May 19, 2016 won’t be remembered as the best day in the history of the Canada Pension Plan Investment Board.
The organization’s carefully laid plans to depict the departure of chief executive after four years at the helm and announce the arrival of another as normal course business came unstuck thanks to some diligent reporting and careful analysis by colleagues, Barbara Shecter and Andrew Coyne.
Clearly the situation was far from normal given that the outgoing chief executive served a shorter term than expected and a shorter term that the previous two chief executives. In addition the transition to the new CEO is far from normal.
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Later that day, the organization didn’t bask in glory when it released details of By-Law No. 2 “a by-law to establish the remuneration of the directors of the CPPIB.” What was disclosed in that three-page document, but more importantly how it was disclosed would not seem to square with the organization’s “belief in the importance of transparency,” as being “essential to ensuring the trust and confidence of our stakeholders.”
Here are the three disclosures:
The CPPIB directors have given themselves a healthy pay raise. From now they will have to get by on $50,000 this year (for the 12 months ended March 31 2017) and $65,000 next year. For the past two years they have received $35,000. The chairperson, will see her compensation rise to $230,000 in 2017 (up $195,000 this year); and $160,000 last year. In addition there is a slew of increases related to whether the director was a committee chair (or a member) and how far each director has to travel. For fiscal 2016, total remuneration paid to the 12 directors was $1.141 million;In a break from the recent past the annual retainer will be phased in over two years. When the last change was announced, the annual retainer moved to $35,000 with no intermediate step;Those changes, which started April 1, were approved on November 11, 2015 – more than six months back given that the details were only posted last week. In contrast, the 2014 changes were approved by the board on February 13 2014 and came into effect six weeks later.
It’s understood CPPIB opted to phase-in the annual retainer increase, in part, because it was recommended by the consultants hired to assist in the evaluation. As for the seemingly late disclosure about the increase — the directors are already benefitting — CPPIB’s view is the management information circular, essentially its annual report, is the proper place to make such announcements.
CPPIB’s 132-page annual report devotes nine pages to the governance practice of the board. In the last fiscal year the board took an “in-depth and extensive review of Directors’ compensation” with two firms hired for assistance.
The board, whose members are appointed for “a term of up to three years,” with reappointments for “one or more additional terms,” wanted a “contemporary” approach that would support “strong governance performance and the recruitment and retention of outstanding directors both now and going forward.” That approach had to be weaved alongside CPPIB’s “public mandate.”
The solution: pay them more.
Later this year, CPPIB will add five new directors. The process has started as in fiscal 2016, two ad hoc director search committees were formed with one focusing on potential international candidates. Since October 2014, the CPPIB has had the power to name up to three non-resident directors to the board.