Stephen Jarislowsky, FAIR Canada Director and Chairman of Jarislowsky Fraser Ltd., together with FAIR Canada Executive Director Ermanno Pascutto, spoke to BNN on June 11 about executive compensation. Mr. Jarislowsky noted during the interview that executive compensation has gone out of sight and has not contributed to improved performance. He believes that executive compensation has worsened over the last ten years, and that there are no “star CEOs”. Mr. Jarislowsky noted that he advocates for the elimination of stock options and for the simplification of remuneration items in general.
In discussing “say on pay”, which was introduced two years ago, Ermanno Pascutto noted that the private sector (and, in particular, the Canadian Coalition for Good Governance) is taking the lead, as governments and regulators have not yet mandated “say on pay” in Canada, like they have in other countries including the US and the UK. One hundred companies have voluntarily taken part in the initiative. Mr. Pascutto told BNN that “[a]t some stage, … the regulators will come in, and probably at one stage, it will become mandatory to have say on pay”.
The topic of executive compensation has been at the forefront for the last several months. This week, the Globe and Mail is focusing on executive compensation issues, including “say on pay”. Last month, the Institute for the Governance of Private and Public Organizations (IGOPP) released their most recent policy paper on executive compensation, entitled “Pay for Value: Cutting the Gordian Knot of Executive Compensation”. The policy paper, prepared by Professor Yvan Allaire, includes a number of strategic policy recommendations for boards of directors, including:
- recommending the gradual elimination of stock options,
- questioning the standard practice of setting executive compensation on the basis of what comparable companies pay their executives, and
- calling on boards of directors to maintain executive compensation within a reasonable range of what is paid to other employees in the company.
In examining the evolution of Canadian executive compensation since 1998, the paper highlights the risks created by some forms of compensation and stresses the need for fundamental changes in current compensation practices.