Abstract
In today’s unstable economic atmosphere, where the gig economy has become the prevalent way of life, the fact that the compensation of CEOs of major Canadian companies remains noticeably high and immune to economic turmoil raises ire and condemnation. It has become the norm for CEOs to make many times more than their average employees, as much as 243 times as recently as 2021. This research will evaluate the Fairness of CEO compensation by seeking answers to the following questions: a) what set of metrics does the CEO compensation follow? b) What correlation, if any, is there between compensation metrics and performance KPI? Moreover, c) what role does culture, both regional and company, play in CEO compensation?
Eight elements play significant roles in the Fairness of CEO compensation: the company’s financial and non-financial performance, risk appetite, peer comparison, CEO’s CCIP (characteristics, competence, and individual performance), strategy alignment, culture, and integration.
While CEOs’ financial performance is directly related to organizations’ financial success, non-financial performance, e.g., customer relationships, employee satisfaction, and environmentally friendly practices, also play a pivotal role in the financial stability of organizations. The alignment of CEOs’ risk appetite relative to organizations’ is a significant factor in creating organizations’ value proposition in a competitive market. Peer elements compare CEOs’ compensation to the industry standard to determine the Fairness of remuneration. Also, a main denominator is CEOs’ characteristics and competence along with past performance in relation to organizational vision and mission. Also notable in remuneration metrics is the alignment of CEOs’ strategy and approach to that of the organization’s vision. Culture, a complex and multifaceted factor, is a broad spectrum that starts with the country’s prevalent culture and narrows down to the company culture, all of which can play a significant role in determining CEO compensation.
However, these factors have little to no effect on workers’ compensation structures as incumbents and middle managers undergo a more universal and uniform compensation assessment pattern, which in turn creates an even more significant divide between CEOs and their respective workforces.
This research examines the performance of five of the highest-paid CEOs in Canada against the eight criteria of fair CEO compensation to determine if the compensation provided to each CEO is equitable when compared to the mentioned criteria. The result of the research shows that many of the elements of fair CEO remuneration, even the financial performance, are absent from the scorecard of the selected CEOs, which subsequently deems the examined compensation as unjustified and unfair. The absence of these fair compensation criteria underscores the urgent need for further research in this area.
Keywords: CEO, compensation, Fairness, performance KPIs, culture
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