Proposed Law Would Cap Exec Salaries

With billions in stimulus money being disseminated to various companies and sectors across the country, legislation has been tabled by a Liberal Senator that would make corporations receiving public funds more accountable and limit salaries and big bonuses.

Hon. Céline Hervieux-Payette’s Bill S-235 relates to all companies that receive public money as well as companies listed on the stock market.

For companies receiving stimulus money, including banks, the auto industry, and the forestry and agri-food sectors, annual salaries would be capped at $500,000 annually. Bonuses given to executives could not exceed a third of their total salary.

The bill would also limit compensation for executives in publicly listed companies to a maximum of 20 times the average annual industrial wage in Canada.

Other measure include allowing board members to sit on no more than four boards in public corporations and ensuring that executive employment benefits, including those of the board of directors, must be recorded in the firm’s annual report to its shareholders.
Hervieux-Payette says provisions in the bill, which are in line with the commitments made by G20 nations at the London summit in April, will help restore confidence in the market.

“The capitalist system works only on confidence. The minute you destroy the confidence of investors, the whole country is at risk. So I think it’s important that we restore some confidence, and that we have a fair system between shareholders and the taxpayers and those who are managing other people’s money.”

Hervieux-Payette, who was just elected deputy chair to the Senate Standing Committee on Banking and Commerce, says the bill would bring fairness into the equation, making corporate salaries and bonuses “more in line with our culture in this country.”

“We’re not a country where we should have people making 200 times the salary of the average worker. You see that in the developing countries where you have such a big gap between the rich and the poor. Canada was moving in a very wrong direction in that sense.”

Harold Chorney, professor of political science at Concordia University and author of  Rediscovering Keynes: The Deficit Papers, says guidelines that constrain executives of publicly assisted companies regarding compensation and bonuses is “a good idea from an equity point of view.”

“The principle is a sound one considering that some companies are or will be receiving substantial public money. The executives may well object but in most cases their objections will not carry much weight with the general public, some of whom are losing their jobs, and many others have lost a portion of their life savings.”

With a federal stimulus package of $40 billion, Hervieux-Payette laments that Prime Minister Stephen Harper did not impose strict conditions on the companies that will receive public money.

“[G20 nations] agreed on a certain plan of action in London at the beginning of April, but we haven’t heard much about it in Canada. In Europe they have all acted upon it and they are in the process of implementing it, but in Canada we haven’t seen anything.”

However, for countries that do not implement such measures, unless there’s a level playing field, limiting salaries and bonuses could pose a problem says Jerry Sheppard, associate professor at Simon Fraser University’s Faculty of Business.

“The market for executives is an international one, and you’re competing with other companies in other countries that may not have those restrictions, so it could put you at a disadvantage—much as I like the idea.”

When moving that Bill S-235 be read a second time last week in the Senate, Hervieux-Payette said that in order to correct “management shortcomings” of Canadian corporations, a new code of conduct must be put in place.

“We cannot keep on compensating companies for failures and abuses. It is the government’s responsibility to oversee the management of our corporations, and that inevitably means controlling the compensation paid to executives of corporations that receive assistance out of Canadian taxpayers’ dollars,” she said.