NUPGE will use pension fund leverage to combat CEO salaries

Top 100 executives averaged $8,528,304 in 2006

Larry Brown, NUPGE National Secretary-Treasurer Ottawa (3 March 2008) – The National Union of Public and General Employees (NUPGE), together with component unions that hold joint trusteeship of their members' pension plans, is stepping up efforts to challenge exorbitant compensation packages paid to many of Canada’s CEOs.

The initiative is being taken by the National Union's Trusteeship Coordinating Committee (TCC). This group is made up of representatives from NUPGE components that have achieved joint or sole trusteeship of their plans. The collective assets of these plans is close to $100 billion.

“We are concerned that the compensation for Canada’s CEOs and other top executives has gotten way out of line," says Larry Brown, NUPGE's national secretary-treasurer and the chair of the coordinating committee.

"Our members’ pension money is invested in these companies, and the amount being diverted to corporate compensation is having a negative effect on the value of their investments,” Brown argues.

Executive compensation in Canada continues to soar. According to a December 2007 study by the Canadian Centre for Policy Alternatives (CCPA), the 100 top-paid CEOs pocketed an average $8,528,304 in 2006. Their compensation ranged from a high of $54,709,465 (No. 1) down to $3,059,604 (No.100).

218 times more than average workers

On average, the 100 best-paid CEOs are now being paid more than 218 times the amount of the average Canadian worker.

From 1998 to 2006, the 100 best-paid CEOs enjoyed average increases of 146%. By comparison, average weekly wages in Canada increased by a mere 18% - or just over 2% annually - during the same period.

A U.S. study found that the highest paid CEOs saw their income rise from 4.7% of company profits in 1993-95 to 10.3% in 2001-03.

The loss of 10.3% in profits by any company to a single person at the top amounts to "a huge dilution" of money that should go to shareholders, including pension fund investors, Brown argues.

Worse, excessive compensation often does not end even when a CEO retires. The Toronto Globe and Mail recently published a list of 24 CEOs who will receive over $1 million a year as a pension after they retire.

"As bad as this is, there are also many examples where corporate executives walk away with this enormous compensation, and lavish severance packages, even when their companies face huge losses - or bankruptcy. This is not just morally corrupt, it can threaten the sustainability of pension plans invested in these companies,” Brown says.

Major investors

Pension plans have become major investors in many Canadian corporations.

“If those corporations are paying their executive officers excessively, it is going to have a negative effect on the investment return of our pension assets," Brown says.

“We will be encouraging our trustees to raise this issue with their plan’s investment managers. We would expect them to raise this concern directly with companies where we have a sizable investment. We will also help our trustees develop and propose shareholder resolutions calling on companies that our plans are investing in to give investors a vote on the company’s executive compensation plan," he adds.

"And we will look for ways to support existing shareholder resolutions on controlling executive compensation. We will look for every avenue for our pension plans, as major investors, to combat excessive compensation packages."

While many American companies have had to deal with shareholder resolutions from pension investors related to executive compensation plans, and Britain has a process in place for shareholder input, the backlash has been slow to develop in Canada but it finally appears to be picking up steam.

The 2007 Key Proxy Vote Survey by the Vancouver-based Shareholder Association for Research and Education (SHARE) showed growing support among investment management firms for shareholder proposals that address excessive executive compensation.

This year, mutual fund company Meritas Financial, in conjunction with SHARE, submitted shareholder resolutions at Canada's five major banks asking them to institute an advisory vote on executive compensation at the company's annual meeting each year. At the first two votes, held last week, the proposal was strongly supported by 45% of shareholders at the Canadian Imperial Bank of Commerce and 42% of shareholders at the Royal Bank of Canada..

The Quebec-based Movement for the Education and Defence of Shareholders (MEDS) has also included compensation resolutions in proxy submissions to 11 major Canadian companies, including seven large banks. Those resolutions call for compensation payments to be ‘previously adopted’ by shareholders, suggesting an advance vote on pay that would be binding on the company.

Pension fund pioneers

Components of the National Union were among the first unions in Canada to gain joint control of members’ pension funds.

The first major victory was with the Ontario Public Service Employees Union (OPSEU/NUPGE). The union achieved joint trusteeship of its $13-billion public service plan, one of the largest pension plans in Canada, in 1994.

Since then the B.C. Government and Services Employees' Union (BCGEU/NUPGE), the Health Sciences Association of B.C. (HSABC/NUPGE) and the Manitoba Government and General Employees' Union (MGEU/NUPGE) have achieved joint trusteeship of some or all of their members’ pension plans. NUPGE