During the dark days of the 2008-09 financial crisis, one of Canada’s top CEOs was a guest on the business television program I hosted at what’s now BNN Bloomberg. During the interview, I turned to the subject of compensation, as I frequently did with chief executives, both Canadian and American. Reflecting on the actions of corporate titans during the Second World War – the so-called dollar-a-year men – I asked whether he would be willing to work for nothing during the crisis. I knew him to be a public-service-oriented person and a decent man. But I also knew he’d been paid eight figures, so he wouldn’t miss any meals. He seemed totally thrown by the question.
As he walked out of the studio after the interview, he threw up his arms and said, “Work for nothing?” as if he’d been talking to a blithering idiot. And some months later, when I requested another sit-down with the same CEO, the company’s head of communications tore a strip off of me on the phone for having the temerity to have even asked the question.
Astonishingly, the impact of 2008-09 on executive compensation was virtually nil. The Occupy Wall Street movement that followed that crisis should have been a hint to boards of directors, which decide on executive pay. But they’ve been either tone deaf or chicken. Compensation of top executives continued to escalate while most people’s did not, resulting in the inequality of income and wealth getting steadily worse.
Now, with mass layoffs and businesses evaporating because of a global pandemic, that inequality risks becoming even more acute. Although boards must address many issues during a crisis, now is the time for them to begin dialing back executive compensation to more publicly acceptable levels, even though their CEOs may never work harder than they are working right now.
Certainly, we want the best people running the nation’s businesses, and we’re fortunate to have many excellent corporate leaders who have the best interests of the country at heart. But while merit matters, our social fabric matters more. And merit pay is also vastly different from outrageous pay. The last thing we need is another headline about a bloated compensation package as people lose their jobs and governments and front-line workers go to the barricades to rescue and protect large swaths of society.
Unfortunately, until very recently the compensation question has too often been treated dismissively. Valid queries have been brushed aside. Last spring, at an annual meeting of another huge Canadian company, a very polite shareholder asked about the CEO’s compensation, which was once again in the eight-figure wheelhouse. The shareholder said he had no personal animus toward the chief executive, who sat there listening to the question, but simply wanted to know how the company could justify the compensation package, given what others in society earn. The chair of the board, rather than addressing a legitimate question, particularly given the rise of populism, curtly advised the shareholder to read what the company had written about compensation in the annual report. Next question.
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Last summer, the Business Roundtable, the lobby group for CEOs in the United States, made headlines by calling for a move away from shareholder-focused capitalism and toward stakeholder capitalism, an approach that takes into account employees, customers, the environment and communities. A lot has changed since then; today, many businesses are struggling to survive, are providing essential services or have admirably revamped production lines to make what’s immediately needed.
But with all the disruption of the COVID-19 crisis, there is a once-in-a-generation chance for boards to rebalance executive compensation. In fairness, some companies have announced cuts among those at the top, and some government financial support for businesses will be conditional on executive pay limits. But will this be part of a longer-lasting shift to shrink the divide? Or will it just be a pause in an otherwise upward trajectory?
Boards, take heed. As governments shoot bazookas full of money at the economy, companies and citizens in order to help everyone get through this – and front-line workers care for the sick and grocery workers make sure we have food – it’s fair to ask whether the public will continue to tolerate answers like the one the very polite shareholder received at that annual meeting a year ago.
This article is part of the The Coronavirus Pandemic: Canada’s Response special feature.