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Sheelagh Whittaker told Harvey Schachter in an email that she heard the careful and competitive positioning of a CEO among the frontrunners in the industry received a lot of the attention when it came to hiring.The Globe and Mail

Excerpted from When Harvey didn’t Meet Sheelagh: Emails on Leadership. Copyright © Departure Bay, 2021. Reproduced by arrangement with the Publisher. All rights reserved.


In the new book When Harvey didn’t Meet Sheelagh: Emails on Leadership, Globe and Mail management columnist Harvey Schachter exchanges thoughts with Sheelagh Whittaker, who has held the CEO post at several corporations, including EDS Canada. As the title suggests, the two have never met, except through e-mail. Here’s an excerpt from their exchange on CEO compensation.

Hi Harvey,

When I was CEO of Canadian Satellite Communications, we had a unisex washroom off the boardroom that was technically available to all but in practice used mainly by executives and board members. It was a spacious, comfortable restroom with lots of nice beige walls but no extra seating, and I sometimes imagined going in there one day and seeing a question written in thick black graffiti on the wall, like:

“Why are you paid 30 times more than I am? Do you think that’s fair?”

Why indeed? A troubling question. And one deserving of a thoughtful and thorough answer.

My own ascension to CEO was on the heels of a man I admired, and since his pay was public information, the board was pretty much compelled to pay me at the same level. It was not exorbitant – a mixture of pay and a bonus based on profit – but it seemed satisfactory. And I got some cool perks, like a special free parking spot near the door to the elevator.

My first real encounter with the steadily evolving art of high-stakes CEO compensation was while serving on a bank’s board. While the compensation committee, of which I was not initially a member, went off and had secret-society-style sessions and then mumbled their conclusions to the board sitting as a whole, I did get to listen to the outcome of their deliberations.

What I gleaned, stretching to hear from my assigned seat far below the salt, was that the careful and competitive positioning of our horse (CEO) in the race among the front-runners in the industry pack received a lot of attention.

Around that time the stock market had begun to require that public companies publish the remuneration of their five highest-paid executives so that shareholders could draw their own conclusions. Some wise observers predicted a ratcheting-up effect since no respectable comp committee would want their CEO to look disadvantaged compared to others in the industry – and of course that is exactly what had happened.

In addition to handicapping their entrant in the CEO’s Cup, compensation committees are expected to design a reward program that will underscore the importance of experience, demonstrated skill and motivation, align executives with shareholder interests, and encourage a long-term perspective to the management of risk. In other words, the committee is expected to reward proven high performers with a mixture of stock and short- and long-term cash payouts while encouraging a long-term orientation.

I still haven’t figured out how to determine if a particular reward package is really fair. I’ve always disliked sitting on compensation committees because there are too many justifications for exorbitant bonuses phrased like this: “If we don’t pay him enough, he’ll go somewhere else.”

“Go where?” I’ve always wanted to ask. All the comparable jobs are filled by comparable people. Our executive really has very little choice but to keep dancing with the ones who brung him. And what about that noncompete agreement he signed?

What I have finally figured out is that what boards and owners should simply be looking to recruit and reward in a leader is good judgment; the ability to make wise choices. That’s how the big bucks should be handed out. Sadly, good judgment is a tricky trait – you have it or you don’t. I really don’t know of any way to teach or enhance judgment. But once you spot it, you need to be willing to compensate and secure it.

But maybe even good judgment has an expiry date. When I hear stories of long-serving CEOs who put prostitutes on the payroll or used company funds to buy homes in out-of-the-way locations (we haven’t yet come far enough to hear even faint rumours of gigolos on the payroll), I wonder if getting older or getting richer or spending too much time unchallenged can cause one’s moral compass to deviate.

There have been a couple of high profile flame-outs involving CEO pay and poor judgment that are worthy of examination.

Martin Sorrell created a remarkable, world-leading advertising and PR firm. In 1985 he bought a virtually empty shell company called WPP and made it into an industry behemoth. As far as I can tell, Martin felt, probably with reason, that he was the engine that started and ran the company and he deserved supernormal remuneration.

Allegedly, for thirty-three years he got away with large rewards as well as abusive or arrogant behaviour and a consistent blurring of the line between personal and corporate expenses. Always at or near the top of FTSE CEO remuneration, in 2016 he earned £46 million. But shareholders were increasingly uncomfortable with his compensation, and he finally did agree to begin to taper down towards a target of £13 million in compensation by 2021, by which time he would be seventy-six years of age.

Martin’s sudden exit in 2018 had elements of classical drama. He succumbed to hubris and attracted nemesis. Rumours of personal misconduct and misuse of company funds followed him out the door.

Former Nissan-Renault-Mitsubishi Chair Carlos Ghosn spent 108 days in a Tokyo jail in 2018/19 before being granted bail of nearly $9 million. Until he was suddenly jailed, Ghosn was hailed as the saviour of failing automobile companies and was considered to be a motor vehicle industry cost-cutter extraordinaire. His 2017 compensation of $17 million was high by Japanese standards, but not out of the global norm.

Prosecutors in Tokyo claimed that Mr. Ghosn systematically under-reported his earnings to security regulators and had been misusing company assets for personal benefit. The investigation into his conduct was spurred by a whistle-blower whose revelations highlighted strange lapses in Nissan’s corporate governance. Whatever the truth, it seems Ghosn made somebody at Nissan dangerously jealous or suspicious.

In my opinion, based on the accomplishments of their “reigns,” both Sorrell and Ghosn were worth the compensation they were paid. People who can successfully create, operate, merge or turn around large organizations are extremely hard to find. And for a while those guys deserved to be carried about on the shoulders of their shareholders – until they didn’t.

Maybe both men had begun to believe their own press clippings, or maybe they simply stayed too long at the fair.

Now it’s their turn to watch the crumpled laurel leaves being swept away into the gutter.

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