Corporate social responsibility advocates are calling for CEOs to reduce their salaries as Canada's economy battles through the recession.

Stephen Jarislowsky, chairman and CEO of Montreal-based investment firm Jarislowsky, Fraser Ltd., who co-founded the Canadian Coalition for Good Governance, says more CEOs need to do their part as thousands of employees lose their jobs.

"(CEO salaries) definitely will have to come down," says Jarislowsky. "You're going to ask people all the way down the line to reduce their salaries. You have to make an example of yourself."

The comments come as shareholder rights groups are pushing for more say setting guidelines for CEO and other executive compensation packages. Some of Canada's major companies have responded to pressure and agreed to give shareholders an advisory vote on pay structures and policies. Most of the companies are in the banking and financial services sectors, which were targeted because they are viewed as corporate leaders.

"If we get the biggest companies in the country to become responsible, we'll get other companies to follow the lead," says Jarislowsky, an Order of Canada recipient who has funded university research chairs related to corporate governance and public-sector management.

Sun Life Financial Inc. announced in mid-March that it would give shareholders more say on pay, leaving Toronto Dominion Bank and ManuLife Financial as the financial sector's final holdouts for adopting such policies.

TD Bank issued a proxy before its annual general meeting that urged shareholders to vote against having a voice-on-pay resolution, while ManuLife was non-committal.

Adine Mees, president and CEO of Toronto-based Canadian Business for Social Responsibility (CBSR), which represents 110 large for-profit companies across the country, says the say-on-pay movement is not only about compensation levels.

"What they are really asking for is simply greater transparency and accountability from the corporate sector," says Mees, who predicts there will be changes in the way CEO bonuses are structured in the future.

She adds companies are now asking themselves what would happen if their methods of setting compensation levels were made public and how the media would respond - and then making decisions accordingly.

While Canadians are more conservative when it comes to CEO salaries, Mees says, they are just as concerned as Americans when it comes to the methods used to set pay levels.

In January, the Ottawa-based Canadian Centre for Policy Alternatives released a report that found the 100 highest-paid CEOs of Canadian publicly traded corporations received an average of $10,408,054 in total compensation in 2007.

Many of the CEOs head large banks, which received billions in federal government bailout money to purchase mortgages, and Calgary-based energy firms that no longer enjoy the luxury of high crude oil prices.

The average pay of the top 100 CEOs rose 22.5 percent from $8.5 million in 2006, while average Canadian earnings increased just 3.2 percent over the past five years.

Bob Walker, vice-president of sustainability for the Vancouver-based Northern and Ethical Investments LP, which holds $3.6 billion in assets, says the moves to allow shareholders more input came after companies were slow to adopt such policies and executive pay jumped.

"It does feel a little bit like closing the barn door after the cows have gotten out," says Walker.

He says Northern and Ethical Investments and other groups have been "hammering away" at executive pay without much success.

Northern and Ethical and other groups are calling for CEO pay and company performance to be tied less to stock options and quarterly earnings and aligned more closely with such factors as employee health and safety, stakeholder and community relations, and reductions in greenhouse gas emissions.

"There has been an obsession with stock prices in general (and) an obsession with quarterly earnings estimates," says Walker, adding investors also have to "look in the mirror."

U.S. President Barack Obama has capped the salaries of CEOs who receive a share of the stimulus package at $500,000 per year.

Ajit Someshwar, a member of federal Finance Minister Jim Flaherty's economic advisory committee, says CEOs of Canadian firms who receive infrastructure money from Ottawa should be subject to a similar cap.

The salaries for CEOs whose firms receive infrastructure funding should be on par, he adds, with senior public servants such as deputy ministers. But it's impossible for governments to regulate salaries of executives in the private sector.

However, he believes the say-on-pay movement will gain steam, and hopes all Canadian CEOs realize the need to keep things in check and see the importance of "top lines and bottom lines."

"The CEOs are learning from the Wall Street boys and the Wall Street boys are just feasting themselves with bonuses and salaries that have very little to do with their ability to perform," says Someshwar.

Jarislowsky believes companies will adopt the coalition's 24 principles on executive compensation, which are now in draft form and being circulated around the country.

The principles are based on guidelines issued by the coalition in 2005. They call for companies to build a compensation committee composed entirely of independent directors; seek outside advice on compensation levels; test pay-to-performance linkages; establish share-ownership guidelines; and disclose all facets of the compensation regime.

But Jarislowsky says information on salaries should be in the hands of people who can influence them, not necessarily the general public.

"Reporting means nothing," he adds. "Reporting is one of the reasons why the salaries are so high. By reporting, everybody knows what everybody else is getting."

The coalition's compensation principles also say compensation should not encourage or reward undue risk, but should be able to attract, motivate and retain top talent in highly competitive environments and reflect market alternatives for executives.

CEOs and other top executives would still be eligible for bonuses, but they would also face reductions if performance targets are not met, and have to agree to repay the company if they commit fraud or other crimes.

CEOs would also have to hold a significant number of actual shares, as opposed to stock options; compensation levels would be based on performance over a number of years; pension structures would be no different than those for other employees; and severance packages would be reduced Jarislowsky predicts more companies will adopt the 24 principles, because some of its own members hold large blocks of shares. "If the companies don't respond, we'll probably take stronger action," says Jarislowsky, adding he and others have the clout to remove directors and change boards.

He also believes Canada's struggling economy will also sway companies. "The jobs are not for the grabbing these days," he adds. "I think there are a lot of executives who are very nervous about their status.

"Human beings have always been greedy and fearful ... Right now, they're less greedy and more fearful."

(Monte Stewart can be reached at monte@businessedge.ca)