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Who decides to pay Frank Stronach $62M?

Posted by on Jun 21, 2011 in Compensation, Moneyville | 0 comments

By Sheryl Smolkin

Read this article and comments at Moneyville.ca

This year, the average CEO running one of Canada’s top 100 companies will make $6 million (up 13 per cent from last year).

Top tier CEOs like Magna’s Frank Stronach make $62 million,  Pinetree Capital’s Sheldon Inwentash $35 million and Shaw Communications’ Bradley Shaw $17 million. That’s more money in  a year than most of us can ever imagine earning in a lifetime.

But who decides what these company leaders are worth? Here’s what compensation consultant Bob Levasseur at McDowall Associates told me:

Establishing compensation:  CEO compensation is typically set  by the compensation committee of the Board of Directors. Every year the committee does market reviews comparing the company to organizations of the same size. The problem, says Levasseur is that you have the elite establishing a pay package for the elite.

Is an individual worth $10 million or $5 million? Once the figures are up in this stratosphere, he says it’s really hard to differentiate.

It’s also true that that the top executives who make the headlines are the “superstars,” the “Wayne Gretzkys” of the business world. What you don’t hear about are the many CEOs who run fair sized organizations and earn considerably less.

Linking pay to performance: CEO pay is typically tightly linked to company performance. In fact, the year after the financial crisis CEOs of Canadian banks, as an example, took a 40 per cent to 50 per cent cut in  total compensation.

“Now a CEO may feel hard done by if his compensation goes from $10 million to $5 million, but the problem is nobody else has any sympathy for him” says Levasseur.

Shareholder activism: Large institutional investors like pension plans tend to flex their muscles when executive compensation is so high that it impacts their holdings.

In fact, the Canadian Coalition for Good Governance which represents over 40 large funds has been pushing very hard for a “say on pay” and trying to come up with guidelines about pay for performance.

Nevertheless, measuring executive performance is very difficult. While performance can be linked to share price, Levasseur says promoting company stock and running the organization are two different things.

“A CEO with significant stock options may manage quarter to quarter in order to bolster share price instead of making strategic decisions to move the organization ahead.”

How to become a top CEO: Unless your father or grandfather started the company, you probably need to start working for the organization at a young age and work your way up.

And those of you without a business degree can take heart. Although Tony Comper only had a BA. in English prior to joining the Bank of Montreal as a management trainee in 1966.  Some 24 years later he became BMO’s President.

“Are the numbers for top CEOs high? Yes. Are they making too much? I must confess I’ve been an executive compensation consultant for 14 years, and I can’t answer that question. I am desensitized to the numbers now,” Levasseur admits.

 

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