DO THE CANADIAN CEOs DESERVE THE HIGH COMPENSATIONS THEY ARE GETTING?

According to an annual review published by the Canadian Centre for Policy Alternatives in January 2014, the average compensation among Canada's top 100 CEOs was $7.96 million in 2012 whereas the average annual Canadian worker's salary was $46,634.

The review further found that the top-earning executive in Canada was the head of the Canadian Pacific Railway, Hunter Harrison, who was paid $49.1 million in salary, stock options and bonuses in 2012. The second-highest paid CEO was James Smith of Thomson Reuters Corp., who took home $18.8 million. The lowest-paid CEO on the top 100 list was Lino A. Saputo, of Montreal-based dairy Saputo Inc., who earned $3.85 million.

The report’s author also said in a statement "….. There is no clear relationship between CEO compensation and any measure of corporate performance.” So, a question that might inevitably come to mind is: Do the Canadian CEOs really deserve the high compensations?

The answer should actually depend on whether the CEO in question also meets some criteria mentioned below (which may include some intangibles also apart from SMART goals) and not just measured against the usual main criterion of share price increase (and earning per share):

§  Has s/he expanded the company in real terms within and/or outside Canada?

§  Has s/he secured the foundation of future growth of the company?
§  Has s/he been able to make the company financially stronger than before?
§  Has s/he been instrumental in achieving some innovative outcome with regard to product of the company?
§  Has s/he been able to enhance the brand/reputation equity too of the company?
§  Has s/he made suitable succession plans?
§  Has s/he made sure of the proper training and grooming of middle and senior middle layers of the organization?

If one applies the above yardsticks to the top 100 earning CEOs of Canada, one may come to the conclusion that a number of them just do not deserve the high compensations they have wangled for themselves. In fact, may be the majority may turn out to be just a bunch of mediocre executives who by admixture of luck, some clever and strategic positioning and some hard work have reached the position they hold now.

If one reviews the performance of Canadian companies as a whole, one may not find any true outstanding CEO of the ilk of Charles Schwabs, Lee Iacoccas, Jack Welches, Steve Jobbs and so on – folks who were outstanding leaders and visionaries at the same time . May be one CEO in the top 100 list comes close – he is former Suncor CEO Rick George. Otherwise most of the others on the list are what one may call “Manager Leaders” rather than “Leader Leaders” – hardly manifesting attributes of a leader with a vision, drive and tenacity.

No wonder then that one finds a general decline (and some cases demise) of Canadian companies (examples of Nortel and Blackberry come to mind immediately while there are others too).

If one looks at the CEOs, for instance, of oil and gas companies (including pipeline companies) operating in Canada one finds most of them to be pathetically mediocre – they seem to be somehow surviving by hanging by the coat tails of the provincial and federal minsters whether in getting their major projects pushed forward or solving their issues stemming from their (CEOs’) incompetence. These CEOs seem so woefully incompetent in being proactive, in anticipating risks to major projects, so inept in tackling the public issues on their own. And this is not just a subjective view, time and time again these CEOs have demonstrated their crass incompetence on the fronts mentioned above in the past months and recent years.

If one looks at the middle and senior middle management levels too, one finds square pegs in the round holes – people not properly trained and groomed being thrust in positions they are not competent to hold. Consequently, they are not only struggling themselves in discharging the role expected off them, they are making lives of people of other organizations, they are having to interact with (in connection with their work, e.g., new projects), absolutely miserable. They become such a pain to work with, worst of all they are potentially rendering the corporation weaker.

So, what would happen if there is mediocrity at the top and middle of an organization – they become weak and a potential target for being swallowed by others (if the organization is worth taking over). This is a serious situation, a ticking time bomb, which the Canada Inc. is not taking cognizance of and also not taking any action about: may be the corporate Canada is not capable of realizing it (again because of mediocrity and foolish arrogance that they know the best).

In summary, not only the compensation package of the CEOs of Canadian companies need to be evaluated against set of tangible as well as intangible criteria, the CEO material also needs to be improved – the creeping mediocrity needs to be discouraged with heavy hand and top class leaders identified and installed. If the mediocrity at top is not tackled soon, the long term negative consequences for the Canadian economy could be potentially catastrophic and Canada's pride of being a true first world country might be irreparably damaged.