Royal Bank of Canada and BCE Inc. are some of the big Canadian companies willing to pay more to directors who live outside the country.
Douglas Elix, an International Business Machines Corp. executive, and Dow Chemical Co. chief financial officer Pedro Reinhard get 50 per cent more than their Canadian colleagues to serve on Royal Bank's 21-member board. At BCE, Harvard Business School dean emeritus John McArthur gets $35,000 (U.S.), while his counterparts in Canada receive the equivalent of $22,300.
The situation underscores the challenge that Canadian companies face in competing with U.S. and European rivals for the knowledge and counsel of current and former executives. Many boost retainers to match the compensation of directors who often make twice as much on boards in their own countries.
"It's really a matter of attracting and holding a foreign director," said Arthur Scace, who heads the board committee that sets director compensation at Canada Life Financial Corp., the country's No. 5 life insurer. "If you just pay them in Canadian dollars, it's a ridiculously low rate in the U.K. or the U.S."
In the past decade, Canada's currency has fallen 35 per cent against the U.S. dollar. Today, Royal Bank's $30,000 (Canadian) retainer converts into about $19,100 (U.S.).
Canadian companies that refuse to pony up for non-resident directors may find breaking into new markets or doing business overseas more difficult, said Elan Pratzer, managing director for Canada at Korn/Ferry International, the largest executive-search consultant.
Royal Bank was able to depend on the expertise of its U.S. board members when it negotiated the purchase of Greenville, S.C.-based Liberty Corp.'s insurance units and Dain Rauscher Corp. of Minneapolis, Minn., last year. The company has since added two more U.S.-based directors.
"The tradeoff is always one between internal equity -- paying your directors the same -- versus external competitiveness," said Fiona Macdonald, a principal at consulting firm Towers Perrin in Vancouver who has advised clients such as TransCanada Pipelines Ltd. to pay non-resident directors more.
Directors at Canadian companies get average retainers of $23,448 (Canadian) a year, according to a 2000 survey by executive-search firm Spencer Stuart Inc. of Chicago. That compares with the equivalent of $45,570 that U.S. companies pay.
"We've had instances where we were unable to attract American directors [for clients]because of the fee," said Jerry Bliley, vice-chairman of Spencer Stuart's Canadian unit.
BCE, Canada's second-most-valuable company, switched to uneven pay in February, 2000, said corporate secretary Marc Ryan. Canada's No. 1 telecommunications firm considered paying all directors in U.S. dollars, as companies such as Agrium Inc. do, but decided it couldn't justify the expense for an 11-seat board.
Now, Mr. McArthur of Wayland, Mass., is the only board member to receive $35,000 (U.S.) -- or $55,000 (Canadian). His Canadian counterparts get $35,000.
"We've already got the challenge of attracting people to sit on a board of a company outside of their country," Mr. Ryan said. That's hard enough without having to "justify why they should make less money," he said.
The challenge has become greater over the years as the Canadian dollar has tumbled. Ten years ago, $1 (U.S.) bought $1.14 (Canadian). Now it changes into $1.57.
The six companies among Canada's 20 most valuable that pay non-resident directors more are: BCE; Royal Bank; Manulife Financial Corp., the country's biggest insurer; TransCanada PipeLines; Sun Life Financial Services of Canada Inc.; and Canadian Pacific Ltd.
The existence of unequal pay for directors "is not a healthy practice because in effect you establish a two-tiered payment system," said Don Stacy, a U.S. director at Alberta Energy Co. The Calgary-based oil and gas producer had been paying a premium to Mr. Stacy, its one U.S. director, since 1998 on the advice of compensation consultants.
It decided recently to cut his retainer to $30,000 so that he earns the same as resident members of the board. Mr. Stacy said he approved of the change.
Ultimately, no carrot may be attractive enough to lure U.S. directors to Canadian boards, said Korn/Ferry's Mr. Pratzer.
"We're having a hard time getting people interested," Mr. Pratzer said, which is looking for a U.S. director to join one of Canada's top insurers.
He declined to name the company. Canada's four biggest insurers -- Manulife, Sun Life Financial Services of Canada Inc., Clarica Life Insurance Co. and Canada Life, pay non-resident directors more.
Prospects with the right kind of background are "inundated with requests," he said.