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Canadian Pacific Railway Ltd.’s Hunter Harrison was the highest-paid CEO in Canada in 2012.Tim Fraser/The Globe and Mail

See The Globe's full report on executive compensation in 2012 with rankings, an interactive pay vs. performance graphic and photo galleries of Canada's top-paid CEOs.


A fevered pace of CEO turnover at Canada's largest companies is leading to high compensation bills as firms pay millions in severance to former executives while also shelling out to attract new leaders.

A review of CEO pay at Canada's 100 largest companies shows at least 21 firms on the list have had CEO changes since the start of 2012, and many of the arriving and departing executives are filling the top of the pay charts.

Canada's CEO compensation leader in 2012 was Hunter Harrison, who was paid $49-million after becoming chief executive officer of Canadian Pacific Railway Ltd. following a high-profile proxy battle with a dissident shareholder who wanted to change leadership at the company. Departing CEO Fred Green earned $8.8-million in his last year on the job.

Former Thomson Reuters Corp. CEO Thomas Glocer earned $19.9-million (U.S.) last year when he was replaced at the helm of the data and publishing company, while incoming CEO James Smith was paid $18.8-million, including $7.8-million in new share units as well as a $4.6-million boost in pension value due to his higher pay as CEO.

The natural resources sector featured an unusually large amount of CEO turnover as the slumping fortunes of many companies led to turmoil in the executive suite. Many mining companies have been grappling with the legacy of overpriced takeover deals and have taken big writedowns. CEOs are taking the hit for expensive errors.

"As a stockholder, you wind up paying three times – you pay to recruit the person, you pay to get rid of the person, and you pay because he did bad deals," said Michel Magnan, a Concordia University business professor specializing in compensation issues.

Former Barrick Gold Corp. CEO Aaron Regent received $12-million (U.S.) when he was ousted from the company last June – including an $11-million severance payment – while Jamie Sokalsky was paid $11-million last year after he was named the company's new CEO. Barrick shares have been clobbered by a string of corporate setbacks.

Other big departure payments last year went to former Kinross Gold Corp. CEO Tye Burt, who earned more than $16-million (Canadian) in 2012; former Talisman Energy Inc. CEO John Manzoni, who was paid almost $19-million in 2012; and former Baytex Energy Corp. CEO Anthony Marino, who was paid $10-million last year.

Talisman spokeswoman Phoebe Buckland said Mr. Manzoni's severance terms were negotiated when he was hired in 2007 and were competitive with severance deals for other peer CEOs in the energy sector. "It was what was believed to be required to attract a top-ranking CEO at the time," she said. Amid lackustre results, Talimsan's board brought in energy veteran Hal Kvisle last year to set a new course.

CP said the mandate to replace Mr. Green as CEO came from shareholders, and noted the company's market capitalization has more than doubled to $24-billion in the year since Mr. Harrison took over at the company.

"He's been a significant catalyst for change, and in less than a year is making this railway an even stronger franchise for customers and shareholders," CP spokesman Ed Greenberg said.

As with many external CEOs lured to competitors, the bulk of Mr. Harrison's 2012 pay came from "make whole" payments to compensate him for losses he faced by cutting ties with his former employer, Canadian National Railway Co., including almost $18-million to compensate him for lost restricted share units, $16-million as a "pension guarantee" to compensate him for lost pension entitlement, and a $10-million "signing incentive" in the form of stock options.

For departing chief executive officers, severance amounts are high because CEOs are typically entitled to payments worth a multiple of not just their salaries, but also their cash bonuses – and in some cases even a multiple of the "target" bonuses they would have been eligible to earn if they had hit their financial targets, even if they missed them. In addition, CEOs typically receive the value of their unvested share units and have their stock option vesting accelerated.

Toronto-based compensation consultant Chris Chen of Hay Group said his firm's review of CEO transitions in the S&P/TSX 60 index shows some CEOs seem to be paid more in severance than the terms of their employment contracts would suggest is owed. Mr. Chen said he was surprised to see the flexibility in severance deals.

"Perhaps the negotiation that occurs on termination results in a higher severance amount," Mr. Chen said.

Compensation consultant Paul Gryglewicz of Global Governance Advisors, who advises firms on executive pay practices, said some shareholders see the large sums as "being paid to screw up," but said the historic intention behind large severance payments was that it could typically take a CEO two or three years to find a similar job, so they would be paid enough to last through that period.