Michael Hlinka: There must be a direct connection between CEO pay, performance
- February 5, 2009 9:04 AM |
- By Michael Hlinka
Money Talks is a daily business column from CBC radio.
By Michael Hlinka, CBC business columnist.
When it comes to CEO compensation, I definitely have a dog in the fight.
I hold shares in several of Canada’s Chartered Banks. These investments have done quite well for me over the years, paying regular and generous dividends. That makes me happy.
What makes me less happy is the recent share price performance - and by recent, I’m talking about the past 12 months. Pretty much across the board, the Big Five are down around 40 per cent from their highs over the past year. As a result, many bank CEOs are taking pay cuts: For example, CIBC’s Gerry McCaughey who was entitled to receive $13 million for 2008, will actually bring home just a shade under $4 million.
This is still a heck of a lot of money – no question about it. And I think that Mr. McCaughey should be applauded to the extent that this was his decision. He requested less money; the bank’s board of directors didn’t force the pay cut on him. That doesn’t happen very often.
And he isn’t the only one to take less than he was entitled to.
The Bank of Montreal’s Bill Downie and Royal Bank’s Gordon Nixon made similar gestures, giving back millions of dollars that they were rightfully entitled to. Like I said, that’s nice.
But as a shareholder, I have to ask the question: What were these CEOs doing to justify seven-figure salaries in the first place?
It seems to me – and this is Michael Hlinka wearing his shareholder hat here – that it’s completely justifiable paying CEOs $10 million dollars a year … or even a lot more … if their unique talents are delivering unique results. That sounds fair. But all of the chartered banks did about equally well in 2006 and 2007. Then all suffered similar declines in 2008. This tells me that there are no superstars among the bank CEOs. There is a bunch of average performers who have above average responsibilities. That still leaves a disconnect between what they have been earning and what they deserve.
I’m not about to knock anyone for getting as much as they can. That’s something close to a moral imperative in my book. However, I can – and will – criticize the boards of directors who are supposed to be representing my interests for allowing these kinds of CEO pay packages in the first place.
It seems to me that it’s not asking too much that succession planning for the next generation of CEOs starts with this understanding: In a good year you’ll make more than you ever thought possible, but in a bad year your pay will shrink.
As a shareholder, I would never expect a bank CEO to make what the average guy does, but I do want a more direct connection between pay and performance.
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Comments (7)
The data are pretty clear: Most CEOs of large businesses do not have an important role in determining businesses success or failure. Given that there are no good metrics on CEO performance, and that most evidence suggests that their role is symbolic rather than substantive (see books by N.N. Taleb and L. Mlodinow for extensive discussion) linking pay to performance is impossible.
With these difficult economic times,what I would like to see from the banks is some declines in their rates that they charge all of us to handle our money(well all they do fo me is work the online system)I manage my own money. I will pay for the use of the system, but I'm really getting tired of all the fees associated with banking. The days of using your mattress may become common once again.
Give me a break! We live in a free-enterprise capitalistic economy, where you get paid what you can negotiate. If you don't like that, please move to a country where the National Committee for Compensation will decide what you are worth. Let's see, how many of those countries are left? Russia, hmmm.. not sure.
All this whining about pay is completely hypocritical. I get paid what I was able to negotiate. Am I "worth it"? I would say Yes, you might say No, so who's right?
Please keep in mind that if we're going to set up this National Committee for Compensation, it should look at auto worker salaries, sports figure salaries, etc., etc., etc.
People, get real and live with it. If you don't like capitalism, bye.
I applaud the response of Canadian CEO's to economic reality, by taking those cuts, they at least recognize the great disparity. Sadly, this is not happening to similar extent in the USA. I happen to believe that beyond the ability of a CEO in a small company [say less than 100 employees] to select well-qualified employees, they have little to do with success, and in large companies, they are figureheads only, and have no effect to justify their large ratio of compensation to that of lesser managers and workers who actually achieve the performance. If a CEO takes 400 to 500 times that of what an average employee makes, try firing the 400 to 500 employees and keeping the CEO, or the reverse of this and see which of these produces the better results!
Questioning how much todays CEO's are worth is like the barn door and the horses.
CEO's don't negotiate their salaries like us working slobs. They somehow gain access to a privilidged network, sit on various boards and look after each other. One corporations HR committee probably has CEO's from other corporations all of whom sit on each others boards.
The rights of share holders are worthless today. Taking a position in a company is as risky as putting money down on a craps table. Financial statements are massaged, operating results are miscommunicated all while the regulators sit on their thumbs.
We, the little guy keep getting it stuck to us and that's the way it is. Is anyone really worth 5 Million dollars a year? I think the Chairman of Aircanada at one point was making almost 20 Million dollars and the company couldn't make a profit in a ologopoly.
Hi Bob,
It’s not so much that I don’t like capitalism, as that I don’t like
this perverted brand of corporate straightjacket capitalism that
most of us toil under like serfs, while executives conspire to jack up
each other’s incomes, kick a few crumbs under the table for the
rest of us, then laugh their heads off while we squabble among
ourselves for the left-overs. Anything I can do to change this,
I will do, and sorry, I was born here, enjoy my democratic rights
here, and have no plans to move.
The following is what may be:
A simple solution for restoring faith in our economies, financial/banking systems, Wall and Bay Street.
To ensure that all upper management of publicly traded companies, banks and corporations which may be entitled to “Bonuses, Stock options, special privileges, etc” held truly accountable the rightful owners of such publicly traded companies, corporations, banks; the “shareholders” (the 401K participants in the USA and RRSP in Canada, private investors, mutual fund companies and “even possibly governments instead of loans”) in other words the honest working taxpayer that rely on (their stewardship and professional training) them to safeguard their lifesavings to the best of their abilities. After all, we all have a limited time and are supposed to be able to live adequately if not comfortably in retirement. It is high time that our elected officials stand up for all of us as well as future generations and establishes ground rules to live by.
Simple solution: All management of companies, banks and corporations that go the general public for funds should be paid the going rate for their training “statistics of salaries range are available for all professions” that being their base salaries and any extraordinary bonuses, perks, corporate jets, SPA week-ends rewards, etc submitted to common shareholders for approval. With today’s technologies, approval could be done in a timely fashion if such approval is time sensitive. Compensation should be 20% being base salary and 80% based on common stock performance for that year, paid after Annual fiscal report and positive return to shareholders either in the form of capital gains in share prices or dividends to them.
In a democracy, our elected officials should be serious and have enough courage (protecting us and our children) to implement such a system or ground rules that the management of such publicly traded companies/corporations would be truly held accountable.
I truly believe that we will never have to bailout with our hard earned tax dollars, 401K’s, RRSP’s and private savings such publicly traded companies/corporations/banks if such rules and or systems are implemented in law.
P.S.
v Reward management based on positive performance not for failure.
o Board of directors for the most part, have betrayed shareholders and therefore lost all integrity and respect from said shareholders.
o Penalties for betraying public trust should be a real deterrent to the behavior.
o Restoring faith in our banking and publicly traded companies is vital to the survival of our democracy and way of life. Our governments should be responsible and look out for our future generations and us.
o Stock options made available to executives should not be discounted unless approved by common shareholders.
Signed a concerned Canadian taxpayer and RRSP holder., DMP