How much are corporate bigwigs worth?
The Vancouver Sun

Corporate salaries grow as public confidence shrinks:
At least 17 B.C. senior executives were paid over $1 million last year.

How much are corporate bigwigs worth? If they're paid too much, directors could find themselves on the carpet with shareholders and regulators.

Corporate scandals and three straight years of stock-market losses have eroded public trust in senior management, corporate directors, accountants, auditors and investment advisers.

Yet swollen executive pay cheques appear to be not just surviving but thriving.

In the U.S. last year, the mid-range CEO salary and bonus rose to $1.8 million, a 10-per-cent improvement from 2001, according to a survey at 350 large publicly held companies conducted by Mercer Human Resource Consulting.

A recent Vancouver Sun survey of 34 B.C.-based public companies found at least 17 senior executives were paid more than $1 million last year and two made more than $2 million.

The challenge for companies is to attract and retain the best leaders while mollifying shareholders increasingly concerned about high-flying executive compensation and poor performance.

To help companies navigate the issues surrounding executive compensation, the Canadian Institute of Chartered Accountants has produced 20 Questions Directors Should Ask about Executive Compensation. The publication acts as a guide and discussion piece for board members and others charged with the responsibility of determining compensation for executives.

"While many large companies have advisers to assist them in developing and reviewing compensation packages, this is not necessarily the case for smaller companies," says chartered accountant Shayda Kassam of Vancouver's PeopleLink Consulting.

"My advice is be proactive. You need to start talking about the issues. You don't want to have your first discussions about compensation to come after a challenge by shareholders or regulators."

Canadian securities regulators are requiring publicly listed corporations to provide better links between executive compensation and corporate performance.

"The importance of improving the objectivity of incentive plans is high," Kassam said.

"Bonuses as a percentage of base salary range from five per cent for non-management positions to an average of almost 15 per cent for middle-management positions and close to 50 per cent for senior executives. Therefore, the cost to an organization of an ineffective incentive plan can be very high."

Compensation committees need to make sure they are getting the best value for shareholders. For many companies, this has meant a move towards results-based compensation.

"In a bull market, little consideration is given to what happens when results are poor," says Fiona Macdonald, a principal with Towers Perrin in Vancouver. "Today companies are really looking at what is the right performance for the right level of pay."

While the importance of benefits as a component of the compensation package has increased, Kassam notes the importance of stock options has decreased. Many organizations are revisiting their stock-option plans, especially stock grants. Decisions on how to account for stock options will also influence an organization's compensation policy.

When deciding on pay for top executives, boards have a number of things to consider, including ensuring that pay levels attract and keep a strong management team, balancing performance with pay levels and what to do when performance doesn't meet expectations.

20 Questions Directors Should Ask about Executive Compensation goes through all of these keys issues. The entire document is available at the Web site: www.ica.bc.ca/pdf/cicapubs_execcompensation.pdf

mkane@png.canwest.com

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