Canadian companies are bowing to pressure from shareholders and regulators to peg the compensation of chief executives to financial performance, according to a survey by consulting firm Watson Wyatt.
The annual study examined the compensation practices of companies listed in the S&P/TSX Composite Index.
It found companies whose CEOs earned above-median cash salary increases delivered a return to shareholders of 19.4 per cent, compared with an 8.6-per-cent return for those who earned below-median salary increases.
High-performing CEOs also received significantly higher compensation rewards than in previous years, the survey said.
Among the 219 companies studied, salary increases for high performers were 31 per cent higher in 2004 than the previous year.
"Canadian organizations are answering the call of increasingly vocal stakeholder groups to improve management and disclosure of executive compensation practices," said Ray Murrill, Watson Wyatt's executive compensation practice leader.
"Our study clearly demonstrates that the pay-for-performance philosophy is taking hold and companies are making strides in aligning CEO compensation to corporate performance."
The survey also found that companies whose executives have real share ownership tend to outperform those that do not.
The annual study, titled CEO Compensation Practices in the S&P/TSX Composite Index, provides key findings from Watson Wyatt's ongoing research into executive compensation in Canada.
The analysis is based on publicly available information contained in the most recent management proxy circulars of 219 companies listed in the S&P/TSX Composite Index as of June 30.
