Pay for value: Cutting the Gordian Knot of Executive Compensation
The policy paper, entitled “Pay for Value: Cutting the Gordian Knot of Executive Compensation“. prepared by Professor Yvan Allaire for the working group on compensation of IGOPP, noted that, “We are making a series of recommendations about the complex and emotionally charged issue of executive compensation. We hope that our analysis and recommendations will prove a valuable contribution to what has become the most salient and vexing governance issue.”
Included in the study are five strategic policy recommendations for boards of directors. The policy paper recommends the gradual elimination of stock options, questions the standard practice of setting executive compensation on the basis of what “comparable” companies pay their executives, and calls on boards of directors to maintain executive compensation within a reasonable range of what is paid to other employees in the company.
The policy paper examines the evolution of Canadian executive compensation since 1998. It notes that the compensation of Canadian CEOs has now reached parity with their American counterparts. The policy paper provides the historical context of compensation and describes the divergent perspectives of the key stakeholders: investors, executives, boards, governments and society at large. It flags the risks created by some forms of compensation and stresses the need for fundamental changes in current compensation practices.
The working group of IGOPP was created in September 2011 to formulate recommendations on executive compensation. The group was chaired by Yvan Allaire and included IGOPP board members: Paule Doré, Stephen Jarislowksy, Michel Magnan, Robert Parizeau, Gulyaine Saucier, and Sebastian Van Berkom. The policy position was approved by the IGOPP board in March 2012.