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How much should you be paying your CEO?

Five CSR criteria that corporate HR committees ought to consider including in their annual assessment of executives.

(Photo: Getty Images)

Today’s Globe and Mail reported that CEO’s at Canada’s 100 largest companies “saw their compensation jump 13 per cent last year, led higher by a 20-per-cent increase in annual cash bonuses”. The burning question here is whether or not what CEOs are paid reflects their performance on the job.

According to an analysis tool developed by Global Governance Advisors, there are many situations where this is not the case (e.g. Encana and Manulife). Paul Gryglewicz, managing partner at Global Governance Advisors, believes that “there is a lot of work to be done in Canada to help align pay and performance.” Gryglewicz observed that compensation should be aligned with what drives value for the business and should be structured to protect shareholders, align managers, and serve the corporation’s human resources committee.

There are also three non-financial indicators – environment, society and governance (ESG) – that contribute to driving business value, and which must be considered in an analysis of executive performance. To what degree has the business reduced its environmental impact? In what ways is the company contributing to social issues related to its business? Is the governance of the organization reflective of the diverse communities in which it operates?

Here are five CSR criteria that corporate HR committees ought to consider including in their annual assessment of executives and when allocating performance-related bonuses:

• Salary as a multiple of the lowest paid employee. If a corporation’s lowest paid employee earns $30,000 a year, is the CEO worth 10 times this? 20 times? 50 times?

• ROI of Community Investments. Performance should be based, in part, on what was accomplished as a result of money invested in social issues and organizations. It’s worth rewarding executives who have found ways for their companies to contribute less to the community and deliver more in the way of social results.

• Participation on non-profit boards. This is demonstrates leadership internally, facilitates capacity building in charitable organizations, and can be a source of new business opportunities.

• Reduction of environmental impact. It’s no secret that this is an important way to reduce costs and mitigate risk. It’s also one of the best ways to increase employee engagement.

• Commitment to diversity. Corporate leadership should include more women and people of diverse backgrounds – including aboriginals. Canadian corporations haven’t done enough in this area and are missing out on related business benefits, like a more productive and innovative workforce. Including CSR criteria in performance measurement should be considered at all levels of business. But it needs to start with the CEO. Next year, let’s hope that this important annual research also includes ESG.