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There’s a higher level of conservatism here

Yet even when adjusted for size, there are other factors that keep Canadian companies from paying U.S.-style executive compensation. “Canadians by their nature are typically less assertive and aggressive than their U.S. counterparts,” explained Ken Hugessen, head of Hugessen Consulting Inc. in Toronto.

An expert in executive compensation, Mr. Hugessen said the speed of reform in CEO pay has been faster in Canada than in the U.S. primarily because most companies in this country have split the roles of CEO and chairman. The result: in Canada, compensation is driven by the boards of directors unlike in the U.S. where the will of management remains very powerful mainly because the CEO is also chairman. In other words, the same person who is running the company is also the head of the board of directors who decide his or her pay. Thus, there is less of a constraining factor to keep compensation low.

Not so in Canada. “The power of the shareholder community is omnipresent in the meetings of the compensation committees,” Mr. Hugessen said. “Shareholder reaction absolutely has an effect on the way directors set pay and that’s had a largely constraining influence.”

Mr. Schubert concurs: “I think anecdotally we’ve been ahead in terms of marshalling efforts to ensure greater board independence when working out CEO pay.”

In fact, say on pay votes in Canada are on the rise, and although they are non-binding, companies don’t like the optics of losing them given how CEO pay is such a lightning rod for political and social outrage.

“There is a lot of concern in boardrooms now that directors don’t want to be humiliated by CEO pay,” explained the veteran Canadian corporate lawyer who asked not to be named. In fact, when boards hire compensation experts, that reluctance is evident in the instructions that are given to determine a rate that will be sensible and acceptable. “They are made-in-Canada compensation policies that do not compare themselves to global peers. As long as that happens, CEO pay in Canada will remain relatively low.”

National Post