As we study the multiple concepts that go into the development of a company’s compensation strategy, we do not often have an opportunity to delve into the complexities of how executive level compensation is determined.
A recent announcement by the shareholders of Canadian Pacific Railway Limited (CP)provides us with an opportunity to dig a little deeper into how executive compensation is either curtailed or increased.
A number of compensation-related questions arise from the reading of this announcement. Who determines the executive levels of compensation? How are the levels determined in a pay-for-performance strategy? How does the shareholder influence executive compensation? Why is there a need to focus on safety as part of a pay-for-performance strategy?
Some of the answers to these questions may be found in CP’s public documents, such as the April 2016 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT. This document is available in the public domain. It provides us with an opportunity to explore, just a little bit, the role of governance structures and shareholder decision making linked to the determination of changing executive-level pay metrics.
CP also posts executive-related metrics as part of its fiduciary responsibilities as a publicly traded company.
As the shareholder document was issued prior to the decision to curtail the levels of executive compensation, it provides us with clear expectations of the pay-for-performance philosophy, which was identified as part of the organization’s governance structures and metrics. Further, this public report offers insight into the levels of compensation structures for both internal executives and shareholders benefiting from the ongoing profitability of the company. Profitability came from effective operations, according to the 2016 report. The posted pay metrics were linked to stock values. These documents confirm that pay-for-performance was directly linked to profit levels and both executives and shareholders benefited accordingly.
We can only surmise that, as a result of the information provided in these documents, along with other internal sources, shareholders made the decision to re-shape the performance drivers by introducing ‘safety and operating income’ as metrics for determining compensation levels and rewards.
This appears to reflect a shift in focus. One wonders if the compensation and performance levels will shift accordingly. The results from the next set of public documents will tell that tale.
- After reading the CP shareholder document, identify the compensation strategies that link pay for performance.
- What benefits do shareholders who serve as directors for CP receive?
- From a compensation analyst perspective, how could the decision to cut executive-level perks influence compensation planning for the rest of the organization?
- As a consumer, what do you think about the changes to executive-level compensation for CP?