Four top executives of the Canada Pension Plan Investment Board – including chief executive officer David Denison – saw their total compensation drop 31 per cent last year after the fund's board of directors decided not to award the “personal performance” portion of their annual bonuses.
The compensation results, reported Thursday as the fund's annual report was tabled in Parliament, have already generated controversy after opposition politicians last month called on Finance Minister Jim Flaherty to deny bonuses to CPPIB executives because of the fund's large losses last year. Last week, the CPPIB reported its investments lost 18.6 per cent of their value last year, or a total of $23.8-billion.
The CPPIB manages $105-billion of assets on behalf of the Canada Pension Plan and is responsible for investing excess funds not needed for short-term payouts. Its investments are expected to begin supporting pension payouts beginning in 2019.
According to the fund's annual report, Mr. Denison earned a total of $2.9-million in the fiscal year ended March 31 – down 30 per cent from $4.2-million the prior year – including a base salary of $490,000, an annual bonus of $735,000 and long-term incentive awards of $1.6-million. He also earned $59,023 in pension contributions and $9,571 in other benefits, which the CPPIB said include life insurance, disability benefits, and health and dental plan costs.
The fund's top four executives – including senior vice-presidents Mark Wiseman, Donald Raymond and Graeme Eadie – earned a total of $8.5-million in 2009, down 31 per cent from $12.4-million in 2008.
CPPIB chairman Bob Astley said Thursday the executives' annual bonuses and long-term incentives are not calculated based on annual returns, but on a rolling four-year average of the fund's performance.
As a result, he said the compensation reported for fiscal 2009 was based in part on highly positive returns in 2006 and 2007, when the fund earned 15.5 per cent and 12.9 per cent, respectively, as well as on the losses of 0.3 per cent in 2008 and 18.6 per cent in 2009.
“We believe the compensation paid to our team this year properly reflected the value created over the past four years, as well as the obvious challenges faced by the CPP Fund – and all investors – in fiscal 2009,” Mr. Astley said.
He said the board believes the four-year compensation model is the best way to reward its executives because the CPPIB wants to encourage a long-term investment focus. He added their compensation for the next three years will also be reduced because of the poor results, so the losses in fiscal 2009 will continue to affect pay levels into the future.
“While we would all like to have seen better performance in fiscal 2009, our investment strategy is specifically designed to deliver investment results over longer time periods and not necessarily a given result in any one year,” he said.
Mr. Astley said the compensation model also allows the CPPIB to “compete for talent” within the private-sector world of capital markets investing.
When CPPIB officials appeared before the House of Commons finance committee in late April, MPs from three opposition parties suggested the fund's executives turn down millions in incentive pay this year, complaining they earn more than the Prime Minister or the Chief Justice of the Supreme Court. NDP Leader Jack Layton called the payments “indecent and unacceptable.”
However, Mr. Flaherty said at the time he didn't think it was his job to tell the CPPIB how to pay its executives, arguing most Canadians “would find it unconscionable to have politicians interfering with the operation of the Canada Pension Plan.”
Mr. Astley said Thursday the board continues to have full confidence in Mr. Denison and the rest of the executive team, and the decision not to pay the personal performance portion of bonuses was not a reflection of the board's dissatisfaction with their work.
The annual report says the executives met their targets to receive the portion of their annual bonuses based on non-financial personal performance goals, but the board decided not to award the pay because of “the current economic environment.”
The fund did not disclose how much annual bonuses would have been if the personal performance portion had been included, but the annual report shows Mr. Denison's annual bonus fell to $735,000 in fiscal 2009 from $1.24-million the former year.
Also Thursday, the fund said it paid a total of $798,455 last year to former chief financial officer Myra Libenson, who ceased employment in November. The CPPIB said $598,129 of her compensation last year was a payment “to discharge obligations outlined in her employment agreement” including settling unpaid vacation compensation. Ms. Libenson was replaced as CFO by Nicholas Zelenczuk.
The CPPIB also Thursday highlighted several new investment goals for the current year, including a plan to invest further in real estate assets in developing countries. Mr. Eadie, who heads real estate investing for the fund, said the CPPIB should soon announce its first deal in Brazil, and plans to expand further in the country as opportunities arise. The CPPIB also says it is interested in growth in China, Mexico and Turkey.