Solution to Compensation Board in Economic Downturn

MEMORANDUM

TO:

Corporate Board of Directors Compensation Committee

RE:

Possible Strategies of Compensation Plan at the Low Stock Price Environment

I.  

Background

With the sagging U.S stock market, falling oil prices in Canada, and China’s slowing down

economy, it’s not rare to hear “bear market” alert all over the world. As a country highly reliant

on resources and energy, many Canadian companies’ stock prices have lost more than half in value

due to Canadian dollar and oil prices having hit its 13-year low1. For example, Capstone Mining

Corp is declining 62.32% between March 4, 2015 and March 2, 2016. That is the cruel reality for

many resource companies in Canada (HudBay Minerals Inc. also declined 56.14% during the same

period).2 Despite the global stock market’s downturn, the average pay of Canada’s top 100 CEOs

is extraordinarily resilient. According to the annual report by Canadian Centre for Policy

Alternatives regarding CEO Pay in Canada, the top 100 highest-paid CEOs in Canada pocketed

$9.2 million on average in 2015, which is more than 190 times the average Canadian income.3

In light of the current pullback in stock price and the uncertain outlook for 2016, the amount

of compensation being paid to many corporate executives is an issue that has attracted much public

attention and outrage, particularly for shareholders whose investment value have decreased

significantly. Shareholders are not satisfied with the loose linkage between executive pay and

performance of the company, which is indicated by the stock price of the company from the

shareholders’ perspective. Moreover, shareholders are concerned about the high volume of options

1

http://www.cbc.ca/news/business/markets-dollar-oil-1.3405067

www.google.ca/finance accessed on March 2, 2016

3

Hugh Mackenzie, “Staying Power: CEO Pay in Canada” (January 2016), Canadian Centre for

Policy Alternatives, online:

2

that will be granted due to the low stock price....