by an individual to be eligible for financial incentives, including benchmarks for the asset class in which investments are under the direction of the individual.

            (iv)    1.    Any financial incentives paid shall be paid over multiple fiscal years in equal installments.

                2.    The dates on which financial incentives awarded under this section shall be paid shall be set by the Board of Trustees at the time the financial incentives are determined.

                3.    The dates set under subsubparagraph 2 of this subparagraph may not be changed after being set.

            (v)    Except as provided in subparagraph (vi) of this paragraph, if an individual who has earned financial incentives separates from employment in the Investment Division, the Board of Trustees may not pay out any remaining financial incentives due to be paid after the date of separation from employment.

            (vi)    The Board of Trustees may pay any remaining earned financial incentives after the date of separation from employment if the individual retires directly from the Investment Division on or 30 days after the date of separation.

            (vii)    The Board of Trustees may not award financial incentives for positions that do not involve discretion over investment–related decisions.

            (viii)    1.    The Board of Trustees may not pay out financial incentives in a fiscal year in which State employees are subject to a furlough.

                2.    The Board of Trustees shall pay out any financial incentives not paid to an individual in accordance with subsubparagraph 1 of this subparagraph only:

                A.    after the furlough period has ended; and

                B.    if the individual is currently employed in the Investment Division.

        (3)    (i)    On or before October 1 each year, the Board of Trustees shall submit to the Senate Budget and Taxation Committee, the House Appropriations Committee, and the Joint Committee on Pensions, in accordance with § 2–1257 of the State Government Article, a copy of the most recent criteria adopted under this subsection.

            (ii)    In addition to the report required under subparagraph (i) of this paragraph, the Board of Trustees shall submit, within 30 days of adoption by the Board of Trustees, a copy of any changes adopted to the criteria established under this subsection to the Senate Budget and Taxation Committee, the House Appropriations Committee, and the Joint Committee on Pensions, in accordance with § 2–1257 of the State Government Article.

        (4)    On or before October 1, January 1, March 1, and July 1 each year, the Board of Trustees shall submit to the Senate Budget and Taxation Committee, the House Appropriations Committee, and the Joint Committee on Pensions, in accordance with § 2–1257 of the State Government Article, a report on system investment returns for the preceding fiscal quarter, including:

            (i)    investment performance by asset class, including performance relative to asset class benchmarks; and

            (ii)    investment performance of assets under the direction of each Investment Division employee.

    (g)    (1)    There is an Objective Criteria Committee of the Board of Trustees.

        (2)    The Committee consists of the following members:

            (i)    one member of the Senate of Maryland serving on the Joint Committee on Pensions, appointed by the President of the Senate;

            (ii)    one member of the House of Delegates serving on the Joint Committee on Pensions, appointed by the Speaker of the House;

            (iii)    the State Treasurer or the State Treasurer’s designee;

            (iv)    the Secretary of Budget and Management or the Secretary’s designee;

            (v)    one member of the Board of Trustees under § 21–104(a)(4)(i), (ii), (iii), (iv), or (v) of this subtitle, appointed by the Chairman of the Board of Trustees;

            (vi)    one member of the Board of Trustees under § 21–104(a)(4)(viii) of this subtitle, appointed by the Chairman of the Board of Trustees; and

            (vii)    a member of the public with financial industry experience, appointed jointly by the presiding officers of the General Assembly.

        (3)    (i)    The Chairman of the Board of Trustees shall appoint the Chair of the Committee.

            (ii)    The Chairman of the Board of Trustees may not serve as the Chair of the Committee.

        (4)    On or before December 31, 2018, and at least once every 5 years thereafter, the Committee shall make recommendations to the Board of Trustees regarding:

            (i)    objective criteria under § 21–118.1(b)(2) and (d) of this subtitle for the compensation and financial incentives for the Chief Investment Officer; and

            (ii)    objective criteria under subsections (a) and (f) of this section for the compensation and financial incentives for the positions in the Investment Division.

        (5)    (i)    The Board of Trustees shall enter into an agreement with a consultant to assist the Committee regarding objective criteria under this subsection.

            (ii)    The Board of Trustees may not enter into an agreement with a consultant under subparagraph (i) of this paragraph if that consultant is actively providing consulting services for the Board of Trustees and the staff of the Investment Division.

        (6)    (i)    The Chief Investment Officer shall serve in an advisory capacity to the Committee.

            (ii)    The Chief Investment Officer may not participate in any deliberations regarding the criteria for compensation and financial incentives for the Chief Investment Officer.

    (h)    (1)    There is a governance program within the Investment Division of the State Retirement Agency established in accordance with the policies of the Board of Trustees.

        (2)    (i)    Subject to subsection (a) of this section, the Chief Investment Officer shall employ an individual to assist in the implementation of the governance program.

            (ii)    On the recommendation of the Chief Investment Officer and on receiving an affirmative vote from a majority of the Board of Trustees, the Executive Director shall terminate an individual employed in accordance with subparagraph (i) of this paragraph.

        (3)    The responsibilities of the individual employed under paragraph (2)(i) of this subsection shall be consistent with the fiduciary responsibilities and shall include:

            (i)    developing appropriate standards, policies, and processes for the implementation and management of the governance program;

            (ii)    monitoring, evaluating, and quantifying the risks and effects of material environmental, social, and governance factors on the investment of the assets of the several systems;

            (iii)    working across asset classes to integrate consideration of material environmental, social, and governance factors into investment due diligence and recommendations;

            (iv)    providing recommendations to the Chief Investment Officer based on research and analysis of material environmental, social, and governance factors, including diversity, equity, and inclusion;

            (v)    assisting the Investment Division in identifying and recommending investment opportunities to the Chief Investment Officer;

            (vi)    evaluating whether internal and external investment managers represent a diverse set of backgrounds;

            (vii)    working with investment managers, data providers, index providers, or consultants to identify, analyze, define, and prioritize specific metrics to align with an inclusive environment;

            (viii)    supporting the Board of Trustees with the implementation of the State’s minority business enterprise policies by the Investment Division, in accordance with Title 14, Subtitle 3 of the State Finance and Procurement Article and § 21–116(d) of this subtitle; and

            (ix)    providing advice and reports to the Board of Trustees on governance topics.