Dean Carol Stephenson on Executive Compensation

Article excerpt

According to the latest Globe and Mail Report on Business survey on executive compensation, Canadian CEOs "took home an average of about 8.3 percent more in 2003 than in 2002," which includes "all forms of compensation, such as gains from exercising stock options." With "Canada's benchmark S&P/TSX index up 24 percent" and profits "climbing an average of 107 percent" last year, many would say that shareholders received fair value for the dollars invested in rewarding top executives. Nevertheless, the controversy surrounding executive compensation continues unabated.

The major reason for that controversy, excessive and at times inappropriate compensation, is why a new era has arrived in executive compensation. As the articles in this issue of the Ivey Business Journal illustrate, the notion that executive compensation should be linked to company performance has finally become a reality. By actively questioning why and how executives are compensated, shareholders are largely responsible for this new reality.

Essentially, I believe that executive compensation systems must accomplish three vital goals. The first is ensuring that executives are rewarded not simply for meeting quarterly or annual targets, but for their long-term track record in creating wealth for shareholders.

Stock options, the traditional incentives for securing long-term growth, have come under attack. But as Jeff Kozan and Claude Belanger point out, changes to stock options plans, such as shorter option terms to reduce windfall gains or longer vesting periods to encourage executive retention, can address shareholder concerns. …