By: Antonio Spizzirri
In 2009, the Clarkson Centre for Board Effectiveness (CCBE) began observing pay and performance for firms on the S&P/TSX Composite Index (TSX Index).1 CCBE has continuously tracked pay and performance data since 2004 for over 300 Canadian large public firms. For the purposes of this report, we observe 200 firms who were listed on the TSX Index in 2011 and for which 7 continuous years of pay and performance data are available. The impact of the financial crisis can be seen in our TSR observations for two years (2008-2009) of our sample. The average annual TSR in 2008 is the lowest in our observation period at -31.64% which was followed by the highest average annual TSR of 36.51% in 2009, suggesting an immediate overall rebound. However, despite the negative impact of the financial crisis, overall CEO pay and performance over the 6-year 2005-2010 period were aligned.
Publication can be found here.
In 2008, CCBE undertook an initial ‘environmental scan’ of SME governance in Canada. Using the criteria for our Board Shareholder Confidence Index (BSCI), we rated 100 SMEs and determined that their adoption of governance best practices was at the same level as the TSX Index in 2002. In other words, SMEs were 5 years behind, so to speak.
The data are summarized in the chart below:
Since then, we have developed a customized SME scoring scheme with criteria designed to touch on challenges facing SME boards and executives. In some cases, there is still overlap with our BSCI criteria for the large-cap TSX Index. The chart below shows our SME sample set in blue (n=113) scored based on our SME criteria, and the TSX Index in red (n=199) scored based on our BSCI. This comparison shows that adoption of best practices is now very close between the two groups.
There remains a gap in three key areas: director share ownership, board evaluations and CEO pay related to performance. This indicates that while improvements have been made by SME boards in structural areas (director independence, committee independence, CEO/Chair split, etc.), there is still much room for improvement in board decision-making and oversight. Large-cap corporations have experienced a significant increase in investor scrutiny, particularly related to executive and director compensation. It isn’t much of a stretch to assume SMEs will begin to feel pressure to catch up.