Ontario may change disclosure rules for corporate paycheques
The pay perks of the rich
Ontario may change disclosure rules for corporate paycheques
The gold bars pictured in the opening pages of American Barrick Resources Corp.’s most recent annual report are photographed with loving attention to detail. Readers can even admire the craters left by bubbles that rose to the top of the bars as the molten metal cooled. The glittering pile of gold is an appropriate image for Toronto-based American Barrick: it is the _
largest gold-mining company in North America. And it is fitting for another reason.
The compensation that Barrick paid last year to its chairman and founder, Peter Munk, almost makes the stack of gold look like pocket change. Munk’s salary for 1991 was healthy enough: it amounted to $993,000. But that was only part of his income. In addition to almost $1 million in salary, Barrick’s chairman collected more than $31 million by selling stock acquired as a result of options that he had received from the company five years earlier.
Munk’s total earnings for the year: $32,618,150.
Munk’s stratospheric pay package was the largest ever made public for a Canadian executive. It was disclosed at a time when the money lavished on senior corporate managers is a subject of increasingly heated debate. In the United States, the matter has even come up during primary campaigning for the presidency, with some candidates blaming the U.S. economy’s weakness partly on overpaid executives. Indeed, the top-paid Americans outearn even Munk. Anthony O’Reilly, chairman of Pittsburgh’s H. J. Heinz Co., for one, earned over twice what the Barrick chairman did last year, collecting $86.2 million. Such incomes have outraged some observers, including New York City business writer Graef Crystal, an outspoken critic of excessive executive salaries. Said Crystal, who was recently fired from his job as a columnist with Financial World magazine after several corporate executives complained to the publication about his views: “I find it offensive that in this country, we can have
thousands of people living on the streets home-
less, while we have people making 80 million bucks.”
Meanwhile, in Canada, the influential Ontario Securities Commission has set off a new debate on how much the public has a right to know about what top executives earn. The OSC, whose policies are frequently followed by securities regulators in other provinces, has pro-
posed new rules that would require companies whose shares are traded on the Toronto Stock Exchange to disclose more than they now do about the incomes of their top executives. But the rules would still permit far more corporate secrecy than American regulators allow.
In the United States, publicly traded companies have to submit information about what each of their five most highly paid executives earn. By contrast, the OSC would allow most Canadian companies to disclose only the total
amount paid to their top five earners. Individual incomes would become public only when they amounted to more than 40 per cent of that total. The OSC’s recommendations still need the approval of Ontario’s NDP government—which could also choose to adopt the more stringent American-style disclosure rules. But the left-leaning provincial govern-
ment has been trying to mend its strained relationship with business, a task that will clearly become even more difficult if the party insists on top executives disclosing their personal income.
Dozens of Canadian companies that list their stocks on exchanges in the United States have already taken advantage of a new rule change in that country to conceal the incomes of senior executives. Last year, the U.S. Securities and Exchange Commission agreed that Canadian
Peter Munk, American Barrick Resources Corp.,
1990 pay: $791,521* 1991 pay: $32,618,150* % change: 4,121 1990 company profit: $68.7 million 1991 company profit: $105.9 million % change: 54 ♦Includes earnings as chairman of Horsham Corp., Toronto, a holding company that owns 20 per cent of American Barrick
Anthony O’Reilly^ H. J. Heinz Co., Pittsburgh
1990 pay: $3,755,477 1991 pay: $86,200,00c % change: 2,268 1990 company profit: $580.1 million 1991 company profit: $653.2 million % change: lí
companies trading on American exchanges no longer need to comply with existing SEC disclosure requirements for executive pay. Instead, they could follow the less demanding rules set by Canadian regulators. As a result, at least 28 Canadian companies reported to the SEC only the combined earnings of their top officers—in one case, a group of 27 people in all.
American Barrick was among the exceptions. It voluntarily continued to follow the SEC’s requirements for American corporations, disclosing individual executives’ earnings. (In fact, Munk’s stock-option income had already been reported under Ontario’s existing insidertrading rules, which require executives to disclose sales or purchases of stock in their own companies.) According to Vincent Borg, Amer-
ican Barrick’s vice-president of public affairs, the company disclosed the more detailed information because it has many American shareholders who might object to a more secretive approach. “Besides,” added Borg, “we don’t have anything to hide. If the company is doing well, our shareholders don’t mind having the executives paid well.” And American Barrick has indeed done well by its shareholders: its share price has soared to $29.25 from $1.55 when the shares were first issued in 1983.
But American Barrick’s attitude is unusual among Canadian executives. After the OSC first announced last July that it was contemplating changes to its disclosure rules, dozens of company executives wrote to the commission expressing their strong distaste for any requirement that shareholders—and the public— should be informed how much individual top executives earn. Alan Thomas, for one, senior vice-president of finance for Noranda Inc., wrote: “I urge you to resist the pressures for such disclosure from the snoops and gossips whose interests are not likely to be the same as legitimate investors in the public marketplace.” Full disclosure, wrote Gordon Bell, president of the Bank of Nova Scotia, would be “a massive incursion into individual privacy.” Another executive told Maclean ’s privately that he would not want his earnings made public because he did not want his children to know precisely how affluent their family is.
In fact, top Canadian corporate earners have less reason for embarrassment than their American counterparts. Even the top payouts to Canadians are far below American levels. In 1990, Time Warner Inc. chairman Steven Ross collected $90 million, while the highest-paid Canadian whose salary was made public, Keith McWalter, the outgoing chairman of Gulf Canada Resources Ltd., drew a comparatively paltry $2.9 million. Indeed, a survey for Maclean ’s by Toronto-based Hay Management Consultants Ltd. showed that, on average, American executives earn twice as much as Canadians managing similarly sized corporations. Quipped Crystal: “Canada is so cold that executives’ greed glands don’t work as well as they do in the United States.”
At the same time, Crystal and other critics of high executive salaries say that shareholders—the investors who actually own public corporations— have a right to know how much their company is paying its most expensive hired hands. The information can be dramatic. Donald Jackson, president of Toronto-based Laidlaw Inc., earned $755,604 last year, a 120-per-cent increase from his salary the year before, even though his company lost $397 million on revenue of $2.2 billion. Toronto-based Curragh Resources Inc. chairman Clifford Frame did even better, collecting a 144-per-cent raise to $710,200—while his company’s earnings fell by 36 per cent and lost $98.3 million.
Advocates also argue that full disclosure of executive pay serves as a check against excessive clubbishness among the corporate directors who determine what senior officers earn. In theory, directors represent shareholders’ interests by supervising executive performance. But in fact, chief executive officers, especially when they themselves are major shareholders, often handpick the members of
their companies’ boards—and exert substantial influence over their decisions. In addition, many corporate boards include CEOs of other companies—individuals with a clear stake in raising the general level of executive compensation. Declared Kelowna, B.C., investor Jeffrey Graham: “The arguments that executives use to keep their pay rates from shareholders are scare tactics to shield the fact that most Canadian corporations deliver poor results to the shareholders while delivering rich pay packages to themselves.”
For his part, OSC chairman Robert Wright insists that the proposed changes will adequately protect investors without intruding on either corporate or individual rights to privacy. By requiring disclosure of the total compensation paid to a company’s five top-earning executives, he said, the new rules would allow investors to determine whether management pay seems out of line with a company’s performance. “All we’re interested in,” said Wright, “is what investors need to know to make investment decisions.”
But Wright rejects any responsibility for ensuring that shareholders, as a company’s owners, know exactly what managers are being paid. “There is a difference between owners and investors,” he told Maclean’s, adding that the OSC’s role is to protect the rights of investors—not owners. “I don’t accept that they are exactly the same,” added Wright. “If there is a shareholder right to approve executive salaries, for instance, it is not the securities commission that should be saying that—it should be the legislature.”
Ontario’s NDP-dominated legislature, meanwhile, has yet to express its views on the subject. The OSC’s proposals remain on the desk of Brian Charlton, the provincial minister of financial institutions, who clearly supports a move towards more detailed reporting of executive pay. Said Charlton: “There needs to be a greater level of disclosure than exists now.” But Charlton’s government has strong reasons for avoiding a confrontation with corporate boardrooms over the issue. The province’s economy is struggling to escape from a severe recession and the government made it plain, in a throne speech earlier this month, that it wants business’s co-operation in its pursuit of renewed prosperity. That co-operation is more likely to emerge if the government does not insist on full disclosure and, instead, adopts the OSC’s proposed compromise.
That, however, would still leave some critics dissatisfied. Said Philip Anisman, a lawyer for institutional investor Allenvest Group Ltd. of Toronto: “It seems incongruous, when we are moving towards international uniformity of securities law, that the OSC would provide Canadian investors with less disclosure than they are able to get in another country.” On the other hand, if Ontario and most other provinces do approve the OSC’s approach, shareholders could be left to guess at the scale of any future golden payouts like the one received by American Barrick’s Peter Munk.
Raymond Cyr, BCE Inc., Montreal
1990 pay: $1,331,100 1991 pay: Not disclosed 1990 company profit: $1.1 billion 1991 company profit: $1.3 billion % change: 18
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