It is proposed that the Compensation Committee give shareholders more information with respect
to the reference group used to compare the degree of competitiveness of the compensation of its
senior executives and to the importance of such comparison in how compensation is established.
Studies have proved that disclosing compensation had the perverse effect of feeding a constant
increase in the compensation of senior executives. More specifically, a recent study has shown
that 50% of increases in the compensation of Presidents and Chief Executive Officers in the U.S.
from 1992 to 2006 were caused by the increase created by the benchmarking system. Other
researchers have shown that companies tend to use comparison groups where the compensation
of senior executives is often higher than the compensation of their senior executives.
This way of doing things is bad for the healthy relationship that must exist between compensation
and performance of the organization. In this respect, we would like to paraphrase the Canadian
Coalition for Good Governance, which warned against using this mechanism too much for setting
the compensation of senior executives: “However that may be, one must be careful not to
exaggerate the importance of comparison with the reference group to tailor the compensation
structure”.
Currently, the shareholder has little information on choosing the comparison universe or on the
company positioning with respect to its peers:
-ranking of the company among the companies identified as comparable by the
Compensation Committee with respect to each compensation component and total
compensation for the main five executives;
-ranking of the company among its peers based on various financial performance
indices.
The shareholder also has little information with respect to the importance given by the
Compensation Committee to such data in the process of establishing compensation: choice of
comparison universe (national or international), targeted percentile ranking and for what
compensation components.
Therefore, we consider it essential that such information be a part of the information provided with
the compensation policy. As a well-known compensation advisor recently pointed out, “companies
that make up the comparison group will influence your compensation policy more than any other
data. It is therefore essential to make the necessary effort to choose the good comparison group.”
MÉDAC believes it is crucial to know the effects of such an assessment tool in establishing the
compensation of senior executives and that its guidelines are to be set by resorting to an ethically
and socially acceptable internal equity ratio.