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To retail investors, the calculation used to determine an executive’s total compensation can be mystifying. The most straightforward component—cash salary—is often also the smallest part of the mix, which can include options, performance-related bonuses, long-term incentives, pension allotments and executive perks like use of the corporate jet.

Elon Musk for instance, earned a 2020 salary of zero dollars—yet Bloomberg estimates his total compensation for the year was worth US$6.7 billion. And these packages can sometimes seem untethered from a company’s actual performance—especially during these rocky pandemic years. Canada’s top-paid CEO in 2020 was Canopy Growth’s David Klein, who made a total of $45.2 million even as the company posted a net loss of $1.3 billion. But according to executive compensation consultant Ken Hugessen, CEO pay isn’t as out-of-whack as many shareholders might believe.


Is executive compensation really out of control?

Considering the five most highly paid CEOs on the TSX made a combined $140.7 million in 2020, you might be tempted to say “hell yes.” But in Hugessen’s most recent analysis of the TSX 60, CEO compensation has increased by 5% over five years. “It’s better than a kick in the shins,” he says, “but the idea that executive compensation is a runaway train? It moves forward, but it’s not that exciting.” Yes, there are some glaring exceptions, but Hugessen insists they’re not the rule. And he points out that compensation for a particular year might reflect a company having to entice a new CEO or be based on performance from years past.

What impact has the pandemic had on executive pay?

It might seem obscene that compensation for Canada’s top executives rose by 17% in 2020—an average of $171,000 each—while half of workers making $17 an hour or less lost their jobs in the first couple of months of the pandemic (and still haven’t fully recovered), according to the Canadian Centre for Policy Alternatives. But bear in mind a lot of the typical exec’s compensation is tied to stock. “For a surprising number of businesses, COVID-19 hasn’t been a bad thing, and in many cases, it has been a downright good thing,” says Hugessen. The S&P 500 Index finished 2020 up 16%, despite an initial pandemic rout. The S&P/TSX Composite, meanwhile, eked out a gain of just over 2%. (The indexes were up 27% and 16%, respectively, in 2021, so expect to see plump payouts disclosed in this year’s proxies, too.)

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What has driven the adoption of say-on-pay votes?

Countries including the U.S., Australia and Switzerland have adopted mandatory say-on-pay votes, allowing shareholders to cast a ballot on executive compensation. In Canada, say-on-pay is voluntary. Nonetheless, the Shareholder Association for Research and Education reports 71% of companies in the S&P/TSX index hold such votes anyway—after all, it’s better to be proactive than face a potential shareholder revolt. Overall, Hugessen believes say-on-pay has improved director accountability. “Boards have sometimes been seen as too acquiescent to whatever management wants to do, including how they pay themselves,” he says. “Exposing directors to this non-binding vote certainly raises their sensitivity and has made them feel more accountable to the shareholder community.”

How often do companies lose say-on-pay votes?

Out of 204 companies that held say-on-pay votes for 2021, only six resolutions failed—all companies that had negative one-year and three-year shareholder returns in the previous calendar year. It comes down to two factors, says Hugessen. “If it seems pay has gone up while shareholders are suffering, whether that’s the case or not is almost secondary,” he says. “And then it moves to the proxy—how much time you spend ensuring shareholders understand why you’ve done what you’ve done. If both those aren’t there—content and storytelling—then you’re at risk.”


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