Executive Compensation. BDO Dunwoody/Chamber Weekly CEO/Business Leader Poll by COMPAS in the Financial Post for Publication July 12, 2004

Transcription

1 Executive Compensation BDO Dunwoody/Chamber Weekly CEO/Business Leader Poll by COMPAS in the Financial Post for Publication July 12, 2004 COMPAS Inc. Public Opinion and Customer Research July 12, 2004

2 1.0 Introduction Canada s business leaders are to a certain extent divided as to whether they are paid about the right amount or somewhat too little as compared with their U.S. counterparts. There appears to be greater consensus among Canada s business leaders with respect the relative compensation of executives in Canadian firms; with CEO s of being somewhat overpaid and CEO s of small, somewhat underpaid. In light of recent business scandals there s been some talk as to how much compensation should be and how it should be determined. With respect to pay for profit, respondents support tying compensation to financial performance for CEO s, management and COO s and much less so for CFO s. With respect to changing compensation for directors in light of new responsibilities creating by Sarbanes Oxley, respondent support paying more. These are the key findings form this week s web survey of executives and business leaders conducted under the sponsorship of BDO Dunwoody and the Canadian Chamber of Commerce for publication in the Financial Post. 2.0 Canadian Executives Paid about the Right amount or Somewhat Underpaid Relative to their U.S. Counterparts Respondents appear to be divided on the question of whether or not Canadian executives are underpaid relative to their U.S. counterparts. As shown in table 1, 2 in 5 respondents say Canadian executives are paid about the right amount with the same number saying Canadian executives are somewhat underpaid. There appears to be agreement that Canadian executives are not over paid with the number of respondents saying they are paid about the right amount or somewhat too little outnumbering those saying they are paid too much 10:1. 2

3 Table 1: (Q2) Compared to U.S. executives in firms of comparable size, some say that Canadian executives are underpaid. So far as you know, would you say Canadian executives are paid far too little, somewhat too little, about the right amount, somewhat too much or far too much relative to their U.S. counterparts? % Far too much 3 Somewhat too much 8 About the right amount 39 Somewhat too little 40 Far too little 4 DNK/REF CEO s of Small Companies are Somewhat Underpaid, Executives of Large Companies, Somewhat Overpaid Respondents were asked from what they knew from their own experiences and the people they know to use a 7 point scale where 7 means very overpaid, 4 means paid the right amount, and 1, very underpaid to rate the extent to which different executives are over- or under-paid. Three quarters of respondents (27% who chose % who chose % who chose 5 = 76%) agree that CEO s of are somewhat overpaid, as illustrated in table 2. Similarly, 65%, 55%, and 47% agree that CFO s, COO s and CIO s of respectively are somewhat overpaid. CEO s of small are the notably exception, with only 11% of respondents saying these executives are overpaid. As one small business owner said, All I know is that I cannot get paid that much, and I'm an owner. I couldn't afford to pay a manager as much as myself. 3

4 Table 2: (Q1) There s been some talk in the media about compensation for executives. From what you know from your own experiences and the people you know, to what extent are each of the following over or underpaid using a 7 point scale where 7 means very overpaid, 4 means paid the right amount, and 1, very underpaid? [ROTATE] CEOs of CFOs of COOs of CIOs of CEOs of small mean DNK Business Leaders Agree with Pay for Profit Canada s business leaders support tying executive compensation to a company s financial performance especially for CEO s, management, and COO s. Respondents favour tying a CEO s compensation to he financial performance the most, assigning a mean score of 5.4 out of 7 as shown in table 3. Respondents are somewhat less supportive of tying a CFO s compensation to financial performance, assigning a mean score of 4.4 out of 7. 4

5 As some respondents noted: Dishonesty in financial statements is simply fraud and crooks should go to jail - end of story. However, managers and employees should be rewarded appropriately for legitimate good performance. If, however, it is found that they "cook the books" to falsify results that is the same as stealing and they should go directly to jail. Financial performance is an essential factor for the purpose of determining incentive compensation for senior management in particular and, if the plan is properly structured (i.e. appropriate financial measures utilized with appropriate checks and balances) behaviour to achieve the desired corporate outcome can be reinforced. If the company does well (i.e. produces profits) then there should be some incentives (bonus / profit sharing) trickling down to every employee of the organization. The weighting of these bonuses should be relative to the job responsibilities and profile of the employee. Financial compensation should be based on financial performance, but with a long term perspective, using past performance (historical 5 year trend average) with a portion held back to be paid out 2 years after a "date of record." This provides that a minimum standard of company performance is met including avoiding of any kinds of "nasty" surprises. My 35 years of management experience says pay for profit works. 5

6 Table 3: (Q4) Some say that tying executive compensation to a company s financial performance is an important incentive while others say that it leads to fraud and corruption, for example in the case of Enron. Using a 7 point scale where 7 means definitely agree and 1, the opposite, to what extent do you agree that compensation should be tied to financial performance for the mean DNK CEO Management COO Nonmanagement staff CFO Directors Pay should be increased to Compensate for New Added Responsibilities There has been discussion in the media about the affects on director s compensation of new US accounting legislation known as Sarbanes Oxley, which indirectly affects Canadian, in adding responsibility and potential liability to directors on boards of publicly traded. More than half of respondents in this business panel agree that directors should be paid more to compensate for the added responsibilities, outnumbering those who disagree with paying directors more 5:3. 6

7 Table 4: (Q3) As you may know, the new US accounting legislation known as Sarbanes Oxley indirectly affects Canadian, adding responsibility and potential liability to directors on boards of publicly traded. Which of the following opinions is closest to your own? [ROTATE] % Companies should pay directors more in order to attract better directors and compensate them 56 for the added responsibilities under the new rules. Companies should not increase 36 the pay to directors DNK/REF Methodology The National Post/COMPAS web-survey of CEOs and leaders of small, medium, and corporations and among executives of the local and national Chambers of Commerce was conducted July 6-9, Respondents constitute an essentially hand-picked panel with a higher numerical representation of small and medium-sized firms. Because of the small population of CEOs and business leaders from which the sample was drawn, the study can be considered more accurate than comparably sized general public studies. In studies of the general public, surveys of 169 are deemed accurate to within approximately 7.6 percentage points 19 times out of 20. The principal and co-investigator on this study are Conrad Winn, Ph.D and Tamara Gottlieb. 7