Did Your Pay More Than Double Last Year?

If not, don't worry because your CEO's did.

The Globe's Report on Business figures that the 161 top executives in Canada received average total compensation of $5.5 million each last year, thanks mainly to cashing in some stock options.

So let's do some math. $5.5 million x 161 = $885.5 million. Over 5 years that adds up to a little over $4.4 billion dollars. Hmm, roughly $4.5 billion over 5 years, that rings some kind of bell...

Just to refresh your memory, here's some quotes from a Globe story last week:

"Business leaders roasted the minority Liberal government's decision to boost spending by $4.6-billion and cancel corporate tax cuts [worth $4.6 billion over 5 years] to buy NDP support for its beleaguered budget.

They warned it will cost Canada billions of dollars in lost investment, job gains and tax revenue, and erode the business-friendly reputations of Prime Minister Paul Martin and Finance Minister Ralph Goodale.

"I think it puts Mr. Martin's credibility in doubt and Mr. Goodale's credibility in doubt," said Nancy Hughes Anthony, president of the Canadian Chamber of Commerce."

and more,

"Thomas d'Aquino, president of the Canadian Council of Chief Executives, warned that rolling back corporate tax cuts will discourage the investment needed to generate the future tax revenue needed to "pay for the massive federal commitments to expanding social programs and equalization payments."

Jack Mintz, president of the C.D. Howe Institute, predicted Canada will lose "billions of dollars in investment" as a result of Liberal missteps on corporate taxes."

and my favourite,

"Perrin Beatty, head of the Canadian Manufacturers & Exporters, said Liberals are turning their back on businesses. "The government put those tax cuts in the budget because they recognized that Canadian business faces unprecedented competition"

So forgoing a $4.6 billion future tax cut for Canadian business will cost us billions of dollars in investment, destroy the credibility of the government, make business unable to compete in a tough global environment and is enough to pay for massive federal commitments to social spending and equalization.

But the same amount (probably more if you consider the time value of money) paid to the CEO's of just 161 companies is no doubt a wise and necessary cost of doing business which will more than pay for itself by creating incentives for CEO's to try and do a good job - something which a salary of $700,000 (on average) apparently wouldn't be enough to encourage them to do thus requiring the incentive of cashing in stock options if the share price goes up.

Here are some quotes from the Globe article on executive compensation:

David Beatty, head of the influential Canadian Coalition for Good Governance (CCGG), agreed that some CEOs, such as Power Financial's Mr. Gratton, have created "tons of value" for their shareholders, but others "are just riding on the boat" that has been lifted by overall rising market levels. "They are giving away a lot of the company for nothing. There are other ways to reward people."

...

Bill Mackenzie, head of Institutional Shareholder Services Canada, formerly Fairvest, said it's hard to link huge option gains with individual performance. "It just means there were big grants. Whoever has options has beautiful leverage, and they are making a killing."

...

Claude Lamoureux, CEO of the Ontario Teachers Pension Plan, argues that options do not always reward performance. "It is very random. You could do wonderful work and not be rewarded, and you could do crappy work and make a lot of money with your options."

...

Mr. Hugessen [from Mercer] expects investor groups will pressure boards to be more selective about when they hand out share units, rather than just making grants a given every year for anyone "who fogs a mirror."

"It begins to feel a little like a money machine. People are hankering on to this."

...

Citing the work of Harvard law professor Lucian Bebchuk, he [David Beatty] said many compensation decisions are based not on performance but on a desire for collegiality, a sense of loyalty to the CEO and conflict avoidance. The result, he said, has been "outrageous costs."

Just something to think about next time you hear dire warnings of doom and gloom from our CEO's when the government fails to cut corporate taxes quickly enough for them or when they talk about how we need to keep costs down in order to be competitive.