When Matthew Barrett retired in early 1999, newspaper headlines trumpeted the big pay gains he reaped after 37 years at Bank of Montreal - the last 10 of them as CEO.
He collected $20-million in compensation that year, most of it from exercising all of his available stock options, which had soared in value as Bank of Montreal reported nine successive annual record profits during his tenure. He also owned common shares of the bank worth about $1.9-million.
Eight years later, his successor Tony Comper retired from Bank of Montreal with an ownership stake in the company almost four times larger than Mr. Barrett's holdings.
On top of $13.5-million he took home in 2006, Mr. Comper retired in 2007 with unexercised stock options worth $53.2-million (at last fiscal year-end) plus a further $25.4-million worth of shares, share units and incentive-plan gains for a total of $79-million.
Internet Links
- Online discussion: Janet McFarland takes your questions at 1:30 p.m. EDT
- Who made what?: Explore the complete list from the 2006 report on executive compensation
- Earlier: The 2005 report on executive compensation
Welcome to the world of wealth inflation where CEOs are increasingly cashing out large fortunes as they walk out the door.
For those ousted from their jobs, the packages climb further with additional "golden parachute" severance payments often worth three years of salary, bonuses, and even share units.
This year, The Globe and Mail's annual review of CEO compensation highlights the trend, with many of the top-paid executives for 2006 high on the list thanks to departure payouts or because they exercised many of their stock options in advance of leaving.
(The Globe's data come from annual shareholder proxy circulars, so doesn't include executives involved in takeovers where the company is no longer public and doesn't file a proxy circular at the end of the year.)
Some recent "big leavers" include former Shoppers Drug Mart Corp. CEO Glenn Murphy, who was second on the compensation list last year with $34.4-million. He left in 2007, after six years at the company, still holding another $50-million worth of Shoppers shares and stock options.
Also high on the list is former Loblaw Cos. Ltd. president John Lederer, who left the struggling grocery chain last fall with almost $22-million, including a $12-million payment under the terms of his employment contract.
In most cases, there is no mystery why people are leaving with more than in the past. Stock markets have soared for years and CEOs are increasingly being paid with compensation features tied to their companies' share prices - including options and share units, plus a variety of newly created midterm and long-term compensation plans based on various corporate performance measures.
The results have been broad pay increases whether executives depart or not - but the numbers look especially large when executives liquidate as they leave.
"With the big market runup we've had, the accelerated packages we've seen have looked pretty big," says Bill Mackenzie, director of special projects at the Canadian Coalition for Good Governance (CCGG), a powerful institutional shareholder lobby group.
For those CEOs ousted for poor performance or because their companies are targets of takeovers, golden parachutes are also getting bigger, and not only because they are based on multiples of ever-increasing base pay.
Their terms are also becoming more generous, says Jim Fisher, a director on several corporate boards, including Canadian Tire Corp.
Mr. Fisher, who teaches at the Rotman School of Management at the University of Toronto, said courts insist fired employees must be compensated for everything they would have earned. So packages include not only multiples of salary and annual bonuses, but some now also provide for share units and other equity compensation that can often make up at least half of a CEO's total pay.
While pricey, he says the deals provide companies with certainty about severance costs and guarantee that there will be no messy lawsuits.
"From a company's point of view, there's a lot of benefit to having certainty," Mr. Fisher says. "And you may be willing to do more to get certainty."
Larry Lowenstein, a lawyer at Osler Hoskin & Harcourt LLP in Toronto, says big golden parachutes have proved their worth in the latest round of takeovers. He says he no longer hears complaints from investors who believe managers are blocking good deals.
"The tendency to entrench and fight a takeover has given way to a much more compelling focus on shareholder value," he said.
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