November 21, 2017

Companies urged to rethink executive pay practices

Janet McFarland | The Globe and Mail

Companies should give CEOs share units less often and stop paying them with stock options to motivate better long-term performance and minimize the role of luck in compensation payouts, a new report argues.

The Quebec-based Institute for Governance of Private and Public Organizations has proposed revamping the model for executive pay in Canada, saying companies have to move away from a standardized approach that sees most CEOs paid with virtually identical compensation structures. Instead, it says pay structures need to be tailored for the unique business model or each company and the time horizons of its strategies.

As a first step, the institute’s new report says companies should abandon the idea of setting CEO pay based on comparisons to a peer group of companies, saying it is the main factor driving pay higher.

“Each company is somewhat different in its particular issues and challenges, and industries are different, and we should not have this standardized process,” Institute executive chair Yvan Allaire said in an interview. “Boards should design the compensation for their own particular needs and requirements.”

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