Canadian Government Executive - Volume 22 - Issue 3

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March 2016 // Canadian Government Executive / 5
Controversies Surrounding
Executive Compensation
Executive compensation is considered to be a central
component of corporate governance mechanisms. It is
believed that an effective and prudently designed ex-
ecutive compensation package can motivate managers/
executives to perform their duties diligently and to look after the
interests of firm owners (or shareholders).
However, there is a widespread belief among the public, regula-
tors, media and investors that the current state of executive com-
pensation structure fails to attain its goal of motivating managers
to thrive for the best firm performance. A number of Canadian
and international studies indicate that the link between executive
compensation and firm performance is quite weak or broken. The
other major concern is that the current level of CEO compensation
is exorbitant and unjustified.
In a recent report, Hugh Mackenzie (2016) of Canadian Center for
Policy Alternatives show that in 2014, Canada’s 100 highest paid
CEOs earned on an average $9 million per year – which is approxi-
mately 180 times more than an average worker in Canada. More-
over, it is observed that even the financial crisis of 2008 – which
exposed the weakness and vulnerability of many firms – failed to
stop the rise in executive compensation.
Given the controversies surrounding executive compensation
level and structure (fixed vs. performance based pay), regulators
have introduced more stringent and transparent disclosure guide-
lines in the recent years. Various market participants and media
are also paying an increased level of attention to the issue of ex-
ecutive compensation. Under the changing scenario, perhaps it is
worthwhile to examine the relevant executive compensation issues
with more recent data.
• Has the executive compensation structure become more tied to
firm performance?
• Does corporate board play any significant role is structuring
executive compensation that addresses shareholders’ concerns?
• Does an incentive based compensation structure that separates
fixed versus variable (equity based) lead to better firm perfor-
mance in the subsequent period?
• Does excess pay motivate the CEOs to work harder and make a
difference in firm performance?
Answer to these questions will paint a clearer landscape of execu-
tive compensation in the context of recent economic and regula-
tory developments. Hope that it is not – All Talk and Little Action !
Register for this MBA Conference:
March 12, 2016, from 9 a.m. to 1 p.m.
All MBA Conferences are open to students, alumni and
the community at large. Free of charge.
To learn more or to register, visit
Special Report