The CEOs of Saskatoon’s two largest publicly traded companies earned a combined $18 million in 2010.
While the figure may be shocking to the average worker, a national executive compensation expert says the wages are in line with normal chief executive pay scales.
Bill Doyle, Potash Corp. of Saskatchewan Inc.’s president and CEO, earned $11,264,973 last year. The figure includes his $1,136,000 base salary, stock options and other payments. He did not receive a cash bonus in 2010.
Cameco Corp.’s outgoing CEO Jerry Grandey earned $6,826,500 last year, a number that includes a $1,019,500 base salary, $2 million cash bonus, stock options and other income.
Cameco’s president and incoming CEO, Tim Gitzel, was paid $2,912,100, which includes a base salary of $683,750, a $715,000 cash bonus, stock options and other earnings. Gitzel will step into the chief executive role on July 1; Grandey is set to retire on June 30.
Both companies reported their executive team salaries in annual financial reports called management proxy circulars.
The average Saskatchewan worker brings in $862.86 per week, Statistics Canada says. That compares to $216,634 a week for Doyle, $131,278 per week for Grandey and $56,001 each week for Gitzel. In the world of big business, such salaries are as normal as lunch meetings and executive jets, said Christopher Chen, the Hay Group’s national director of executive compensation.
"At this level . . . those numbers are actually fairly standard," Chen said in an interview from his Toronto office.
"You take a look at some of the bank CEOs, for example. They’ve got some pretty big numbers as well."
Chen suggested Doyle’s pay was appropriate given the company’s market capitalization – how much its issued shares are worth – on the Toronto Stock Exchange.
PotashCorp’s CEO pay at $11 million with a company market cap of nearly $46 billion is comparable to that of a roughly $9 million in earnings for the CEO of the Canadian Imperial Bank of Commerce, which has a market cap of nearly $33 billion, he said.
It’s too early to tell who Canada’s highest-paid CEO in 2010 will be as reports are still being filed, Chen said. Last year, the distinction went to Barrick Gold Corp.’s Aaron Regent, who earned roughly $24 million, or $461,538 per week. The company’s current market cap is $51 billion.
CEO pay is like a commission; Chen calls it a sharing ratio. A chief executive who earns billions for his or her firm is worth a handful of millions at the end of the year.
"The argument is that they’re put in the position of being the CEO because they have certain competencies, they have certain skills and there’s a belief – typically at the level of the board, because that’s who hires these people, the board of directors – that these people will drive value for shareholders, based on the compensation that they are receiving," he said.
The bottom line from a shareholder point of view, Chen said, is: "Is the CEO making me money?" Executive pay is rarely of concern. "That’s the relationship most shareholders are focused on, which is how do you move my share price up? Because if not, I can just sell your stock and go buy something else," Chen said.
COMMITTEE RULES
Cameco and PotashCorp have committees made up of directors who oversee executive compensation and decide how much a CEO and other senior executives deserve to be paid. They also compare executive salaries to those of people in similar positions in similar companies, known as a peer group.
PotashCorp spokesperson Bill Johnson said the interests of shareholders are kept in mind when executive compensation rates are set.
"The compensation committee designs pay packages that are in the best long-term interests of shareholders T and their job is to make sure the compensation of our senior management t team is aligned with the objectives C of the company," he said.
The potash firm, he added, was one of the first Canadian companies to hold an advisory vote on executive compensation, giving shareholders a say on pay at its annual meeting last year.
Rob Gereghty, spokesperson for Cameco, said executive compensation is tied to annual goals – for example, the CEO and the financial performance of the business. Most employees at the company have targets they aim to reach, all of which are working in concert to help the uranium firm achieve its corporate objective.
Executive pay, he added, must be competitive and fair.
"Basically, the idea is that we want to ensure that our executives are fairly compensated and that we remain competitive with our peer companies," Gereghty said.
TAKING STOCK
Stock options are also an important part of a CEO’s compensation, Chen said. In fact, most companies have rules about the minimum amount of shares members of its executive team can own.
The idea is that if vice-presidents, presidents and chief executives own a significant amount of shares, they will think like shareholders and direct the company in a way that will increase the value of the firm.
"You do want to have your executives, especially your CEO, to have skin in the game. You do want them to own sizable, sizable amounts of the organization . . . so that way they think like shareholders. That way they’re aligned," Chen said.
According to financial documents, as of Dec. 31, 2010, PotashCorp’s Doyle held nearly $101 million worth of the company’s shares. Those 1,776,790 shares represent 1.09 per cent of the company’s out-standing shares – a figure Chen says is a significant amount.
Cameco’s filing shows that at the end of 2010, Grandey owned $29 million worth of the company’s shares, or 674,666 shares representing about 0.2 per cent of the company. Gitzel, meanwhile, owned $249,860 worth of Cameco shares. As president and CEO, Gitzel is required to increase the number of company shares he owns, and has been given a timeline to do so.
With earnings that eclipse that of the average Canadian, why do multi-millionaire CEOs keep working? Chen said it’s not about the money.
"They do it because they like it, they like being CEOs, they like the control, they like the competition. The money at this point is just a way of keeping score to make sure that the market, if you will, recognizes their accomplishments."
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