March 16, 2018

in Executive Compensation

Executive Compensation Trends Based on Position and Tenure.

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Position and tenure are two major indicators of executive compensation, tenure less so in top level senior positions. Pay practices vary from organization to organization and can be highly tied to performance, however, executive compensation can be observed in relation to the average and median pay across organizations and industries. Discover more information about compensation trends from Accompass' February 2018 report, Canadian Executive Pay Trends

Executive Compensation Trends By Position

Executive talent is a significant investment. Although the focus tends to be on CEO pay levels — and often the CEO is the only position under the board’s mandate — it appears that a $1 million floor is the new median compensation level for executive positions.

At these levels, organizations must continuously monitor the compensation programs in place for their executive teams, ensuring dollars are being spent efficiently and effectively. This includes protecting intellectual property through retentive measures, linking pay to ’positive’ performance, and investing in succession.

The discrepancy between the average and median at the top of the house is worth noting, as compared to other executive positions. This gap highlights the volatility found in the pay practices at the CEO and Executive Chair level from organization to organization.

Take a look at Figure 1 below for a visual comparison between the average and median compensation across various positions, as well as the highest paid executive occupying each position. 

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Figure 1

 

Executive Compensation Trends By Tenure (OR LACK OF)

A predefined and clearly outlined pay range that the CEO will progress along is not a typical practice. Rather, CEO pay is an annual discussion that takes place in the boardroom and adjustments are made accordingly. Regarding an incoming (new) CEO, the discussion around pay tends to surround the following items:

• What was the pay package for the predecessor?

• What will it cost to attract the individual?

With this, it’s easy to understand the rate at which CEO compensation has grown over the years — as the reset button is not normally used upon succession. A CEO transition is the optimal time for a board to review, revise, and reset the CEO pay program at the organization — an opportunity that many organizations don't always take advantage of.

Figure 2 shown below visually demonstrates the distribution of compensation, dependent on the number of years a CEO has been at their given organization. 

Ceo-tenure-and-compensation
Figure 2
 

Once in the role, CEOs appear to be loyal to their organizations, with 22 per cent of CEOs having 10 or more years of service. Many long tenured CEOs have founding status or a strong equity connection to the organization.

Gerald Schwartz (Onex Corporation) and Prem Watsa (Fairfax Financial Holdings) are both notable examples of this with a tenure of 30 or more years and equity holdings of more than $1.5 billion at their respective organizations. 

However, these two CEOs land on different ends of the pay scale based on differing pay philosophies — Onex has a more lucrative pay program for its long-tenured CEO, exceeding $10 million in some years, heavily focused around an annual bonus opportunity, while Watsa at Fairfax receives much lower compensation for his role based on his ties and equity holdings in the organization.

Figure 3 ranks the most tenured CEOs accompanied by their company, tenure, 2016 total compensation, equity holdings, and equity value. 

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Figure 3

 

Download the Canadian Executive Pay Trends Report

The raw data utilized in preparing this report was provided by Equilar, the number one provider in executive data. All data was extracted from publicly disclosed documents (e.g. annual report, management-information circulars, corporate websites) as of August 2017.

The majority of the trends and insights have focused on the CEO and CFO positions, as these two positions are the most consistent roles spanning across industries and organization size. You can download this comprehensive report for free below.

Download the Canadian Executive Pay Trends Report >>

 

Note: reported data for executive positions outside the CEO and CFO positions is less robust due to the position and title variations between companies and industries.