More from the SpencerStuart Executive Compensation panel. Here is David O'Brian:
David O’Brian, Chairman of the Board, Royal Bank of Canada and EnCana Corporation, said in his time as CEO of Canadian Pacific that executives were more like trustees of a company than the types to "game the game" just to drive up the stock price. It is better to align management with shareholders interests and that although stock options have not worked well across the board, it would be foolish to throw out the baby with the bath water. David disagreed that CEOs would hype the stock although he did agree that the stock market could be a bit of a casino.The method of pay and the level of pay both play a part of it, and CEOs have been divided about it. How much do you have to pay to attract talent? This is a societal issue too.When looking at compensation, you want to reward for performance and judge it by net income before tax, level of employee engagement. At EnCana, customer satisfaction will not play a role but oil price and low costs of production is key.
When I was a CEO, I did not ask myself every day, “How can I maximize shareholder value?” Instead, I would ask, “How can I make this business model work better?” That is the nature of that business in comparison to banking, for example.Stock options can be part of the package but these need to be long term.
As Warren Buffet said, “In the short term, the stock market is a voting machine, but in the long term it is a weighing machine”. Compensation needs to be on the long term performance of the company.Restricted stock and deferred shares are better than stock options which give huge leverage. You can remove stock options but our tax system encourages short term stock options. Long term tax deferred past three years is not allowed and this needs to be changed.Senior executives should have share options deferred, but we also have to realize that they need the benefits of the job while they are in their high spending years of their families and lives.Originally, stock options were created for start up technology firms and oil & gas exploration companies who could not afford to retain the talent of executive they needed. This deferred cash payment was not an expense as there was nothing to expense it against. For executive compensation, as part of the package, stock options should be de-emphasized.