Executive compensation is more controversial than ever these days, as some senior officials at struggling firms continue to take home whopping paycheques. A few companies, such as TD Bank and Potash Corp. of Saskatchewan Inc., have recently adopted a policy allowing shareholders to have a non-binding vote on CEO compensation at annual meetings, but chief executives themselves have a wide range of opinions on the matter.
According to a recent survey of 134 Canadian business leaders conducted by COMPAS Inc., respondents were split on whether CEO compensation should be subject to a non-binding vote, with 44% agreeing and 36% opposing the idea. Introducing a binding vote was even less favourable, with 41% support.
The panel was also divided on whether shareholders should be able to exercise retroactive clawbacks of compensation should a firm’s performance turn out to be worse than projected. The CEOs were in favour, however, of allowing shareholders a say on the compensation of board members, with three-quarters of respondents in agreement.
Much of the panelists’ reluctance to extend a vote to shareholders on executive compensation has to do with their belief that shareholders are not sufficiently informed.
“It is impossible for shareholders to understand all of the issues on individual compensation,” wrote one respondent. “However, it is appropriate to provide a forum to have a say for excessive compensation.”
A few of the respondents were concerned about how cumbersome the process of setting compensation could become if shareholders have a say. “It’s been difficult at times to negotiate my employment contract with a board of directors thatoften has members with different points of view,” wrote one CEO. “I can only imagine how much more difficult it would be if we involved all the shareholders.”
Another option: “Shareholders should sell stock if they don’t agree with the way the company is run.”