The compensation of the most highly compensated executive officer should be justified to the
employees who contribute to his success and that of the company. It is proposed that the Board of
Directors adopt a policy stipulating the internal equity ratio that it deems “ethically acceptable” and
that it justify this in the Management Proxy Circular.
During the 2010 annual general meetings, we made shareholders aware of the difference
between the compensation of the highest executive and the average compensation of an
employee. With banks, this difference varied between 28 times, a ratio that we deemed
reasonable, and 156 times, an unacceptable ratio.
In their book entitled Plaidoyer pour un nouveau capitalisme (“Arguments for a new capitalism”)
the authors, Yvan Allaire and Mihaela Firsirotu outline that it is important that the “Boards of
Directors must fully assume their fiduciary responsibility in this field and set up compensation
policies that are in the company’s interest in the long-term and not only for the shareholders on
the short-term. It is their responsibility to weigh how the community spirit, solidarity, and mutual
trust within the company will be supported or weakened by the company’s compensation policies.
The Boards of Directors must ensure that the types and levels of compensation for executives do
not lead to questioning the political and social legitimacy of their company in particular and the
free-market economy in general.”
On the other hand, we may add that, given that the biggest portion of the Chief Executive Officer’s
compensation varies based on the short-term objectives and the stock price, and that such type of
compensation rewards taking excessive risks and short-term performance, an excessive ratio is
disquieting since the future of the company and the shareholders’ equity are endangered over
time.
During the past year, this inequity aspect of the compensation of the highest executive with
respect to that of his employees was brought up in various ways:
-by Senator Céline Hervieux-Payette’s filing of a bill proposing that the compensation amount
of the President and Chief Executive Officer may not be higher than 20 times the average
salary in the industry per year in Canada, calculated by Statistics Canada;
-through the U.S. financial reform in July 2010; from now on, corporations shall have to
disclose the average compensation of their employees so that the shareholders may
appreciate the merits of the difference from that of the highest executive;.
-by publishing the ranking of Canadian companies with respect to socially responsible
investment by Corporate Knights Inc. in the Globe and Mail, which uses the concept of
internal equity to evaluate the “social” performance of an organization.
It is urgent that the Board of Directors set a limit on the overall compensation paid to senior
executives (salaries, short-term and long-term bonuses, retirement bonuses, etc.) as a multiple of
the average compensation of employees.