Michael Sabia, BCE; Robert Prichard, Torstar; Tom Parkinson, Hydro One; Robert Nardelli, Home Depot
It was a bitterly cold February morning in Toronto just over a year ago when Gary Hawton witnessed a miracle. As CEO of Meritas Mutual Funds, a socially responsible investing company in Kitchener, Ont., he had been watching executive pay levels surge from generous to ridiculous over the last 15 years, and he’d had enough. As of 2007, the collective compensation of Canada’s 100 best-paid CEOs had crashed through the billion-dollar mark, and average individual pay packages were topping $10 million apiece. As a professional investor, Hawton knew that most CEOs were simply not worth that kind of money.
He sent letters to all the big Canadian banks asking them to allow shareholders to vote on CEO pay packages. He spoke out at shareholder meetings and talked up the issue to the press. At first, he was completely ignored. But Hawton, a former investment banker raised with strong Christian values, is a bit of a crusader. So last year, he decided to try a different strategy. He would introduce a shareholder’s motion that, if passed, would pave the way for a vote on executive pay whether the banks liked it or not. He knew it was a long shot. He knew it would take at least two years, quite a lot of money and infinite reserves of patience. He also knew that his mission would quite likely make him the financial world’s Don Quixote.
ALSO AT MACLEANS.CA: Canada’s Top 50 CEOs and their astronomical take-home pay increases
Lone investors generally don’t stand a chance when taking on entrenched corporate directors. But lately it has begun to seem that maybe, just maybe, the executive compensation windmill was ready for a fall. As the recession drags on and real suffering sets in among working Canadians, mind-boggling pay packages for CEOs have triggered a palpable rage in the public and considerable uneasiness among the lucky few in the top tier. The Canadian Centre for Policy Alternatives recently calculated that after a bit more than a day of work, the average top-100 CEO has already earned more than the average Canadian worker will earn in a full year.
It’s not just the absolute amounts that are head-spinning, it’s the rate of increase. Between 1998 and 2007, after accounting for inflation, the average weekly wages and salaries of regular Canadian workers actually declined by a few percentage points. But real pay for the best-paid CEOs in the country exploded by about 145 per cent. By 2007, CEOs were making an incredible 259 times the pay of the average worker. “At what point does it stop making sense?” asks Hawton. “Is it really possible that someone is truly worth that amount? Is the average CEO really contributing 259 times more to the company than the average worker?”
That question was very much on his mind as Hawton sat in a ballroom at the plush Fairmont Royal York hotel in Toronto for CIBC’s 2008 annual shareholders meeting. He had a motion on the ballot asking the bank to give shareholders a non-binding say on executive pay, and if he managed to get six per cent of the shareholders to go for it, he could come back with a second motion in 2009. But when he tabled his proposal, there wasn’t exactly a groundswell of support. No other investors called to say they were onside, and CIBC’s directors made it clear they were dead set against it. “I remember sitting there and having no idea what the level of support for it would be,” Hawton says. As he waited for the results, he turned to the person next to him and nervously asked, “So, do you think we’ll get six per cent?” And then he heard a number that floored him: 45 per cent of the shareholders had supported his motion.
A year later, he flew to Vancouver for the follow-up vote at CIBC’s 2009 annual general meeting. Again, he enjoyed stunning success. A full 53 per cent of voters supported the second motion, finally allowing shareholders to have what’s called a non-binding “say on pay.” As he says, to win a motion that the board opposes is unheard of. “I can’t think of a time when I’ve seen it happen in Canada,” he says. “Ever.”
CIBC was just the first to fall in line. Within a month, every one of Canada’s big five banks had announced that they would allow say-on-pay votes—lest they be forced into it by shareholders. Since then, corporations such as TMX Group Inc. and Potash Corp. have adopted similar motions. SunLife Financial has announced it will adopt the policy soon, as has Bell Canada parent BCE. Manulife, which at first took an “over my dead body” approach to the issue, suddenly changed its mind a couple of weeks ago and will allow a vote on executive pay next year.
It’s gotten to the point where even the CEOs themselves are admitting that they make too much. For years, boards have defended their sky-high salaries by arguing that they’re based on complex formulas tied to the performance of the company. But earlier this year, the bank bosses looked around at the faces of angry shareholders and threw all that out the window, rejecting the board’s carefully engineered figures and setting their own pay at much lower levels. Dominic D’Alessandro, Manulife’s CEO, did a similar about-face just weeks ago. When critics first asked him to consider returning some of the $15-million payout he was to get for his last five months of work this year before he retires, he said, “I’m not given to self-serving gestures.” Then, just weeks ago, he suddenly changed his tune, announcing that he’ll defer 80 per cent of that pay in a scheme that could see him lose it altogether unless Manulife’s stock, which has been cut in half since last year, rebounds considerably.
Print
Comment
Canadian Business Network 
It’s taken too long but it’s never too late benchmark CEO’s and executive pay to company performance. Will they still make dream figures compared to average worker? Most likely but at least it might hinged on positive results. Must be nice to run a company into the ground and be “compensated” for being let go eh.
Who cares? It doesn’t trickle down to the rest of us anyways. No one is forcing these companies to pay their CEOs this amount of compensation. If stockholders are really upset they can sell their stock and invest in ethical funds. This is only a problem in economic downturns or if a company is doing poorly. When times are good and shareholders are making money no one complains. Everyone was greedy over the last decade. Companies, executives and shareholders. For example, you hear all sorts of people in the late 50s lamenting the fact that their portfolios have lost 50%. My question is why? Being close to retirement you should have had your money in guaranteed investments. But they were greedy. Now they want to punish those who they feel “robbed” them. Well one thing you should have known is that Bay St and Wall St is not for the average investor. Money from stock isn’t used by companies to finance their business anymore. It is given to hedge funds who manipulate the price of other stocks in order to make a buck. That is why in the US 1/3 of their GDP was related to financial markets. People moving money around. But on any of these deals someone had to lose and that someone was usually the average investor. Now you cry that executives make too much money. Get over yourselves, quit crying and recognize that if you aren’t in the “old boys club” (like me) that it doesn’t matter if those guys make $1M or $10M a year. Because we will never make either anyways.
Sorry Kevin,
But it does trickle down to you and me! Where do you think their pays come from? Nothingness? It comes from our pockets in the goods and services that you and I purchase.
Ross, that is what I said. If you don’t like it then don’t buy from that company or buy their stock. That is your right as a consumer. But, if a company feels that they have to pay someone these amounts it makes little difference to the average consumer and it doesn’t put anymore money in your pocket or my pocket. Generally, CEO compensation has no bearing on the price of a stock or the price of the commodity. However, CEO performance Does have a bearing on stock prices. Poor performance is generally reflected by a lower stock price. So to have a chance at a good stock price, you need a good performer at the top. As such they should be rewarded. How much should they get? They get what the market will bear. Just like everyone else in their own occupation. http://www.realclearpolitics.com/articles/2007/01/the_greed_fallacy.html
This article is the perfect antidote to a column Barbara Amiel wrote a couple of months ago lamenting that there is now in western society a mass outrage toward the very idea of wealth. To which I replied– no, not at wealth per se, but at people being rewarded obscene amounts of money for jobs poorly done. One thing’s for sure– it’s going to take some major regulatory arm-twisting to get CEOs and boards to police themselves properly with this issue, instead of just mouthing platitudes and pocketing as much as humanly possible anyway.
[...] excellent article from Macleans on the extent of compensation around CEOs, and how it got to grow so large so [...]
I wonder how a fund that considers the reasonableness of executive pay would fare? Perhaps a better proxy would be shareholder policies that allow votes on executive pay.
High executive pay makes my blood boil, but I wish there were a better way to channel the rage.
BTW, good discussion this topic at http://investwithhonor.blogspot.com
All these arguments are real. Why do we learn this in university that it is the workers who make the company , it is we who directly serve the customers or sweat to get those goods to the market? So,then why does the CEO have to make 259 times more? All he makes is the policy that can make or break the company. I dream of a Canada where every employee is allowed to be a owner in a workplace either through stock options or through self-purchase.
“When the government removed the tax-exempt status of cash payouts over US$1 million….” Does anyone have details regarding this exemption and when it was removed?
That only shows politics. It's all about politics.