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Execs cash in on booming economy, thin talent pool

Compensation packages soar as competition for top talent in ‘super-heated’ market increases

Bruce Constantineau
Vancouver Sun
June 17, 2005

British Columbia’s top executives took home much larger pay packets last year and a strong economy and a shrinking pool of executive talent suggest the trend will continue, Vancouver executive compensation experts predict.

“In the next five to 10 years, it’s going to become a super-heated market for senior executives in almost any sector, public or private.”

A Vancouver Sun survey of compensation paid to executives at public B.C. companies last year showed improving corporate fortunes resulted in higher salaries, bonuses and stock option redemptions. The cut-off point for making the Sun’s Top 100 list this year rose 101 per cent to $901,762 from $448,591 a year ago.

Fiona Macdonald, executive compensation practice leader at Towers Perrin, said basic salaries rose modestly last year, but bonuses and stock option redemptions rose sharply.

“It was a great year for a lot of companies, on the heels of some crummy years,” Macdonald said. She added that with so many executives cashing stock options last year to take advantage of rising share values, many companies have to ensure they still have enough long-term incentives in place for their executives to keep them where they are.

“If they don’t have very many [uncashed] incentives left, then it becomes cheaper for another company to recruit them, and it’s very active on the recruiting front these days,” she said. “Companies really do worry about keeping good people now.”

Macdonald said mining and energy executives command large compensation packages in today’s market, while executives with financial expertise are also in huge demand because of all the new corporate governance regulations.

Public companies are under increasing pressure to reveal clearer, more all-inclusive compensation totals paid to their senior executives. So some of the country’s largest firms now reveal the values of their pension obligations to senior managers — a trend Macdonald expects will soon filter down to smaller firms.

(Royal Bank president Gordon Nixon, for example, is eligible for an annual pension of nearly $1.5 million when he turns 65.)

“But for competitive reasons, there’s some reluctance to disclose too much information — like do they pay their executives a big incentive if earnings hit $1 a share or some other specific number,” Macdonald said.

She noted a new rule next year will force companies to disclose what outside advisers they use to help them determine executive compensation levels, along with details of the adviser’s mandate and what other work they do for the company.

Hemer said corporate governance practices can always get better, but they are definitely improving, noting that more and more boards go through a “proper and open” process for the selection of new directors and company executives.

“It’s automatic now that you have real competition for a new CEO, instead of automatically promoting the No. 2 man at the company because the board has known him for years and he’s a good guy,” he said. “That just doesn’t cut it any more, from a regulatory or a shareholder perspective. Everyone has to be assured the board went out and found the very best person for the company.”