Michael Sabia, chief executive of Quebec's Caisse de Depot, announces the pension funds results for the year at a news conference, Wednesday, February 25, 2015 in Montreal. In addition to his $500,000 base salary and his $600,000 in incentive pay in 2014, Mr. Sabia was also granted an additional $1.36-million in incentive compensation that he deferred into the Caisse’s “coinvestment” account program. Including that deferred amount, his direct pay in 2014 was $2.5-million.Ryan Remiorz/The Canadian Press
The new annual report published this week by Quebec's giant pension fund manager includes an unusual feature that you won't see in an annual reports from its peers.
The Caisse de dépôt et placement du Québec published a chart demonstrating how much less its top executives earn each year compared to executives at other major pension funds. The chart compares the pay for various categories of top executives at the Caisse – including the CEO, chief investment officer, and the head of private equity investing – to average pay for the same jobs at other major funds.
With Mark Wiseman at Canada Pension Plan Investment Board earning $3.6-million in fiscal 2014, Ontario Teachers' Pension Plan's Ron Mock pulling in $3.8-million (plus a further $1.9-million gain from his improved pension) and Michael Latimer at the Ontario Municipal Employees Retirement System earning $3.9-million, Caisse chief executive Michael Sabia's total direct pay of $1.1-million in 2014 seems the epitome of restraint.
But the direct pay reported for Mr. Sabia doesn't tell the whole story, and the restraint isn't quite as extreme as it might appear at first glance.
In addition to his $500,000 base salary and his $600,000 in incentive pay in 2014, Mr. Sabia was also granted an additional $1.36-million in incentive compensation that he deferred into the Caisse's "coinvestment" account program. Including that deferred amount, his direct pay in 2014 was $2.5-million, which is still a bargain compared to his peers, but not quite such a large one.
And then there are gains he earns from the coinvestment program. The program requires executives to defer over half of their incentive pay for three years, and they receive payouts based on the fund's absolute rate of return over that period. If the three-year total return is 20 per cent, for example, the deferred pay goes up by the same amount.
Mr. Sabia deferred $800,000 of incentive pay in 2011, and received a payout of $1.058-million in 2014, for a gain of 32 per cent on that compensation.
The Caisse added together his $1.1-million in 2014 direct compensation and his $1.058-million payout from deferred 2011 pay and used the $2.2-million total as the basis for comparison to other pension funds in 2014 showing Mr. Sabia earned 33 per cent less than other CEOs were projected to receive.
Those pay comparisons are difficult for an outsider to assess. It doesn't help that pension funds all have their own complex pay arrangements that include varying multi-year payment programs. And it doesn't help that pension funds can report their compensation however they want because there is no standardized methodology like that required for publicly listed companies.
The lack of consistency in reporting means, for example, that the main compensation chart published by OMERS includes the target value of long-term incentive plan payments for Mr. Latimer at the grant date – even though they may not pay out at that level down the road – as part of his total compensation he earned in 2014. This is similar to the standard reporting model used by publicly traded companies in Canada.
On the Caisse's main compensation chart, however, Mr. Sabia's total direct compensation does not include the portion of long-term incentive pay that has been granted but deferred. But it does include a final column on the chart – which is not added into the total – showing the amount paid out in 2014 from the 2011 coinvestment program.
Teachers and CPPIB have their own long-term pay plans that are also disclosed in varying ways. CPPIB's compensation program is the most complex of all and includes a program allowing executives to defer a portion of their short-term incentive pay for a further three years, along with a long-term incentive program based on four-year performance cycles.
The result is that it is hard to track exactly how much everyone is ultimately taking home at the end of the day, and even harder to compare one pension fund to another.
Context is also critical when assessing Mr. Sabia's pay. He joined the Caisse in 2009 in the wake of dismal performance at the pension fund during the financial crisis. He had just stepped down as CEO of BCE Inc., where he had received a $21-million golden handshake on his departure and had a pension worth $969,000 a year. He agreed to help turn around an iconic Quebec institution at only a modest personal benefit.
The Caisse has often mentioned the fact that Mr. Sabia asked for no pension plan when he joined and asked for no severance deal, both of which would likely have caused conniptions anyway given his personal wealth and his history at BCE. He subsequently requested no increase to his base salary and did not take a bonus for his first two years on the job – also facts the Caisse stresses in its disclosures.
Mr. Sabia has shown restraint, and that's admirable, but much of it was his choice based in part on his unusual personal circumstances. At the end of the day, it's hard to argue – as the Caisse seems to do – that anyone awarded $2.5-million in compensation in 2014 was seriously underpaid.
Janet McFarland