Build Toronto, a city-owned subsidiary in charge of developing surplus municipal real estate, has approved an aggressive private-sector-style salary and bonus system for its senior management team as a means of expediting land deals, according to documents obtained by The Globe and Mail.
The move could make BT's executives among the highest paid managers working for City of Toronto agencies. It underscores Build Toronto's growing role in the Ford administration's plans to slash debt costs by "monetizing" assets.
The new compensation policy, revealed in documents obtained through an access to information request, points to more blockbuster deals in the city's future, such as the recently announced 75-storey condo tower at 10 York St., a $295-million joint venture between BT and Tridel.
While there's been intense media scrutiny in recent days on bonuses paid to public and private sector executives, BT does not disclose its compensation figures, although its officials say they have been asked to report on these matters to council's executive committee in March.
The "Compensation Disclosure and Analysis" report for 2010-2011, which outlines the new "short term incentive plan" approved by the board, indicates that BT chief executive Lorne Braithwaite, a veteran real estate executive, could receive a bonus equivalent to 50 per cent of his salary, provided the organization achieves specified financial goals.
Four other senior executives will be eligible for 35-50 per cent bonuses, also pegged to personal and corporate performance.
Executive compensation experts say those bonus levels are somewhat lower than what's on offer in other real estate firms, but not outside the norm.
The change, approved last year, was part of a major overhaul of BT's corporate strategy ordered by the Ford administration. The organization, established in 2009 by former mayor David Miller to boost leasing revenues from city property, is increasingly focused on consummating lucrative residential real estate deals and remitting dividend payments to the municipality.
When it was set up, BT's goal was to achieve a 50-50 mix of leasing and sale revenues; the new plan, said Mr. Braithwaite, calls for 70 per cent of revenues to come from land sales. BT's original mandate also called for the development of 1,250 new affordable housing units. But a company spokesperson said it's "premature" to say whether the Tridel tower will include any such apartments, although affordable units are being considered on other BT sites.
An Oct. 18, 2011, staff report noted the City of Toronto's real estate is worth about $15.8-billion, but much of it is in use or has marginal value. According to the report, "32 properties with an estimated value at transfer of about $230-million have been approved for transfer to Build Toronto."
BT is currently working on several projects, including a 55-acre residential-commercial complex near the Downsview subway station and the development of an office building at Yonge and York Mills. Part of its responsibilities includes securing zoning changes on behalf of development partners.
The mayor's brother, Councillor Doug Ford, is a board member and chairs the committee that oversees executive pay. In an interview, however, Mr. Braithwaite stressed that the change reflects his desire to tether executive compensation more closely to the organization's bottom line. "This program reflects my leadership."
Downtown councillor Adam Vaughan, a critic of the mayor, questions the new compensation policy. "They're being incented and steered towards the transaction and not the complex business of city building," said Mr.Vaughan of Trinity-Spadina, who notes it doesn't take much effort to entice Toronto builders to put up condos in the current market.
The report – prepared by a small Toronto executive compensation consulting firm called 3XCD – said the corporation's salaries have been pegged to the median amounts paid to the top executives in a "peer group" of 14 private and public sector organizations, including real estate investment trusts (REITs), Waterfront Toronto and the giant Ontario Municipal Employees Retirement System. According to Build Toronto officials, actual salary targets for senior executives fall within the 35th percentile of the 14-peer group of companies reviewed by the compensation consultant.
Those comparisons are relevant because when BT recruits experienced managers, it will be competing against similar organizations.
According to a Globe analysis of the publicly disclosed 2010 executive compensation data from the peer group, the median CEO salary among the 14 organizations is in the $350,000 to $450,000 range. When bonuses and stock options are factored in, the median total compensation is in the $450,000 to $860,000 range. The second-tier executive salaries in the peer group come in somewhat lower, in the mid-$200,000 range.
The new compensation system has recently been put to the test.
BT in late November hired a new senior vice-president, David Fiume. He previously served as chief executive of one of those peer group firms, Retrocom Mid-Market REIT, which owns and manages retail properties.
Until he resigned in July, 2010, after two tough quarters, Mr. Fiume earned a base salary of $285,000 in 2009, plus $126,000 in bonuses and a one-time $450,000 payout after he left Retrocom, according to company documents.
Toronto agency heads
Build Toronto, with 30 employees, is a relatively small player in the broader sweep of the City and its various agencies, with 2010 revenues of $22-million and $69-million in assets. Its activities are tied directly to the City's decision to release lands for sale. In 2010, BT generated $11-million in net income based largely on the sale of the Greyhound bus depot at 154 Front Street, which brought in $18-million.
Name & Position / Salary / Revenues/Budget
CoT city manager Joe Pennachetti / $314,000 / $9.4 billion
TTC CGM Gary Webster / $282,000 / $997.5 million
TPS chief Bill Blair / $326,000 / $986.9 million
Toronto Hydro CEO Anthony Haines / $758,000* / $2.45 billion
Waterfront Toronto CEO John Campbell / $352,000 / $147.5 million
TCH former CEO former Keiko Nakamura / $210,000 / $615.8 million
* Includes $373,000 base salary
Special to the Globe and Mail
Editor's note: The print version and earlier web version of this story included an unclear description of Built Toronto's senior executive salary targets.