Canadian HR Reporter

SEPTEMBER 8, 2014 CANADIAN HR REPORTER & STRATEGIC CAPABILITY NETWORK What's in your Ceo's wallet? Complexity of top role is increasing – and so is executive compensation BY LiZ BeRnieR ere's little doubt executive compensation is climbing, and climb- ing fast. top ceos can command astronomical salaries — and once you add on their stock options, bonuses and benefi ts, it's not hard to see why ceo pay often becomes the target of media scrutiny. "In the popular press, and amongst the 'Occupy' move- ment and others, there's a point at which CEOs are overpaid," said Guy Beaudin, senior partner at RHR International in Toronto, at a Strategic Capability Network event in Toronto. But media portrayals of a hand- ful of highly paid CEOs are far from the full picture. " at probably has its merits in a certain number of cases, and I think we wouldn't disagree that income inequality in society is an important issue. But I think what we'd like to do is perhaps paint a picture of that that's a little bit more complex, and brings some more data to bear in terms of how we think of CEOs, executives and their compensation," he said. It's true that executive compen- sation is on the rise, said Laura Croucher, partner at KPMG in Toronto, who also spoke at the event — the Globe and Mail re- ported in June that pay for top Canadian executives increased by 11 per cent in 2013, marking the fourth straight year of gains. "All this in spite of shareholder and investor activism," she said. But the role of the CEO role has become much more complex, said Beaudin — and that has a direct impact on the supply of qualifi ed talent. " e role is more challenging, therefore, the number of people who can actually play that role very well is a dwindling pool." High risk, high rewards The CEO role is increasingly challenging and complex because of myriad factors, said Beaudin — technological change, global- ization, regulatory changes, the diversity of the workforce and generational attitudes, to name but a few. In the 1950s and 60s, being a CEO was like playing a game of checkers, said Beaudin. "CEOs could understand most of the playing fi eld; to win meant you had to be one or two moves ahead of your opponent." But today, playing the CEO role is more like a game of 3-D chess. " ere is no longer a very de- fi nitive end game. e outcome of decisions that you make may occur several years (later), some- times after your tenure… one move can aff ect outcomes on a number of fronts," he said. ere is a level of public scru- tiny that hasn't been there before, said Beaudin — even your person- al life is no longer out of bounds, as it used to be. e average tenure of a CEO has declined, said Beaudin, so of- ten individuals aren't in the role for long. "Today, the average tenure globally is 7.6 (years); in 1995, the tenure was 9.5 years. And in the past two decades, 30 per cent of the Fortune 500 CEOs have lasted fewer than three years in offi ce." And the risk of failure has never been higher. Research indicates 40 per cent of CEOs fail in the fi rst 18 months in offi ce, he said. And from an HR perspective, it's quite diffi cult to fi nd people who can play the role successfully. " e failure tends to be attribut- ed most often to intangibles: poor judgment, lack of execution, per- sonality fl aws. Rarely is it due to lack of experience," said Beaudin. "The failure rate has gotten higher, (and) failure has generally been due to personal or interper- sonal characteristics." All of this data is just further evidence of the complexity of the role and high risk of failure, which is why the pool of capable talent has grown much smaller. "Although there are some argu- ments at the front end in terms of 'CEOs might be overpaid,' we still have to consider the laws of supply and demand," he said. Compensation challenges When there's a limited supply of capable and qualifi ed talent, the compensation package becomes critical. But there are a number of real challenges when it comes to designing a good executive com- pensation package, said Robert Levasseur, senior consultant and principal at McDowall Associates Credit: Mark Blinch (Reuters) short > pg. 21 Gerald Schwartz, chairman of the board, president and CEO of Onex, was the highest paid CEO in Canada last year with total reported compensation of $87.9 million. The role of CEOs is more challenging today, meaning there is a smaller pool of truly qualified candidates — and that's driving up compensation for the best executives. Pay for top executives increased by 11 per cent in 2013, marking the fourth straight year of gains.

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