BUSINESS

Canada CEO Compensation: Companies Hesitant To Debate Executive Pay

01/04/2012 01:25 EST | Updated 01/04/2012 02:11 EST
CP

In the wake of a new study detailing soaring CEO compensation, the corporations whose executives pocketed the highest annual earnings appear reluctant to discuss a trend that critics say has gotten out of hand.

The Canadian Centre for Policy Alternatives (CCPA) reported on Monday that the incomes of the 100 highest-earning CEOs on the TSX Index increased by 27 per cent in 2010 despite stagnant wages for average Canadians.

But it’s an issue that those doling out CEO compensation aren’t keen to broach at a time when some Canadian politicians are beginning to make noise about reining in executive pay.

Of the companies whose executives ranked among the CCPA’s Top 10, Scotiabank and Royal Bank of Canada were alone in responding to The Huffington Post’s request for comment.

In the case of Niko Resources, Ltd., whose CEO Edward Sampson pocketed $16.4 million in 2010, putting him in fourth place, an operator at the head offices explained that the company only entertains media requests from The Calgary Herald.

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This resistance is no surprise to Mike Mulvey, an associate marketing professor at the University of Ottawa’s Telfer School of Management, who says that companies are well aware of growing public resentment around ballooning executive compensation.

“We’re in a time where the Occupy movement has also occupied headlines for a while, and [protesters have] put a lot of effort towards vilifying a lot of the people that run big companies worldwide,” says Mulvey. “When you put it together with the general economy where we’ve seen very modest increases in terms of the rank and file type workers, it makes people very sensitive to the issue.”

Meanwhile, he says that the difficulty in communicating the skill set of CEOs to the general public may also make companies reticent to speak up.

The Harper government doesn’t appear intent on weighing into the issue either.

In an e-mail on Tuesday, a spokeswoman for Minister of Finance Jim Flaherty highlighted the recent introduction of tax relief programs for low-income Canadians, maintaining that Canada has a clear, progressive income tax system which taxes those that make more at the highest rates, and favours those with lower incomes by ensuring they pay low or no taxes.

As for soaring CEO pay, she said, simply: “The Government of Canada does not set salaries for private sector companies or their employees.”

But others offered a more robust defence. The Fraser Institute’s Niels Veldhuis says reining in executive compensation is not the way to address a difficult economic climate.

“When you call for a policy that limits CEO pay what you are doing is you’re signalling that we’re going to have even more regulations on how businesses operate here in Canada, and unfortunately, that will cause businesses to relocate or locate elsewhere,” he says.

Because CEO pay depends heavily on the value of stock options, he says that focusing on the change in executive compensation between 2009 and 2010, when the market rebounded from a significant crash, is “quite disingenuous.”

In an e-mail, RBC spokeswoman Rina Cortese stressed the the growth of the bank’s business and earnings under CEO Gordon Nixon “through a period of economic, regulatory and market uncertainty.”

“RBC’s capital base, credit ratings and balance sheet liquidity are now among the strongest of all banks globally,” she said.

Performance-based incentives, she maintained, are key to determining executive compensation. In 2010, 87 per cent of Nixon’s $11.9 million in pay was tied to the bank’s “absolute and relative financial performance as well as the achievement of risk, strategic and operational objectives” and 68 per cent was deferred for at least three years, she said.

Scotiabank spokesman Andrew Chornenky didn’t specifically discuss CEO Richard Waugh’s pay, but explained that executive compensation is set by the bank’s human resources board, which consists of seven independent directors who consult an independent advisor.

“Total compensation for executives is determined by looking at three core elements: the competitive market influenced by global economic and industry factors; the [bank’s] performance; and, the individual’s performance,” he said in an e-mail.

In 2010, Waugh pocketed more than $13.7 million, making him the highest paid Canadian bank executive, and No. 6 overall on the list.

According to Brad Kelly, Toronto-based director of Global Governance Advisors, Canadian companies are making strides to ensure that CEO pay is more closely tied to performance through longer vesting periods for stock options and a trend away from the use of stock options altogether.

“We are seeing a very strong movement towards stronger performance management planning. and much more stringent performance objectives being put in place that go far beyond just the market rates,” says Kelly, noting that contrasting CEO pay with what the average Canadian makes is “a little unfair.”

“A lot of these individuals have sacrificed a tremendous amount to get to where they are, and are incredibly skilled and incredibly educated,” he says. “Not belittling what the average Canadian is doing, but I think you’re comparing apples to oranges.”

But NDP finance critic Peter Julian sees it differently, saying that CEO pay must be viewed in the context of “what’s happening with the middle class and poorer Canadian families.”

In addition to the recent decline in real earnings, he notes that average workers are also suffering under the weight of rising debt loads and a labour market shift that is replacing “family sustaining jobs” with “jobs that are more and more precarious.”

“You’ve got to say that there’s something fundamentally wrong with this economic picture,” says Julian, who says that the findings in the CCPA report underscore the need for renewed public debate about growing inequality.

“I have no doubt that Canadians generally favour a much more responsible approach for CEO salaries -- an approach that is really putting the emphasis on the growth of middle class and poorer Canadian average salaries -- which is not what we’re seeing,” he says.

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