A quiet war has been brewing in corporate Canada: a conflict over Executive Compensation, which is perceived by many to be excessive. There have been clear winners and losers. And it is spilling out into the streets.
The press and political interest groups have opportunistically marshaled public and shareholder opinion against executive management and what they paint as obscene levels of compensation, fueling and feeding on the politics of envy. Bonuses, stock option plans, golden handcuffs, hellos, parachutes, & handshakes, along with top-hat supplemental pension plans/SERPS have become lightning rods for dissident shareholder/stakeholder groups.
Further fueling the sense of disparity was the US government bailout of Wall Street and the big money-centre banks, which left fat Wall Street bonuses largely unscathed.
The financial press are focused more than ever on executive compensation and SERPs, especially those relating to utilities. Why? Because of shareholder activism and the public’s growing annoyance over the ever-increasing cost of utilities. Caught in this turmoil are the Executive SERP members, concerned over the “security” of their retirement.
Whether particular C-suite execs are overcompensated is subject to debate, especially where stakeholders are unhappy with performance and footing the bill.
One certainty is that shareholders now have new weapons to bring to bear upon their boards, compensation committees and executive management groups, such as:
- the advent of “Say-on-Pay”;
- the emerging CEO Pay Ratio scheme; and
- the rise in shareholder activism on the part of powerful proxy advisory firms.
Stakeholder groups have already begun to use these new weapons effectively. Barrick Gold, Toronto Hydro, B.C. Hydro, Astral Media Inc., Shaw Communications, Air Canada, Nova Scotia Power and Emera, are just a few of the high-profile companies that have recently been on the receiving end of shareholder/stakeholder wrath with respect to executive compensation.
Executive Pensions: The New Front
With conventional pension entitlements in jeopardy as a result of the Pension Crisis, a new focus of shareholder discontent has been supplemental executive pensions.
Most SERPs in Canada are completely unfunded and unsecured. The scope for managerial discretion and conflict of interest, coupled with large dollar amounts, and the lack of transparency have caused stakeholders to feel that C-suite execs are writing blank cheques to themselves, leaving stakeholders on the hook. And those cheques are getting bigger.
Risk Management and Cost Recovery on the Horizon
New tools and financial structures are becoming available to de-risk balance sheets and reimburse shareholders for the cost of executive SERP benefits, while funding and securing SERPs. Adoption of some of these measures may bring a de-escalation in stakeholder hostility towards the SERP component of executive compensation.
E. & O. E.
