Scroll down for a complimentary excerpt of The Globe and Mail's annual ranking of compensation for CEOs from the 100 largest public companies (by market capitalization) in Canada's benchmark S&P/TSX composite index as of Dec. 31, 2014. Read an explanation of our methodology.
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The structure of CEO compensation packages has changed significantly in recent years as companies sharply reduce the use of stock options and increase cash compensation, but the redesign is not cutting bottom-line total pay for top executives.
A review of 2014 compensation for chief executive officers of Canada's 100 largest publicly listed companies shows total compensation rose 2.1 per cent last year to $5.8-million for a typical CEO, according to data compiled by Global Governance Advisors.
Pay climbed by 11 per cent in 2013, so the pace of growth was slower in 2014. The decline was due in part to falling pay in the hard-hit energy sector, where total compensation was down 10 per cent on average last year because of declining grants of stock options and share units.
The reduced use of stock options was a broader trend across many industries last year. Stock option grants were down an average of 40 per cent in 2014 for CEOs at Canada's 100 largest companies, while grants of share units became the preferred alternative, climbing 37 per cent.
Global Governance Advisors managing partner Paul Gryglewicz said the reduced use of options stems partly from a corporate sentiment that stock prices are peaking and companies are getting larger, so options going forward may not offer the same sort of highly leveraged gains as in the past. Share units track the company's share price and, like common shares, retain some value even if share prices decline.
Shareholder pressure has also been an even bigger factor in the declining use of options.
Proxy advisory firms and some major pension plans have developed guidelines calling on companies to increase the use of pay elements that are tied to meeting specific performance hurdles and reduce other pay elements such as plain-vanilla stock options that can often move in tandem with general stock market trends.
Some investors also argue that stock options spur risky or short-term thinking if executives try to boost a company's share price briefly so they can exercise their options at a high value. Share units are seen as more closely mirroring the experience of common shares held by investors.
The Canada Pension Plan Investment Board, Canada's largest fund manager, says it generally believes stock-based pay is preferable to options "because it provides better alignment of interests" with shareholders.
Dutch pension fund PGGM, which holds shares in most of Canada's largest companies, has arguably gone the furthest in opposition to options, saying it will not support any stock option grants for executives. In 2015, the $250-billion fund voted against most major Canadian companies' compensation policies because their executives receive options.
PGGM senior adviser Catherine Jackson said the fund wants to see far simpler compensation plans and wants companies to get rid of the "laundry basket" of other forms of pay, especially options.
"It used to be common shares, and then stock options were created, and then we started getting into a whole host of various types of variable incentives," she said. "What purpose are we trying to achieve here? If we're trying to ensure the compensation consulting community continues to thrive, then job done."
In Canada, an extreme illustration of the trend favouring share units was at BlackBerry Ltd., where John Chen was granted no stock options but $85-million in restricted share units when he was hired as CEO. The share unit grant made him Canada's highest-paid CEO last year based on BlackBerry's fiscal year ended March 1, 2014.
Canada's major banks also faced regulatory pressure to reduce their use of stock options following the 2008 financial crisis to deter risky behaviour. At the five biggest banks, options accounted for just 23 per cent of total new equity grants for CEOs in 2014 and share units accounted for 77 per cent, whereas the two were evenly matched in 2009.
Bank of Montreal CEO Bill Downe received $5.8-million in share units last year, and just $800,000 worth of stock options. It means only 8 per cent of his total $10-million compensation last year came from new stock option grants.
BMO said it has stopped using stock options for employees below the rank of senior vice-president, and will only allow them to be 10 per cent of total variable compensation for those who get them. But the bank said they still remain "a component, albeit more limited," of executive pay.
Mr. Gryglewicz of Global Governance Advisors said the next frontier is the mid-sized company, where option use has remained more common and there has not been the same growth in the use of performance share units (PSUs).
"I think the bigger trend is beyond the list of 100, where PSU prevalence continues to increase for companies much below the top 100," he said.
While options are falling, cash payments are climbing. Companies increased CEO base salaries by 4 per cent last year, while cash bonuses were up 10 per cent on average. Combined, the cash portion of CEO pay packages increased 8 per cent on average, following an average increase of 18 per cent in 2013.
Peter Chapman, executive director of the Shareholder Association for Research and Education, said cash is increasingly favoured by some investors who believe it simplifies pay packages. But he said it is possible the cash trend in Canada is more the result of boards giving CEOs extra cash when the equity part of their pay doesn't perform as expected.
"That would be seen as a misuse of that balance," he said.
This is a ranking of compensation in fiscal 2014 for chief executive officers from the 100 largest public companies (by market capitalization) in Canada's benchmark S&P/TSX composite index as of Dec. 31, 2014.
Prepared by Global Governance Advisors, the information comes from management information circulars filed for fiscal year 2014. Two companies are not included because their compensation data had not been published by the survey's cut-off date.
Where two names appear, the company has co-CEOs. If a company does not have a CEO, the president or similar top executive is used. When CEOs have changed during the year, the chart typically shows the CEO who was in place for the larger portion of the year.
For companies that report pay in U.S. dollars, the amounts are converted to Canadian dollars at the average annual exchange rate for 2014. If the company has an irregular year-end, the exchange rate is the rate used by the company for its currency conversion.
Salary is base salary.
Bonus is the value of any annual and long-term cash incentives paid in 2014.
Per-cent change is the change from 2013's total salary and bonus. No number is shown if the CEO was not in the same position for all of 2013 and 2014.