Canadian companies urged to end stock option rewards

“An influential group including representatives of Canada’s business, regulatory and academic circles is calling for an end to the “mistake” of rewarding executives with stock options.

The Institute for the Governance of Private and Public Organizations issued the bold challenge Tuesday as part of package of recommendations aimed at reining in executive pay and tying compensation firmly to long-term strategy execution.

A 64-page policy paper produced by the Institute concludes that it was “a major mistake, and a source of many shenanigans” to make stock options a large component of executive compensation.

“We are convinced that a modicum of social trust, loyalty and reciprocity must be rebuilt in publicly traded companies, and that management must manage for the long-term benefit of the corporation and its varied stakeholders,” the report says. “We are also convinced that this will not happen without fundamental changes in the compensation models currently in use in most companies.”

The use of options proliferated in the 1990s after changes were made to the deductibility of executive salaries in the United States. But options have come under heavy criticism in the aftermath of the 2008 financial crisis because they are seen by some as a culprit in creating the excessive risk-taking blamed for the meltdown and ensuing economic woes” … Read more