November 21, 2017

Canada’s ‘questionable’ CEO pay system needs overhaul: Think tank

John Gray | BNN

Current executive compensation practices are making Canadian CEOs rich, but at the expense of a strong corporate culture and the long-term interests of shareholders, according to a new report from the Institute for Governance of Private and Public Organizations (IGOPP).

“Mutual trust, loyalty, the sharing of objectives and pride in the organization, the sense of ‘being all in the same boat’, were slowly but surely eroded, replaced by a calculative greed at the top and cynical disaffection at the bottom,” the report said.

In 2016, a typical Canadian CEO earned about $8 million in total annual compensation — with bank CEOs raking in more than $10.5 million. That’s about 140 times more than the average Canadian worker, up from about 61 times in 1998, according to the Montreal-based think tank.

The skyrocketing pay has come from a “questionable” compensation system conceived by consultants that may satisfy critical observers but does little to align the goals of the company with the interests of long-term shareholders, said Yvan Allaire, executive chair of IGOPP.

“Investors and shareholders were initially enthusiastic about forms of compensation likely to transform senior executives into fanatics of ‘shareholder value-creation,’” the report reads. “However, soon enough, the link between this ‘extravagant’ compensation and the company’s economic performance seemed very tenuous.”

Benchmarking CEO pay to a self-selected group of peer companies was supposed to make compensation practices more fair and open, but in reality it has distorted the system and led to pay packages constantly moving higher, said Allaire.

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