Cal­gary CEOS’ pay took hit from down­turn in 2019

Calgary Herald - - FRONT PAGE - AMANDA STEPHEN­SON

Cal­gary companies clawed back CEO bonuses and long-term in­cen­tives in 2019, as eco­nomic growth in Alberta came to a shud­der­ing halt.

To­tal com­pen­sa­tion for ex­ec­u­tives at Cal­gary’s largest 100 companies de­clined by a me­dian 9.5 per cent last year, ac­cord­ing to new data com­piled for Post­media by

Global Gov­er­nance Ad­vi­sors. The me­dian annual bonus awarded to ex­ec­u­tives at those same companies de­clined 11.5 per cent, while long-term in­cen­tive plan re­wards (such as pen­sion plan con­tri­bu­tions and stock op­tions) de­clined 11.6 per cent.

The num­bers are an in­di­ca­tion of the eco­nomic pain felt in Alberta in 2019, a year in which pro­vin­cial GDP con­tracted by 0.6 per cent, ac­cord­ing to Sta­tis­tics Canada. At the start of the year, many econ­o­mists had pre­dicted 2019 would bring a re­turn to growth, but those hopes were dashed by a lack of oil pipeline ca­pac­ity and re­sult­ing un­cer­tainty that led to re­duced cap­i­tal spend­ing in the oil­patch, and prompted the pro­vin­cial gov­ern­ment to cur­tail oil pro­duc­tion.

Anup Sri­vas­tava — as­so­ciate pro­fes­sor at the Univer­sity of Cal­gary’s Haskayne School of Busi­ness and a Canada re­search chair in ac­count­ing, de­ci­sion-mak­ing and cap­i­tal mar­kets — said it’s no sur­prise to see CEO and ex­ec­u­tive pay in Cal­gary rise and fall with the econ­omy, as most companies aim to in­cent tal­ent by link­ing pay to per­for­mance.

“At the CEO level, there is a huge cor­re­spon­dence to the econ­omy sim­ply be­cause of the link­age to per­for­mance — both op­er­at­ing per­for­mance and stock price per­for­mance,” Sri­vas­tava said.

How­ever, he said the oil sec­tor in par­tic­u­lar — glob­ally, not just in Cal­gary and Alberta — has his­tor­i­cally been known for its ex­cep­tion­ally high lev­els of ex­ec­u­tive com­pen­sa­tion. Af­ter five years of oil price slump and with en­ergy companies be­com­ing leaner in size, he said there’s an ar­gu­ment to be made that CEO pay has been too high.

“Ex­ec­u­tives are suf­fer­ing, it’s not that they aren’t suf­fer­ing. A big por­tion of their com­pen­sa­tion comes from stock or stock op­tions and so, au­to­mat­i­cally, a lot of their take-home pay is just gone,” Sri­vas­tava said. “But if we con­tinue to see WTI in the $30s, a lot of th­ese companies are not vi­able. A 20 to 25 per cent pay cut for the CEO will not make any dif­fer­ence to a com­pany’s profit and loss state­ment, but for op­tics it be­comes im­por­tant.”

In 2019, the year-over-year aver­age mar­ket cap of the 100 Cal­gary-head­quar­tered

companies sur­veyed for Post­media in­creased nearly 17 per cent over 2018. But since the be­gin­ning of 2020 and the dou­ble eco­nomic whammy of COVID-19 and the oil price shock, the aver­age mar­ket cap for Cal­gary’s Top 100 companies has de­clined by 27 per cent. Ninety-four

per cent of the companies sur­veyed and 15 out of the 15 in­dus­try sec­tors on the list have seen their mar­ket cap de­cline since the start of this year.

As a re­sult, many Cal­gary-based companies have cut cap­i­tal ex­pen­di­tures and made com­mit­ments to re­duce ex­ec­u­tive salaries, of­ten in the range of be­tween 12 and 20 per cent.

Ar­den Da­lik, se­nior part­ner with Global Gov­er­nance Ad­vi­sors, said it re­mains to be seen how long those roll­backs will be in place.

“In the past, companies have al­ways brought (CEO salaries) back up, some very ag­gres­sively, some phased in over time,” she said. “But de­pend­ing on the tim­ing of re­cov­ery, this time boards may feel a need to keep them back down. They know it has to pass the sniff test with share­hold­ers.”

In 2019, 54 per cent of Cal­gary-head­quar­tered companies had neg­a­tive per­for­mance in terms of to­tal share­holder re­turn, com­pared to just 15 per cent of Canada’s top 100 companies. Da­lik said while the en­ergy sec­tor is tak­ing a beat­ing again in 2020, the COVID-19 pan­demic means Alberta companies won’t be alone in their pain.

“I don’t think we’ve seen the full ef­fect (of the pan­demic) Canada-wide yet, I think we saw it in Alberta early,” Da­lik said. “But a lot of other sec­tors and prov­inces are be­ing heav­ily af­fected. I think we’re sort of lead­ing the pack in get­ting taken to our knees, but we won’t be alone.”

A 20 to 25 per cent pay cut for the CEO will not make any dif­fer­ence to a com­pany’s profit and loss state­ment ...

AZIN GHAFFARI

Ar­den Da­lik, se­nior part­ner with Global Gov­er­nance Ad­vi­sors, says that while the en­ergy sec­tor is tak­ing a beat­ing again this year, the pan­demic means companies in the prov­ince won’t be alone in their pain.

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