Shareholders need say on exec pay

By February 2, 2007News

Escalating corporate executive salaries are an extreme example of the oft-noted and ever-expanding ‘gap between rich and poor’. Just how wide is this gap? It will take most of us an entire year to make the amount of money a top Canadian CEO pockets in just a couple of days, according to a report recently released by the Canadian Centre for Policy Alternatives (CCPA).

Responding to the CCPA report in a CBC news story, the Canadian Council of Chief Executives said he believes shareholders are happy with current CEO pay levels and that their opinion is the one that counts.

SHARE agrees. Shareholders’ opinions should count. However, there is currently no mechanism by which they can make themselves heard on CEO compensation.

SHARE, along with many investors and investor advocates, believe companies must adopt a policy that establishes an annual shareholder advisory vote on the reports issued by the compensation committees of public company boards. Better yet, Canada could follow the lead of Australia and the United Kingdom, jurisdictions that have mandated such votes for all public companies.

An advisory vote is necessary to provide clear information on shareholder views of executive compensation levels to Canadian compensation committees, CEOs and “the rest of us”. Currently, shareholders are restricted by various authorities that govern Canadian securities markets to occasional votes on a few components of executive compensation. They cannot vote annually on the compensatory regime of a company in which they own shares.

Frank Stronach, founder and Chair of the board of Magna International Inc., responded to shareholder outrage over his ‘consulting fees’ of tens of millions of dollars annually. “It’s a free country, if they don’t like it, they should sell their shares. If I didn’t like a company, I wouldn’t keep its shares,” he said.

However, given the large amounts of money they are obliged to invest on behalf of fund beneficiaries, trustees do not have the luxury of divesting from any company that has a board that is not acting in its beneficiaries’ best interests. As executive compensation continues to climb into what is quite reasonably dubbed the stratosphere, trustees have no option but to work to bring some rationality to pay packages.

The pay levels of Canadian CEOs relative to those of other employees should be evaluated each year by company shareholders. There is no doubt that being the CEO of a bank, or any other large Canadian company, is a challenge. There is only way to bring an end to the fruitless debate over shareholder views of the suitability of executive pay relative to that challenge and company performance. The issue should be on the proxy ballot each year in the form of a clear question. Shareholders can provide public companies with meaningful assistance in forming their compensation policies if given the opportunity to vote in favour or against current practices.