Canadian Mid-Market: Executive Compensation Trends for the 2019 Proxy Season
Executive Compensation Trends in the TSX Mid-Cap
Compensation Governance Partners aims to provide you with up-to-date executive compensation information and trends, via our proprietary compensation database (composed of fully evaluated and sized named executives from publicly-traded organizations).
In this series of articles, we will cover executive compensation practices and trends from the 2019 proxy season for the top 5 paid executives from each company in the TSX 100-200*. We will also highlight year-over-year changes in both compensation and policy compared to the 2018 proxy season.
How much has compensation for a TSX 100-200 Executive changed in the last year?
Over the past year, base salaries showed solid growth with median salary increasing by 4.5% and average salary increasing by 4.8%. While salaries showed growth, total cash decreased slightly (0.5% decrease) due to lower STI payouts. Total direct compensation showed a solid increase, caused by larger long-term incentive grants on average.
Figure 1: Year-over-year trends in executive compensation between 2018 proxy season and 2019 proxy season. Total Cash = Base Salary + Short-Term Incentives, Total Direct = Base Salary + Short-Term Incentives + Long-Term Incentives.
What is the Typical Pay Mix for a TSX 100-200 Executive?
Pay mix is the ratio of compensation representing base salary, short-term incentives (STI) and long-term incentives (LTI). For the average Canadian executive of a TSX mid-cap organization, incentive compensation makes up the majority of their total compensation package.
“...the average TSX mid-cap CEO receives 48% of their overall compensation in LTI, compared to 38% for other named executives.”
Incentive compensation (also known as “variable compensation” or “pay-at-risk”) represents compensation outside of base salary (“fixed compensation”). This type of compensation is typically tied to performance and can be broken down into:
Short-term incentives (STI): Payment for performance over a one year period, usually paid in cash
Long-term incentives (LTI): Payment for performance over a period of longer than one year, usually granted in the form of stock options, PSUs and/or RSUs
In general, the purpose of executive incentive compensation is to tie pay to the performance of the organization. Only 36% of total direct compensation for a TSX mid-cap executive is made up of base salary. Incentive compensation (STI payouts and LTI grants) takes up the remaining 64%.
LTI makes up most of the average Canadian mid-market executive’s incentive pay, with a greater percentage of total compensation assigned to LTI for more senior positions, typically reflecting the more strategic role of top executives. As the head of the organization, the average TSX mid-cap CEO receives 48% of their overall compensation in LTI, compared to 38% for other named executives.
Figure 2: Target pay mix for named executives in the Canadian Mid-Market
STI Payout and LTI Grant vs. Target
Approximately 75% of named executive officers have an STI target. The typical STI target for a CEO is 100% of salary, while targets for COOs and CFOs are lower, with median targets of 80% and 75% respectively. In 2019, STI payouts were generally higher than targets, with the average payout 9% larger than target.
LTI targets are less common, with only a third of named executive officers having a formal LTI target. The median LTI target for a CEO is 200% of salary, while COOs and CFOs have median targets of around 125% of salary. In 2019, LTI grants were generally slightly below target.
*Note: CGP has collected qualitative information and key statistics regarding executive compensation practices in the 2019 proxy season, from approximately 115 publicly-traded mid-market Canadian organizations listed on the TSX. This analysis covers all 100 companies analyzed last year, less any companies that were delisted, with the addition of 20 companies which now fall within the TSX 100-200. The 24 companies from last year which have moved above or below the TSX 100-200 remain in the analysis for comparative purposes. 93 of the 115 companies in the 2019 analysis were included in the 2018 analysis.
… Other articles in this series:
Long-Term Incentive Plan Designs in the Canadian Mid-Market
AUTHORS
Matthew Tripp, Senior Consultant
→ mtripp@compgovpartners.com
Marlene Georges, Principal
→ mgeorges@compgovpartners.com