How much CEO pay is too much?
According to the Canadian Centre for Policy Alternatives’ 2016 report Staying Power, the average Canadian CEO earned $8.96 million in 2014. That’s 184 times greater than the average Canadian worker’s salary.
The story in the US is much the same, with average CEO pay at the biggest US corporations earning an average of $12 million a year.
The pay CEOs receive is rarely salary alone. It is most often a complex mixture of salary, bonuses, company shares, stock options, and pension contributions. The considerable compensation these executives earn can directly affect the value of our investments as shareholders. For an accessible overview of the recent history of stock options in the US, see this story from NPR’s Planet Money:
But what is there to do about this? Executives at these large companies can seem so rich & influential that they are beyond our power. CEO’s and other executives, though, are ultimately responsible to the shareholders of the company. While each of us individually might not have the power to influence a Board of Directors, many mutual funds in Canada own significant pieces of these companies.
Now, not all mutual funds are created equally as it comes to caring about CEO and other executive pay. Some socially responsible investment funds have made real efforts to bring about changes to CEO pay for the companies they hold. One first step is tying executive compensation to their performance as directors of the company. But as described by RIA Canada, “As investors demand that executive compensation be linked to corporate performance, it is also becoming clear that linking pay to financial performance is not enough – to effectively manage risk, investors must be confident that remuneration is linked to ESG [environmental, social, and governance] performance as well.”
Meritas Funds, for example, reached out to Canadian banks about executive compensation back in 2007. While initially rejected, Meritas and the Shareholder Association for Research and Education (SHARE), succeeded in passing a shareholder resolution and the banks agreed to implement a vote on the issue.
NEI Investments has also been a leader in the fight with continuing engagements with Canadian companies, “framing excessive executive pay as both a fairness issue and a business risk and promoting a different approach to pay — equitable compensation that rewards executives who create long-term sustainable value for all company stakeholders, including shareholders.”
So there you have it. If you believe that executive pay is out of control, have a look at your own investments to see if you’re helping to change the situation. If you’re not satisfied or aren’t sure and want to have a guided look at your holdings, just drop me a line for a no-charge review.