Crosscheck: How BC Ferries came up with David Hahn's pension plan

" Compensation and pension benefits were set with external expertise, provided by then leading human resource company, Hewitt and Associates (now Aon Hewitt)," said BC Ferries chair Donald Hayes, in response to controversy over a pension of $313,000 for CEO David Hahn.

BC Ferries board of directors justified a pension of more than $300,000 for chief executive officer David Hahn when he turns 62 in 2013 by referring to a consultant's report on compensation that looked at comparable positions in companies in the public and private sector.

BC Ferries refused to provide the report Wednesday, saying the consultancy firm was not prepared to release the study "for proprietary reasons."

One of the consultants involved with the report said later he would not talk with a reporter about work he did for any of his clients. However, what clients talked about was their own prerogative. "If they want to talk about their own affairs publicly, then they have a process for that," he said.

Regardless of reluctance on both sides to release the report, B.C.'s Office of the Comptroller General shed some light on the process used to set executive compensation at BC Ferries in a report released in October, 2009.

The BC Ferries board of directors renegotiated Mr. Hahn's employment contract in 2006 to increase his performance-based compensation and pension entitlement. Former comptroller-general Cheryl Wenezenki-Yolland looked at the process for setting the package of salary, pension and other benefits as well as the level of compensation in the 2008/09 fiscal year.

She found the process flawed and his compensation to be excessive. It was largely based on comparisons to private-sector companies rather than the public sector, which inflated what he received. She discovered that targets for payment of performance bonuses were set too low to be challenging and were substantially exceeded, enabling Mr. Hahn to receive 100 per cent of the maximum.

The compensation program at BC Ferries is reviewed every two years. As part of the process, a consultant looks at several comparable companies to set a benchmark against other organizations. Ms. Wenezenki-Yolland reviewed a 2009 executive benchmark study to assess how the board handles its responsibilities.

She discovered that executives as well as directors on the BC Ferries board had significant input into the selection of companies used for comparison. The process raised questions about the independence of the consultants' benchmarks, she stated.

She decided the consultants had been ill advised by the executives and directors. The Liberal government had turned BC Ferries, formerly a Crown corporation, into a quasi-independent non-governmental company in 2003. However, the company operates primarily in a monopoly environment and is private only because the province structured it in that way, Ms. Wenezenki-Yolland wrote. "Therefore the best comparators [companies used for comparison purposes]are public sector organizations operating in similar monopolistic environments."

Instead, the majority of comparisons in the benchmarking study were large private-sector organizations in competitive markets.

How many? About 90 per cent, she stated. The comparators were large corporations such as Coca-Cola Bottling Company, Ford Motor Company of Canada, Nike Canada Ltd. and McDonald's restaurants. BC Hydro, the Vancouver Airport Authority and the Vancouver Port Authority were also on the list.

Comparing compensation among public-sector entities has significantly different results. Ms. Wenezenki -Yolland compared compensation for executives at BC Ferries to that of four public-sector entities ranked on BC Business Magazine's list of top 100 B.C. private, public and Crown corporations, in terms of revenue. BC Hydro was ranked sixth on the list, ICBC, 8th; B.C. Lottery Corp, 13th and WorkSafe BC, 19th. BC Ferries was ranked 43rd.

Ms. Wenezenki-Yolland found that Mr. Hahn's total compensation was more than double the average of what the other four chief executive officers received. Her report offers little comfort to those who wish to justify Mr. Hahn's annual compensation package of about $1-million, plus retirement benefits, based on the "external expertise."