Pushing back on pay
It may not be a revolution just yet, but important shareholders are starting to make clear their dissatisfaction with outrageous executive pay packages. And that’s long overdue. Here’s how it went down: Last Thursday, the Canada Pension Plan Investment Board, the country’s largest pension fund manager, turned thumbs-down on a move by the board of the Canadian Imperial Bank of Commerce to pay two of its most senior executives $25 million as part of a lucrative post-retirement deal.
The following day, the CPPIB teamed up with three other big pension funds to say it will vote on Tuesday against Barrick Gold Corp.’s proposed executive pay package that would see chairman John Thornton’s salary increase by 35 per cent to $12.9 million.
Sadly, the votes against the big payouts were non-binding. The companies can still lavishly reward their top people.
But the moves are a welcome step in the right direction: towards reining in excessive executive pay packages and golden parachutes that exacerbate the growing income gap between rich and poor.
The backlash against outrageous executive pay can’t come a moment too soon. Executive pay and perks have been spiralling out of control for years. According to a study by the Canadian Centre for Policy Alternatives, Canada’s 100 highest-paid CEOs made 195 times more than the average Canadian worker and 237 times more than the average Canadian woman in 2013. Compare that to the late 1980s, when it’s estimated that the ratio of executive pay to average pay was just 40 to 1 in the United States, and somewhat lower in Canada.
And things are only getting better for Canada’s CEOs. In 2008 the lowest-paid CEO in the top 100 took in $3.18 million. By 2013, that had increased by 30 per cent to $4.14 million. In fact, total compensation for CEOs at Canada’s largest companies jumped by 11 per cent in 2013, according to consultants Global Governance Advisors.
The outrage among shareholders isn’t just about salaries. It’s about the entire compensation package. Consider that stock options, worth an average of $3.16 million, are added onto those salaries. Not only are they excessive, but they actively encourage executives to cut costs, lay off staff, sell assets and merge with other firms to boost their company’s short-term share price, often at the expense of future value.
The only grim news in the fairy tale financial story for CEOs is this: an analysis by consultants McDowell Associates shows that CEO pay at Canada’s biggest banks, which have all hired new top executives since 2013, is down 33 per cent compared with the salaries of outgoing CEOs.
It’s a trend we hope will spread. The pushback by the pension board is a small but worthwhile start.