Wednesday, 22 January 2014

Executive Pay at Canadian Public Companies - More Good than Bad

One of the problems with studies like the one The Canadian Centre for Policy Alternatives' Hugh Mackenzie has come out with, All in a Day's Work? (CEO Pay in Canada), is that it tars all companies and their executives with the same black brush. As I compiled the data to do some posts (Over-paid CEOs, Fairly-paid CEOs) on my other blog about the really bad (at least from an investor's viewpoint) companies and some good companies, there was some data that I did not use on the pay received by the companies' Named Executive Officers (NEOs) i.e. the top managers.

The Data
My data looks at the change between 2007, in the heady good time just before the financial crisis and the stock market was at a peak, to 2012. So it isn't taking a market low for stock prices that company executives could easily beat just by hanging around through the recovery.

There are 39 companies in the table, a mix of big ones, such as are in Mackenzie's list (8 of his top 10), but also smaller ones. It was not scientifically systematic or randomly chosen, I was looking for especially good or bad performers.

Lots of companies with high rates of pay increases ... but what about ...
Executive pay in companies as a whole rose at 12.9% annualized. That's far above inflation of 1.73% (cf Bank of Canada Inflation Calculator). Is that bad when total stock return has reached 11.2% for the TSX 60, or an unweighted 29% total return average for our good and bad companies?

Some falling pay companies!
Four companies even had falling NEO pay - Cott, Potash Corp, Keyera and CNR (goodbye Hunter Harrison) - while investor returns beat the market. Is that a good deal for an investor or what?

More good companies than bad
Most of the companies with high executive pay increases have given shareholders much more in return as shown by those above the Red line of shame. Below the line it sure looks to me that executive pay is out of control and out of whack with investor returns.

Maybe the balance would be different if I had the patience to plow through all Sedar Proxy Circular filings (which is where the data comes from) of the 241 companies in the S&P / TSX Composite Index. But my sample is fairly large. A number of the worst over-paid stinkers like Niko, Blackberry, Barrick Gold and EnCana are not even in the above table.

Poor value for pay is a relative term
Some companies below the line on the over paid-list have had excellent stock returns, like CP and B2Gold but the executive pay has risen so much faster. Other companies like Shaw have had more modest, though still well ahead of inflation, pay rises, but stock returns have been weaker, or even negative, like Agnico-Eagle Mines.

Some might like to put SNC Lavallin below the line for poorer than market returns since executive pay has still gone up double inflation but I measure fairness in terms of stock return vs pay rise, 8% vs 4% in this case.


Miiockm said...

Very interesting chart and especially so seeing as my employer is listed. Thanks for this.

CanadianInvestor said...

Miiockm, I sure hope your employer is above the red line!

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