CEO COMPENSATION vs. ORGANIZATIONAL PERFORMANCE

A Deep Dive

By: Daniel Da Emi

Abstract

In today’s unstable economic atmosphere, where the gig economy has become the prevalent way of life, the fact that the compensation of CEOs of major Canadian companies remains noticeably high and immune to economic turmoil raises ire and condemnation. It has become the norm for CEOs to make many times more than their average employees, as much as 243 times as recently as 2021. This research will evaluate the Fairness of CEO compensation by seeking answers to the following questions: a) what set of metrics does the CEO compensation follow? b) What correlation, if any, is there between compensation metrics and performance KPI? Moreover, c) what role does culture, both regional and company, play in CEO compensation?

Eight elements play significant roles in the Fairness of CEO compensation: the company’s financial and non-financial performance, risk appetite, peer comparison, CEO’s CCIP (characteristics, competence, and individual performance), strategy alignment, culture, and integration.

While CEOs’ financial performance is directly related to organizations’ financial success, non-financial performance, e.g., customer relationships, employee satisfaction, and environmentally friendly practices, also play a pivotal role in the financial stability of organizations. The alignment of CEOs’ risk appetite relative to organizations’ is a significant factor in creating organizations’ value proposition in a competitive market. Peer elements compare CEOs’ compensation to the industry standard to determine the Fairness of remuneration. Also, a main denominator is CEOs’ characteristics and competence along with past performance in relation to organizational vision and mission. Also notable in remuneration metrics is the alignment of CEOs’ strategy and approach to that of the organization’s vision. Culture, a complex and multifaceted factor, is a broad spectrum that starts with the country’s prevalent culture and narrows down to the company culture, all of which can play a significant role in determining CEO compensation.

However, these factors have little to no effect on workers’ compensation structures as incumbents and middle managers undergo a more universal and uniform compensation assessment pattern, which in turn creates an even more significant divide between CEOs and their respective workforces.

This research examines the performance of five of the highest-paid CEOs in Canada against the eight criteria of fair CEO compensation to determine if the compensation provided to each CEO is equitable when compared to the mentioned criteria. The result of the research shows that many of the elements of fair CEO remuneration, even the financial performance, are absent from the scorecard of the selected CEOs, which subsequently deems the examined compensation as unjustified and unfair. The absence of these fair compensation criteria underscores the urgent need for further research in this area.

Keywords: CEO, compensation, Fairness, performance KPIs, culture

Chapter I: Introduction and the Problem

Background

The issue of CEO compensation, a matter of great concern for human resources departments in major Companies, has sparked heated debates in the media and political circles. This is particularly true for the C-Suite, with the top 100 highest-paid CEOs in Canada earning a staggering 243 times more than the average Canadian worker last year (Thompson, 2023, p. 1).

The debate on CEO compensation and its Fairness has not been confined to local boundaries but has garnered attention and sparked discussions in the media and governmental assemblies worldwide. Given its critical role in shaping global remuneration patterns and policies, the highly publicized nature of the issue, and the significant influence of money on an organization’s social standing, the topic of executive compensation remains a truly contested one. In his most recent research, Breakfast for Champions, Macdonald (2023, p.6) reports:

               The year 2022 has been a profitable year for the 100 best-paid CEOs in Canada. While inflation has hammered consumers, average top CEO pay hit $14.3 million in 2021, smashing the previous record of $11.8 million in 2018 and setting a new all-time high in our data series. This represents a 31.2 percent increase over the previous year’s average Pay of $10.9 million. It is worth noting that by the end of 2021, year-over-year inflation stood at 4.8 percent.2 In other words, in 2021, the average worker took an effective 2 percent pay cut once inflation was included. In contrast, the average Pay for the richest 100 CEOs got a 26 percent bump, even after inflation was included. The net result of these unequal year-over-year raises is that the CEO-to-average worker pay ratio also smashed through to a new record of 243 times in 2021. In other words, the richest CEOs made 243 times more than the average worker—an all-time high. The previous high was 227 times higher in 2018. The ongoing trend for the best-paid CEOs in Canada is that the gap between their Pay and the rest of Canadian workers keeps growing, with no end in sight.

General Problem Statement

CEO compensation is increasing substantially year after year in defiance of factors such as inflation or performance inadequacy, financial or otherwise. This research aims to address the general problem of the correlation between top CEO compensation and overall company performance and the rationale behind it. If fluctuations in the economic climate or overall annual performance have no impact on CEO compensation, then what does?

Specific Problem Statement

Executive compensation is, for the most part, performance-based, which indicates that the amount, typically one or more measures of accounting earnings and stock performance as specified in the compensation contract, will rise and fall as corporate performance changes (Giroux, 2014, p.3). This system ensures that the performance of Canadian CEOs, who are compensated 243 times more than their employees, is that much better in comparison. “It is hard to conceptualize what 243 times means, so it might help to convert it into time. By 9:43 a.m. on January 3, 2023—the first official working day of the year—the 100 best-paid CEOs in Canada would have already made $58,800, or what the average worker could hope to make over the entirety of the year” (Macdonald, 2023, p.7).

The specific problem to be addressed is high CEO remuneration in Canadian organizations in correlation with line employees and to decide if it is the result of a systematic construct or an arbitrary figure.

Purpose

The purpose of this study is to investigate the factors contributing to noticeably high CEO compensation in Canadian companies and the widening gap between CEO and employee remuneration. Specifically, this study aims to explore the criteria to be considered in constructing a CEO compensation package. Additionally, it will examine the compensation of five of the highest-paid CEOs in Canada and verify how they measure against the said criteria. The examination helps decide if high CEO compensation is justified.

Research Design

The performance consists of both financial and non-financial components, and they should be taken into account simultaneously as corporate financial performance (CFP) and corporate social performance (CSP) are correlated in the long run (Ferracone, 2010; Callan & Thomas, 2010; Heller, 1993).

Operational KPI (key performance indicator) measures three separate categories of financial, non-financial, and individual performance in CEOs’ overall performance profile.

Financial performance entails comparing the CEO’s total compensation to the value the company generates for its shareholders. The goal of the “compensation for performance” concept is to measure the amount of value the CEO has created for the shareholders and compensate them for each additional value they have created.

Non-financial performance evaluates CEOs for adding value for parties other than shareholders. The company can only generate long-term shareholder value with clients, associates, staff, or external factors. Sustainable long-term growth is correlated with contented clients and staff.

Finally, individual performance is a crucial aspect that cannot be overlooked. It refers to the individual’s intrinsic motivation. CEOs’ motivation, behavior, and performance determine whether an organization succeeds and produces successful results (Gomez-Mejia et al., 2010). This recognition of individual performance makes every member of the organization feel valued and integral to its success.

“Culture is the collective programming of the mind that distinguishes the members of one group or category of people from others.” (Hofstede, 2009, p. 2)

In the context of CEO compensation metrics, culture encompasses a broad spectrum of interrelated domains that define the value held on the matter. The spectrum starts from the organization’s country of operation and zeros down to the organization’s governing culture. It includes national culture, regional culture, industry culture, corporate culture, professional culture, and functional (team) culture (Hilb, 2009). Compensation according to culture means that CEO remuneration should be pertinent to the governing spectrum of culture from national to organizational.

This research aims to find the correlation between the above three concepts of compensation metrics, KPIs, and culture and how the three concepts influence one another. In order for compensation metrics to be objective, both performance KPIs and the culture in which the organization operates must be thoroughly considered.

Figure 1

Venn Diagram of CEO compensation developed by the researcher

Research Questions

The following questions will be addressed in this research:

• What performance KPIs factor in CEO compensation?
• How does culture, from national to functional, affect CEO compensation?
• How does culture influence performance?
• How are compensation metrics, performance KPIs, and culture factored into equilibrium in CEO remuneration?
• How long is the current trend in CEO compensation sustainable?

This research aims to review relevant literature on culture, performance KPIs, and compensation metrics, as well as the most recent statistics on current CEO compensation packages and subsequent organization performance.

Significance of Study

This study is significant because it takes a much-needed dive into the status of CEO compensation in Canada in real-time and compares CEO performance as a whole to the compensation framework. This analysis will reveal whether the compensation follows the framework researched in this study. The final result will serve as conclusive evidence in the controversy around high CEO compensation and whether or not it is justified.

The results of this study can also contribute to the development of robust policies and best practices regarding CEO compensation in the future.

Methodology

The research applies meta-analysis, a group of related, quantitative methods for examining a corpus of literature called a meta-analysis (Guzzo et al., 1987, p.410). By extracting insights from secondary data through meta-analysis, this research endeavors to develop a comprehensive understanding of the underlying causes and potential interventions to address high CEO compensation through new and frequently revised compensation policies. The findings may inform evidence-based practices to revise or establish anew to decrease the gap between CEO compensation and that of other incumbents.

Definition of Key Terms

Assumptions

The chief executive officer of any organization, along with a team of executives, is responsible for the financial and operational success of the company; as such, compensation for critical leaders is usually higher than the average incumbent. However, as the compensation for average workers increases slightly and according to inflation, the increase in the compensation of CEOs has been prodigious in numerous cases. This sizable gap between the remuneration of CEOs and employees creates numerous plausible questions, such as:

• What are the compensation criteria for employees and CEOs?
• How are the individuals and the value of their competencies measured?
• What are the key performance indicators (KPIs) by which CEOs’ performance is evaluated?
• What are the expectations from the CEOs who take home these increasingly higher remunerations?

There is hardly a shortage of examples of companies where CEOs failed despite the considerably high compensation they received. WorldCom and Enron are two such examples. “Enron, the failed U.S. energy firm, paid $681 million to 140 top managers in the year leading up to its bankruptcy on December 2, 2001” (Teather, 2002, p.1). In today’s financial instability, the gig economy has become the prevalent way of life. From rideshare drivers to freelance translators, almost 900,000 Canadians did gig work as a main job in 2022 (Previl, 2024). In this atmosphere, CEOs who miss the performance benchmarks, both financial and otherwise, amplify the necessity of a compensation metrics system, an instrument organizations need to use to assess the efficacy of compensation practices and policies. This practice helps clarify how Pay is distributed across teams as well as how to improve the system to attract and retain employees (McCoy, ND).

Limitations

The limitations of this research are the following issues:

1. The sample size. Due to the limitations in the length of this research, only five of the highest-paid Canadian CEOs in 2022 were selected for dissection and analysis against the CEO compensation framework. Ideally, more samples are needed in order to arrive at an incontestable conclusion.
2. The sample selection. This research only focuses on examining and analyzing selected CEO compensation. The results would be more robust if the CEO compensation of each organization were sampled along with the line employees to arrive at the real gap between the two.
3. Historical data regarding matters such as CEO compensation, Company financial performance, and other items were extracted through publicly available reports. It would be ideal to receive some or all that information directly from each company. However, due to confidentiality issues, companies were not willing to share or discuss the sought-after data.

Delimitations

In order to render this study feasible and manageable, the delimitations in this study are as follows:

1. Geographical location. This study is limited to the compensation of CEOs in Canada.
2. Sample size. Due to the research’s limited length, the sample population used for analysis and examination is limited to five of the highest-paid Canadian CEOs.
3. This research focuses on the compensation of Canadian CEOs in 2022, the most recent year for which the widest gap was reported.

Summary and Organization of the Remainder of the Study

With vast and voluminous literature available on equitable compensation, this research not only reviews the available literature and the criteria to arrive at compensation objectively but also examines the actual CEO compensation against the said criteria to determine if the proclaimed injustice regarding the CEO is valid or perceived. The ultimate goal is to advocate for a fair and just compensation  .

 Chapter II: Literature Review

At a time of economic turmoil around the world, the subject of high remuneration of CEOs in Canada generates many debates and discussions. This research focuses on the subject of CEO compensation, the components and the construction, and the criteria to arrive at it equitably. As such, the research uses a meta-analysis method. Meta-analysis is a set of quantitative procedures for reviewing literature. Meta-analytic procedures involve calculating effect size estimates and assessing the strength of relationships between effect sizes and variables like population characteristics or study designs (Guzzo et al., 1987). This research reviews the available literature regarding fair CEO compensation theories and the framework, e.g., firm financial performance, non-financial performance, strategy, and culture. Even though the literature studies the subject in various contexts, this paper will focus on the topic of Fairness. Finally, the CEO fairness criteria are examined against five of the highest-paid CEOs in Canada to decide if the construction of CEO compensation meets the criteria proposed in the literature. 

CEO compensation typically includes a considerably high salary and a variety of robust rewards. Dow and Raposo (2005) estimate that having the responsibility of making constant sensible and decisive tactical judgments is the reason behind considerably higher CEO salaries. 

This viewpoint is common among many pundits. The structure and policy surrounding CEO compensation are crucial for the organization’s success, corporate governance, and economic efficiency. It influences top executives’ behavior as an extrinsic motivator, propels them to meet the company’s long-term objectives and strategy, and helps identify the types of executives an organization draws in (Chaigneau, 2011).

However, the keyword in the above justification is “success,” customarily measured at least a year after hiring CEOs annually and not at the time of hiring. As a rule of thumb, merit and incentive awards are contingent upon successful performance, with the degree of success dictating the reward amount. Pay-for-performance is another term for this, and it pertains to various employee levels. However, CEOs who underperform are frequently rewarded with multimillion-dollar payouts upon departure. These instances are aptly referred to as pay-for-nonperformance or, even more aptly, pay-for-failure and have become more commonplace in CEO compensation (Martocchio, 2014, p. 282).

This research covers the current state and future sustainability of executive compensation. The first step is to comprehend executive compensation, including the elements and goals of pay agreements and the impact particular pay arrangements have on corporations’ performance and behavior.

Compensation

Remuneration at all levels symbolizes the benefits workers receive from their physical and emotional efforts. Therefore, the same internal and external concepts define a company’s overall compensation structure. Employees’ psychological mindsets triggered by their jobs are reflected in their intrinsic compensation. Extrinsic compensation, however, comprises financial and other benefits (Martocchio, 2014, p. 3).

 While monetary compensation, also known as core compensation, refers to hourly or annual salary, nonmonetary compensation relates to employee benefits such as medical insurance, paid time off, retirement plans, and so on, all discretionary. CEO total Pay, including direct and indirect payments, is called compensation. Base pay and variable incentives make up the direct payment. The company’s results do not affect the basic salary (fixed compensation) or the indirect payments (social, legal, and fringe benefits); however, the variable rewards (bonuses, premiums, and incentive pay) do. 

Components of CEO Compensation

Salary, employee benefits, short-term incentives, long-term incentives, and perquisites comprise the main structure of CEO compensation. While the first two elements, salary and employee benefits, are expected at all levels of the organization regardless of the role, the other three, short-term, long-term, and perquisites, add value to CEO compensation, each at different times (Ellig, 2007, p. 5).

The most relatable and easily grasped component of the CEO’s compensation package is their salary, typically expressed as an annual sum. However, for most CEOs, salary makes up a tiny portion of their total compensation (Kolb, 2012, p. 12).

Salary or base pay is the part of remuneration that CEOs expect to earn regardless of consequences. The same is true about primary pension benefits and other privileges, which means that the other compensation elements are, for the most part, “performance-based,” which implies that the amounts will fluctuate with the performance outcome. The outcome is influenced by predetermined criteria, e.g., accounting earnings and or stock performance as defined in the CEO’s contract. Specific terms can be complicated, and they frequently call for statistics and vesting periods that span years (Giroux, 2014, p. 3).

Below is the list of components that are specifically designed for constructing CEO packages.

Short-term Incentives

CEO motivation can be significantly enhanced by incentives that span any duration less than or equal to a year of employment. This component is particularly effective when long-term incentives are over five years, and the base salary has lost its appeal. Working with short-term incentives allows one to get creative with their structure, which is why executives are attracted to it. Short-term incentives can be designed based on any of the following performances: individuals, business units, or organizations, and federal laws usually do not apply to them (Graham et al., 2008, p. 227).

Short-term incentives are crafted to celebrate and reward “small wins,” usually up to a year, by focusing on minimizing risks and maximizing potential. The amount of compensation typically varies annually based on performance, which benefits the organization as it lowers costs when performance is poor and gives the executive a chance to receive sizeable rewards for meeting or surpassing goals (Ellig, 2007, p. 7). However, short-termism, a focus on short-term results, is also the subject of a recurrent grievance directed towards corporations as they prioritize short-term results over long-term value creation. CEOs whose yearly bonuses make up a larger portion of their compensation prioritize short-term outcomes and are prepared to forego longer-term value creation.

Bonuses and Long-term Incentive Plans

 Bonuses come in various forms, have varying time frames, and serve as an addition to salaries. Bonus payments may be made in fixed amounts or accordance with performance standards. The bonus may be paid in cash or the company’s common stock, with the option to receive restricted or unrestricted shares if the bonus is paid in stock. An annual bonus paid in cash is a typical kind of bonus. There may occasionally be a minimum amount for the bonus plan, with various additional performance-based bonuses available as a backup option (Kolb, 2012, p. 14).

Restricted Stock Awards

Restricted stock, or shares of the company’s stock that vest at a later date solely based on time or predetermined performance criteria, is an ownership substitute for options. The employee is entitled to full ownership of the shares after the stock vests. Restricted stock has fluctuating value, and holders suffer losses in the event of a decline in the stock price—that is, they experience the same emotions as other investors (Giroux, 2014, p. 33).

Companies regularly give their top executives, including the CEO, restricted stock. A restricted stock grant is an executive commitment to shares subject to the executive meeting specific requirements. Typically, if the executive remains with the company for a predetermined amount of time following the date the shares are granted, she will be granted full title to the shares (Kolb, 2012).

Long-Term Incentives

Except for their duration, which spans three to ten years, long-term incentives serve the same purpose as short-term incentives. Typically, long-term incentives define organizational performance; they do not include a component for individual achievement. Long-term incentives are, by definition, much higher in value than annual ones. As the assessment period gets longer, so does the risk of attaining the incentive reward based on meeting the defined group of objectives. However, if the payout becomes substantial in the long run, it gives the CEO strong leverage and holding power. Short-term and long-term incentives follow the progressivity principle; it is typically determined by what is delivered to equity owners or the financial success of the designated unit, e.g., the organization, sector, division, or both (Ellig, 2007, p. 8).

Executive Stock Options (ESO) awards

The term “Call Option” is the option that allows its holder the right to purchase a share at a specific price for a predetermined amount of time. An executive stock option (ESO) is a call option on the company’s shares for which the executive works. As a result, an ESO grants the executive the right, until a specific date (the option’s expiration or termination date), to buy a share of the company at a predetermined price (the option’s strike price or exercise price) (Kolb, 2012, p. 17)

ESO is potentially sizable, hence the highly controversial portion of an already extensive CEO compensation package. Nevertheless, is there a justification for this enormous gap between CEO and employee compensation? To reach a fair and optimal CEO Compensation, Hilb (2009, 2011) and Eklund (2015) propose the “fair CEO compensation” framework, the goal of which is “to reach a fair and optimal compensation contract, which is developed based upon the equity principle and stakeholder and behavioral agency theories.

The holistic fair CEO compensation framework in Figure 2.1 examines compensation from several angles, including those of shareholders, CEOs, boards of directors, top management teams (TMT), workers, creditors, suppliers, the government, society, and the environment. It also validates intrinsic and extrinsic motivation and Fairness (inequity aversion) (Eklund, 2019).

Reda et al. (2007, p.113) list the minimum that CD&A should address as:

1. The objectives of the company’s compensation program
2. What compensation program is designed to reward?
3. Each element of compensation.
4. Why did the company choose to pay for each element?
5. How the Company determines the amount (and, where applicable, the formula) for each compensation element.
6. How each compensation element and the company’s decisions regarding that element fit into the company’s overall compensation objectives and affect decisions regarding other elements.

 Equitable CEO Compensation Framework

Figure 2

The “Fair CEO compensation” framework, derived from Hilb (2009, 2011) and Eklund (2015)

The Fair CEO Compensation framework, in essence, can be divided into two broad categories:

• Compensation is based on performance KPIs, including financial and non-financial performance, firm risk, characteristics, competence, individual performance, and strategy.
• Compensation is aligned with culture, including the governing national culture, which considers both external (peer) and internal (integration) fairness.

Next, the above eight subjects will be defined and closely examined.

Financial Performance

Performance-based compensation is the amount of which, or the entitlement, is contingent on the satisfaction of pre-established organizational or individual performance criteria relating to a performance period of at least 12 consecutive months (Reda, 2008, p. 167). According to this theory, a CEO’s compensation is partially based on how well they perform financially over a specific time frame. Performance-based Pay is given according to how well an individual, team, or company performs (Balsam, 2002).

 Performance-based compensation incentivizes managers to deliver quality work and receive commensurate compensation (Carpenter & Sanders, 2002). Its primary method, granting stock options, was initially designed to enhance managers’ due diligence regarding the company’s performance. Because managers who receive performance-based compensation will have the same performance objectives as shareholders, the performance-based incentive thus links managers’ interests to the benefits of shareholders (Eklund, 2019).

Ellig (2007) lists performance-based measurement benefits as follows:

• It allows the individual’s outcome expectations to be clearly defined.
• The strategy of the organization can be divided amongst individuals. In this manner, the total makes up the strategy.

The Business Roundtable (2007, p.1) listed seven governance principles of executive compensation as follows:

1. Executive compensation should closely align with stockholders’ long-term interests, corporate goals, and strategies. It should include significant performance-based criteria related to long-term stockholder value and reflect upside potential and downside risk.
2. Compensation of the CEO and other top executives should be determined entirely by independent directors, either as a compensation committee or together with the other independent directors based on the committee’s recommendations.
3. The compensation committee should understand all aspects of executive compensation and review the maximum payout and all benefits under executive compensation arrangements. The committee should also understand the maximum payout under multiple scenarios, including retirement, termination with or without cause, and severance in connection with business combinations or the sale of the business.
4. The compensation committee should require executives to build and maintain significant continuing equity investment in the corporation.
5. The compensation committee should have independent, experienced expertise available to provide advice on executive compensation arrangements and plans. The compensation committee should oversee consultants to ensure they do not have conflicts limiting their ability to provide independent advice.
6. The compensation committee should oversee its corporation’s executive compensation programs to ensure they comply with applicable laws and regulations and are aligned with best practices. Self-Regulatory Organization Corporate Governance Rules 109
7. Corporations should provide complete, accurate, understandable, and timely disclosure to stockholders concerning all elements of executive compensation and the factors underlying executive compensation policies and decisions.

Roe and Papadopoulos (2019) noted that performance-based compensation has gained prominence by introducing say-on-pay and the growing dialogue about executive compensation between corporations and shareholders. Over the past ten years, equity-based compensation has become increasingly performance-based. Between 2009 and 2018, performance-based equity nearly doubled as a share of total equity compensation. Pay for performance based on cash has mostly stayed the same. Approximately 58% of total Pay now consists of cash and equity performance-based compensation, up from 34% in 2019.

 Due to the widespread use of performance-based compensation, companies have changed their chosen performance criteria. The most common performance measure categories used in long-term incentive plans are TSR, earnings, and returns, though various performance metrics are used at various weights. Companies typically use earnings, revenue, and “other” company-specific criteria for short-term incentives (Roe & Papadopoulos, 2019).

Table 1

Correlation between CEO pay elements and performance metrics.

Note. From CEO Pay Mix and Company Performance, Source: BDO, October 20, 2020

(https://www.bdo.com/insights/tax/ceo-pay-levels-and-pay-structure-predictors-of-company-performance)

The review’s findings hold potential for creating CEO compensation plans more closely correlated with business success. In certain industry groups, more significant incentive compensation as a percentage of total Pay was linked to enhanced company performance on multiple metrics. Changes in the CEO’s compensation were linked to variations in TSR performance.

Over time, paying more attention to incentive compensation funding metrics and pay mix is necessary to develop a robust pay-for-performance program. BDO (2020) posits that building a solid alignment lies in choosing the appropriate metric or metrics for performance evaluation, accounting for the time lag between a company’s performance over a multi-year period and compensation in a given year, estimating the likelihood of achieving target awards on STI and LTI measures; increasing the portion of Pay related to incentive compensation within the parameters of industry standards; and benchmarking CEO pay levels and company performance over time.

While financial metrics are highly significant, they are not the sole essential measures. Financial metrics measure numerous strategic and operational activities. However, additional quantitative and qualitative measures, such as those connected explicitly to the company’s internal operations, customers, and workforce, can offer a more comprehensive view of performance outcomes (Mercer, 2009, p. 94).

Non-Financial Performance

A CEO’s compensation for non-financial performance is meant to compensate them for adding value for parties other than shareholders. According to this model, the CEO receives compensation for enhancing the non-financial as well as the financial performance of the company. Environmental, social, and governance (ESG) factors should also be considered if the board is confident in the company’s long-term success. A company indifferent to customers, reputation, employees, or environment cannot create long-term shareholder value. Long-term sustainable growth is associated with happy workers and clients, a well-regarded company reputation, sound governance practices, and environmentally conscious policies (Ferracone, 2010). As a result, pay for both financial and non-financial performance ought to be considered simultaneously (Eklund, 2019).

For the company and the executives, non-financial results are just as important as financial ones, and the executives should receive recognition for their successful creation of stakeholder value (Hilb, 2012). The ESG performance (ESG rating/score) assesses the company’s sustainability level. A higher score indicates a more socially conscious company. “S” stands for Social, which includes matters pertinent to external stakeholders such as the workforce, human rights, the community, and product responsibility. “E” stands for environment and typically includes using natural environmental resources, biosphere health, emissions, and innovation. The letter “G” stands for “Governance,” which generally refers to the organizational, managerial, corporate governance, and shareholder levels of development, awareness, and control (Benn, 2012)

Of late, Environmental, Social, and Governance (ESG) factors have become more and more prevalent in the performance as well as the positive image of companies, and not only are they not a hindrance to financial growth, but they create sustainability in terms of increasing value and positive image, hence generating more revenue. In other words, sustainable growth translates into financial value creation for the shareholders through environmental initiatives and environmental, social, and governance (ESG) factors. Corporate Social Performance (CSP) and Corporate Financial Performance (CFP) interrelate positively, and the dynamics between the two (CSP & CFP) have a direct effect on CEO compensation (Lankoski, 2007; Dowell et al., 2000; Graves & Waddock, 2000; McWilliams & Siegel, 2000; Callan & Thomas, 2012).

Gomez-Mejia et al. (2010) reiterated that including CSP as a criterion in executive compensation encourages executives to focus on CSR and ESG issues, ultimately raising the company’s long-term financial value.

Considering that CSP and CFP affect each other over time (Ferracone, 2010; Callan & Thomas, 2014; Heller, 1993), they create a ripple effect in executive compensation when CSP is measured in compensation as a benchmark, which, in turn, encourages CEOs to pay more attention to CSR and ESG factors and subsequently raises the company’s long-run financial value.

Stakeholder Theory.

The Stakeholder theory directly influences a firm’s non-financial performance. Any group who can affect or is affected by the achievement of the organization’s objectives” is considered a stakeholder (Freeman, 1984, p. 46).

 According to the stakeholder theory, a company’s purpose is to maximize its value by meeting the needs of its stakeholders. To build long-term value or succeed financially, a company needs to consider its shareholders or pay attention to the expectations of its workers, clients, suppliers, creditors, local communities, and the environment.

This approach does not imply that the stakeholders are less significant than the shareholders; on the contrary, they may be the most influential group since they are members of the stakeholder group. (Gomez-Mejia et al. 2010).

In this regard, Ferracone (2010) states that building and maintaining customer value and excellent employment through reputation, loyalty, customer and employee satisfaction, and workforce retention is essential for organizations and executives striving for long-term (5+ years) enhancement of shareholder value. In order to achieve sustained success, organizations must prioritize the stakeholder approach. Sustainable development, corporate social performance (CSP), and corporate social responsibility (CSR) are strongly associated with the stakeholder approach.

Fong (2010) posits that the stakeholder theory focuses on equitable outcomes for all parties involved, including customers, suppliers, creditors, employees, the community, and shareholders. It also emphasizes sustainable growth. Meeting the needs of these stakeholders is the CEO’s responsibility.

Figure 3 

The stakeholder model.

Source: Donaldson, T., & Preston, L. E. (1995). The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications. Academy of Management Review, 20(1), p. 75, Abdullah, H., & Valentine, B. (2009). Fundamental and Ethics Theories of Corporate Governance. Middle Eastern Finance and Economics, 4, p. 92

The European Commission (2011) stated that companies must incorporate social and environmental concerns into their business operations and initiate voluntary stakeholder engagement because of the impact on society and the environment.

Good corporate governance, social responsibility, and sustainability are the cornerstones of any organization’s long-term operations, value creation, and successful corporate decision-making. The corporate strategy and operations should fully incorporate this sustainability, and all staff members from the top down should be aware of it and actively involved in its implementation (Benn, 2012).

At its base, CSP assesses how effectively the business builds relationships and values for the various stakeholders (Gomez Mejia et al., 2010).

Heller (1993) stated that organizations should consider non-financial performance metrics, such as corporate rating, quality, innovation, productivity, and customer and employee satisfaction when designing executive compensation packages.

Table 2.1 Percentage of the firms having policy executive compensation ESG performance.

Table 2

Percentage of the firms having policy executive compensation ESG performance.

Note. From Fairness of the CEO Compensation (p. 70), by M. A. Eklund, 2019, Springer Press. Source: Eikon Database.

Table 3

Comparison between the firm’s ESG score change and CEO pay change.

Note. From Fairness of the CEO Compensation (p. 47), by M. A. Eklund, 2019, Springer Press. Source: Eikon Database.

Tables 1 and 2 analyze and display the situation in the most prominent top 20 listed companies in the United States, the United Kingdom, Canada, France, Germany, and Switzerland. As shown in Table 2, between 2015 and 2017, approximately 90-100% of the largest 20 listed companies in the United States, the United Kingdom, Canada, and France had a pay-for-ESG performance policy. However, only 35-43% of Germany and Switzerland’s top 20 publicly traded companies had a “pay-for-ESG performance” policy. In Table 1, the countries’ median percentage changes in total CEO pay and ESG score between 2015 and 2017 are examined for the same sample (the most significant listed 20 companies based on 2017 market cap value) (Eklund, 2019, p. 71).

Risk

Compensation based on risk suggests the risk should determine a CEO’s variable Pay. The optimal CEO contract maximizes net economic value after costs while minimizing agency costs. As a result, the risk should be factored into the costs of capital and contracting. Risk, in this context, refers to overall risk because it includes business risk, including the risk of capital providers and shareholders, as well as risk for the rest of the stakeholders, relevant market risk, the CEO’s risk appetite (premium assumptions of the agency theory), and the organization’s risk profile (Eklund, 2019, p. 13).

 The board is assigned the duties of determining an integrated, forward-looking risk management concept, controlling risk within the company, and coordinating compensation strategies with the company’s risk and risk policies (Hilb, 2012, p. 139).

Short-term and long-term incentives have a direct correlation with CEOs’ risk appetite. “Short-term incentives are designed to reward the extent to which a short-term (typically, yearly) target is met. Typically, the payment amount varies year to year concerning performance, lowering costs to the organization when performance is poor while allowing the executive to earn significant rewards for meeting or exceeding objectives.

Ellig (2007) depicted the relationship between CEO salary and risk level below, with the darker area representing the opportunity for short-term incentives. “As risk increases, salary (the lighter shaded area) decreases, but this is more than offset by incentive opportunities.

Fig 2.4 – Risk/reward relationship to market data

Figure 4

Risk/reward relationship to market data

Note. From The Complete Guide to Executive Compensation (p. 7), by B. Ellig, 2007, McGraw-Hill.

Agency Theory.

Agency theory attempts to resolve two issues with the agency problem. The first is the monitoring issue, which occurs when the principal cannot confirm that the agent has acted appropriately. The second is the issue of risk sharing, which occurs when the principal and the agent have divergent perspectives on risk, especially when it comes to outcome-based controls (Eisenhardt, 1989, p. 58).

Ekanayake (2006, p. 49) states that agency theory assumes that agents are self-interested, risk-averse, rational actors who will always try to exert less effort (moral hazards) and project higher capabilities and skills than they possess (adverse selections).

 In light of this, appropriate control mechanisms need to be established and implemented to stop egotistical, self-serving managers from failing to fulfill their obligations and infringing on the rights of shareholders (Carr & Valinezhad, 1991, p. 87).

 Regarding management control, one of the most significant takeaways from agency theory, especially the principal-agent model, is that performance evaluation alone is insufficient to induce desired behaviors in an agent (Ekanayake, 2006, p. 52).

As seen above, agency theory directly influences a CEO’s inclination toward risk-taking. Agency theory and empirical economics, finance, and accounting analyses are typically based on the relationship between stockholders as principals (with the board of directors occasionally serving as a surrogate for the shareholders) and executives, often focusing on the chief executive officer or CEO as agents. The emphasis on efficient contracting necessitates an examination of transaction costs, various agency costs, and the requirement for monitoring. Corporations seek to maximize profit while assuming risk neutrality because investors can diversify risk. Executives are assumed to be rational and risk-averse, with limited ability to diversify risk and rent-seeking, i.e., seeking to maximize their well-being (Giroux, 2014, p. 87).

 There is some direct value to the look-around approach for developing long-term incentive plans for executives. Moreover, the economic theory is relatively straightforward. The organization is in charge of a shareholder’s assets. As a result, it must provide a return consistent with shareholders’ other opportunities for deploying their wealth over a long period, commensurate with the risk consistent with the organization’s mission and business strategy. Indeed, executives should be required to provide a return equal to or greater than their risk category over a 5- to 10-year period. If such results are not achieved, the CEO will be penalized, and long-term reward incentives need to be adequately structured (Graham et al., 2008, p. 252).

The Portfolio Approach below shows the level of risk related to CEO compensation.

Figure 5

Portfolio Approach.

Note. From Effective Executive Compensation (p. 253), by M. D. Graham, T.A. Roth, D. Dugam, 2008, AMACON.

Peers

Compensation, not more than peers, means pay no more than the median compensation of peer group executives. It stresses that the CEO compensation should be fair compared to similar positions in the external market. “The middle value in a series, or the median, prevents distortion from executive compensation that falls outside of the typical range. As a result, the mean compensation of executives in the peer group is less favorable than the median compensation of those who are more susceptible to outliers (extreme examples within the peer group) (Lipman & Hall, 2008, p. 34).

Festinger (1954) developed an organizational justice, equity, and fairness-based social comparison theory. According to this theory, abilities, and opinions are assessed by comparing them to those of others who fall within a particular range of potential referents (Pepper et al., 2012).

Peer group comparison (benchmarking or RPE) is a significant predictor of CEO compensation at the focal firms (Aggarwal & Samwick, 1999; Yang & Yang, 2009; Frydman & Jenter, 2010; Faulkender & Yang, 2012).

Figure 6

Triangle for screening peer groups

Note: From Pay for results: Aligning executive compensation with business performance (p. 119), by L. Mercer, 2009, MMC.

Using peer performance to assess agent (CEO) performance is known as benchmarking, related peer group analysis, or relative performance evaluation (RPE) (Farmer et al., 2013). This practice plays a significant role in determining how much the CEO gets paid and how well the CEO performs. The compensation committee should consider the company’s performance compared to its peer group when determining the CEO compensation contracts, and only superior performance should be acknowledged and rewarded.

Benchmarking further emphasizes the importance of Fairness and inspiring CEOs to perform better. In addition to providing the principals with information about the agent’s actual and relative performance, unbiased peer group selection and the appropriate application of RPE have the following benefits: they relieve the agent of some of the firm’s systematic risk that is shared by other peers in the market and same sector, making the compensation process more transparent, measurable, analytical, and pay-for-performance nexus under fair and optimal contracting conditions (Faulkender & Yang, 2012; Gong & Shin, 2011; Skovoroda & Bruce, 2016; Garvey & Milbourn, 2006; Xu et al, 2016).

Figure 7

S&P 500 CEO Pay Ratio by Industry Sectors

Note. From 2022 CEO Pay Ratio Among S&P 500 Companies, by T. Janney, J. Lutz, 2022

(https://www.fwcook.com/Blog/2022-CEO-Pay-Ratio-Among-SP-500-Companies/). Copyright 2022 by FW Cook.

For three fiscal years, the industry with the highest CEO pay ratios has been Consumer Discretionary, which includes consumer goods, hotels, restaurants, luxury goods, and car manufacturers. Consumer Staples and Communication Services came in second and third, respectively. The industries with the lowest CEO pay ratios for three fiscal years have been utilities, energy, and real estate (Janney & Lutz, 2022, p. 3).

According to Hilb (2012, p. 9), Systematic peer benchmarking involves the following three steps:

1. Firm characteristics (same size, same sector, and similar firm performance) are the first step.
2. The CEO of the disclosing (focal) firm should hold a position and responsibilities comparable to those of their peers, which brings us to the second step concerning the CEO’s characteristics. Before benchmarking, factors such as the CEO’s age and gender, tenure in the company and practice, talents, and duality should all be taken into account.
3. The third step concerns the structure of compensation contracts. For example, in a perfect world, the CEO’s pay contract structure at the disclosing company (focal firm) would resemble that of CEOs in the peer group.

Characteristic, Competence, and Individual Performance (CCIP)

CEO pay should be in line with the following: the firm’s characteristics: size, industry, location, and country; the CEO’s competence: age, tenure, industry experience, and skills; and the CEO’s performance: growth and investment opportunities; merger and acquisition success; R&D; technological advancement; and quality improvement (Eklund, 2019, p.27).

This idea is consistent with the “Upper Echelon theory,” which states that “the managerial background characteristics of the top-level management partially predict organizational outcomes (Manner, 2010). Therefore, the CEO’s character, along with his/her competence and individuality, is vital to the company’s future success.

Strategy

Compensation, according to strategy, presents the concept that the CEO compensation and its structure should align with the organization’s long-term goals and strategy. There should be an association between the firm’s strategy, what the firm wants to achieve in the long run, and the CEO’s extrinsic long-term motivation, which spurs the executive to attain these goals (Eklund, 2019).

Figure 8

The association between corporate strategy and compensation strategy of “Pay-for-Strategy” and “Pay-for-Performance.”

Note: From Fairness of CEO Compensation (p. 102), by Eklund, 2019, Springer; derived from Strategy: A View from the Top (p. 24) by C. A. Kluyver & J. A. Pearce, 2012, Pearson, and from Aligning Executive Total Compensation with Business Strategy. Human Resource Planning (p. 224), T. Haigh, 198).

When determining if the corporate strategy aligns with the CEO’s business strategy, organizations need to have a long-term perspective, where an organization’s long-term goals and financial success are directly tied to the long-term goals and compensation of the CEO. To achieve this, “Every business needs to have a strategy for its operations, and that plan needs to align with its pay plan. (Eklund, 2019, p. 99).

When implemented effectively, long-term incentives can be a potent part of the executive reward strategy as a whole, aiming to achieve at least some of the following goals:

• Align the interests of essential shareholders and executives. An executive’s interests will coincide with those of essential shareholders when their long-term incentive compensation is dependent on the company’s performance over an extended period.
• Draw in and keep executives. Long-term benefits are essential to luring and keeping executives because, in most cases, these benefits contribute most significantly to the executives’ overall Pay. Compared to other parts of the compensation plan that are paid in cash, long-term incentive programs are more effective in keeping executives because they typically vest over an extended period.
• Encourage long-term planning. Long-term goals should be balanced with monthly Pay and short- and mid-term incentives. This type of incentive will encourage long-term thinking.
• Share the organization’s success with the executive. From the very beginning of employee gain-sharing plans, the long-term incentive plan offers a distinctive method of sharing in the organization’s success. Mainly, when long-term incentives are granted in the form of equity, with the executive’s profit directly correlated with that of the shareholders, programs for accumulating wealth can be based on long-term incentive plans (Graham, 2008, p. 312).

 An award is generally realized under a standard LTI plan after a performance period, often three years, and achievement of certain Key Performance Indicators (KPIs), such as relative Total Shareholder Return (TSR) or Earnings Per Share (EPS). The execution of the strategy should be evaluated, and share ownership guidelines requiring the executive to own a certain number of shares in the employer should be implemented. Such a system promotes alignment and the motivation of the executive to do what is best for the company and the shareholders in the long run. If the strategy is flawed or the executive focuses on short-term goals, the CEO risks losing money (Eklund, 2019, p. 144).

Culture

“From the Latin verb colere, to cultivate and the noun culture, the term `culture’ is used today mainly with two meanings; the first and most ancient of these refers to the body of knowledge and manners acquired by an individual, while the second describes the shared customs, values, and beliefs which characterize a given social group, and which are passed down from generation to generation.” (Bolaffi et al, 2003, p. 61)

While both meanings of the word are relevant in business settings, this research is concerned with the definition of culture in a group setting. Culture is the collective mental programming that sets one group or category of people apart (Hofstede, 2009, p. 2).

CEO compensation should be relevant to the culture in which the company operates. From an integrated perspective, culture is comprised of multiple interconnected domains. A variety of interconnected cultural contexts, including national, regional, corporate, professional, and functional cultures, impact CEO compensation (Hilb, 2009).

 Figure 9

Interrelated cultural spheres.

Note: From Global Management of Human Resources (p. 17), by M. Hilb, 2009.

Individual behavior, or personality traits, is a significant cultural factor; its influence is more remarkable in smaller groups but decreases in larger ones (individual–group–culture). Culture is made up of many related domains. Each of the listed domains has a set of collective belief systems based on the dimension to which they each extend. While national culture refers to the collective mental programming of the country the organization is situated in, corporate culture refers to an organization’s values for each position. As shown in Fig.13, national culture, regional culture, corporate culture, professional culture, industry culture, and functional team culture can be listed from the outermost sphere, which is the most prominent cultural group, to the innermost sphere, which is the smallest cultural group (Eklund, 2019. P. 105).

Individual behavior, or personality traits, is a significant cultural factor; its influence is more remarkable in smaller groups but decreases in larger ones (individual–group–culture). Culture is made up of many related domains. CEOs earn significantly more than top management teams, much like doctors and lawyers make more money than educators. National culture, such as that of France, consists of the shared national values among people. Since national culture is the largest group in the outermost sphere, it is more noticeable in larger groups (Hofstede Insight, 2019; Eklund, 2019. P. 105).

Two dimensions can be used to group national cultures:

1. the “Hard National Culture” Dimension, which includes countries like France and America, and;
2. the “Soft National Culture” Dimension, which includes countries like Japan and Austria (Hilb, 2011, p. 24)

Hard national cultures are short-term and goal-oriented, while soft national cultures are long-term oriented, and their driving force is the people. In a hard culture, decision-making is faster because it is top-down, while in a soft culture, decision-making takes time due to a bottom-up and consensus approach. Soft culture fosters cooperation and networking (Laurent, 1997; Hilb, 2011).

Yoshikawa et al. (2010) and Burger and Karreman (2010) stated that the economic systems of the nations—such as welfare state countries’ socialism, soft capitalism in Japan, and Anglo-American hard capitalism—affect corporate strategy and national and corporate cultures which in turn affect executive Pay and company performance.

Hofstede (2001, 2009, and 2011) introduced his 6D cultural model to compare countries and their national cultures according to six dimensions:

1. Power Distance.
2. Individualism.
3. Masculinity.
4. Uncertainty Avoidance
5. Long-Term Orientation, and
6. Indulgence.

Figure 14 compares four major economic powerhouses in terms of the above dimensions to highlight the differences and show how each country’s national culture influences CEO compensation.

Figure 10

Extracted by the author, Hofstede’s cultural dimensions for selected countries. (2023

1. The Dimension of Power Distance: Power distance refers to how society views wealth, power, and inequality. A high power-distance score for a country means that society accepts and acknowledges a high level of wealth and power inequality (Hilb, 2009). In Fig.14 above, The United Arab Emirates has the highest power-distance score (74), followed by Japan (54) and then Canada (39), which indicates that horizontal and vertical pay gaps are more accepted in those countries than in Canada.
2. The Individualism versus Collectivism Dimension: According to collectivist persuasion, the group owes its members complete allegiance. On the other hand, individualism emphasizes taking care of oneself and one’s family only (Torrington et al., 2019). Canada has the highest individualism score (80), which means it promotes more CEO autonomy than the UAE, which has a score of 36.
3. The Masculinity Dimension: Masculinity is defined by how society views the division of sex roles and how that affects people’s quality of life (Hilb, 2009). Every society has different expectations for the roles of the sexes. When femininity assigns women more significant roles (feminine society, a lower masculinity score), society is likely more service-oriented, cares more about the environment and quality of life, and prioritizes relationships over financial gain. (Torrington et al., 2019). In this case, Canada and UAE score lower on masculinity, which means that these societies, where women play more significant roles, are more service-oriented.
4. This dimension concerns society’s response to the risks and uncertainty that come with the future. Low scores on the uncertainty avoidance scale indicate a risk-taking and risk-tolerant society. In this culture, CEOs are typically more receptive to accepting a more significant percentage of variable compensation than total compensation (VC/TC). On the other hand, people who score highly on the uncertainty avoidance scale are likely anxious about risk and risk-averse, mitigating their risk with the protection of technology, law, or religion (Hilb, 2009; Torrington et al., 2019). CEOs prefer fixed Pay to variable Pay in solid cases of uncertainty avoidance. In this category, Japan scores the highest (92) and Canada the lowest (38), which means Japan is cautious about risk-taking, whereas Canada is more comfortable and encourages it.
5. The Long-Term Orientation versus Short-Term Orientation Dimension: Long-term orientation (“Flex humility”) focuses on future goals and delays short-term success to prepare for the future. Short-term orientated cultures (“Monumentalize”) are just the opposite of long-term orientation, which attempts to gratify short-term goals and concentrates on short-term immediate success (Hofstede, 2009). Japan scores the highest (88), and Canada is at (36). The score confirms that Canada invests more in the short term and, in turn, stresses financial performance rather than non-financial performance, which is more of a long-term goal.
6. The Indulgence versus Restraint Dimension: An indulgent society allows the free gratification of human desires and enjoys life, compared to a restrained society, where people are curbed and controlled by strict rules and regulations. Canada again has the highest score (68) here, which indicates that it is more indulgent than other countries, which, in turn, means that its focus is more on financial performance than anything else.

There are various definitions of corporate culture. However, all definitions concur that it significantly impacts how employees at all levels behave and how the company is perceived. Together, the corporate compensation plan and corporate culture are tuned to enhance corporate performance. (Hilb, 2009; Gomez-Mejia et al., 2010; Kerr & Slocum, 2005). For example, an organization’s corporate compensation strategy will rely on individual-based, rigid, and performance-contingent rewards if the corporate culture is more focused on individualism and competition than on collectivism and cooperation. (Gomez Mejia et al., 2010).

Tournament Theory.

According to tournament theory, the higher wages of CEOs are considered to be a trophy or a pot of gold, so it sends signals to the lower echelons in the firm that working harder and making the best use of their talents will allow them to obtain the higher wages or trophy. The generous compensation packages of a CEO are not necessarily due to his or her current productivity; they are most relevant to his or her position and send motivating signals to inferiors in the firm to work hard and compete hard for the lucrative wages in the upper rank. (Gomez-Mejia et al. 2010) As a result, salary disparities are determined by individual differences rather than marginal productivity, and this high level of individualism and competitiveness makes the wider employee pay gap acceptable and acknowledged. In contrast to the cooperative and collectivist-based soft corporate cultures of Scandinavian and Japanese businesses, Anglo-American companies typically have an individualistic and competitive hard corporate culture (Hilb, 2009).

Corporate culture has a more significant influence on compensation strategies because it can occasionally differ from national culture. Corporate culture, or organizational culture, refers to how people interact within an organization with one another, with their work, and with the outside world. It also describes how one group of people sets itself apart from another group of people. Instead of working against the organization or its objectives, organizational culture should be tailored to corporate strategies, corporate goals, and external circumstances (Hofstede, 2009).

Prior research has also shown that corporate culture and national culture have a significant impact on executive compensation and corporate governance practices (Hilb, 2011; Gantenbein & Volonté, 2011; Duong et al., 2015; Ntongho, 2016; Humphries & Whelan, 2017). The importance of organizational culture in executive pay practices was highlighted by Smith and Comp (2019), who concluded that an internally integrated, defined as internally fair, and aligned pay management system, pay-for-performance alignment, requires a supporting organizational culture based on practical experiences. Fairness ought to be the hallmark of the company culture to achieve an ideal executive compensation structure and policy.

Comprehending national and corporate cultural variations in compensation practices has two advantages: (1) Expectations between employers and employees are better fulfilled, which may lead to improved perceptions of pay equity. Companies that concentrate on compensation issues pertinent to various workforces will be better able to maximize their compensation budget (Townsend et al., 1990, p. 667).

Figure 11

Corporate factors affecting corporate “compensation strategy”

Note: From Fairness of CEO Compensation (p. 109), by M. A. Eklund, 2019, Springer; derived by Global Management of Human Resources (p. 7), M. Hilb, 2009.

A business’s organizational structure, procedures, and culture comprise its people strategy. Furthermore, this is the point of uncertainty. Businesses take a different approach to their people strategy, emphasizing that only so many executive reward plans work in all situations. Instead, an effective executive rewards plan is predicated on individual businesses’ distinct organizational structures, procedures, and cultures. (Graham, 2008, p. 121).

 When evaluating fit, the work culture must be considered first. The way that employees react to a given metric is determined by their culture, which also affects the metric’s ability to measure performance and generate shareholder value. An effective behavior-driving measure in one organization needs to be better understood in another, and it might have unexpected consequences like employees falsifying results to suit themselves. A business must fairly evaluate its current culture and capacity for transformation, should changes be necessary, before deciding on any particular measure (Mercer, 2009, p. 34).

Organizational culture is a company’s cohesive element. Questions like “What is it like to work in the company?” “How do executives feel about their relationship with their employer?” “Does the executive feel valued?” and “Does he feel that he is recognized for the job he does and how it contributes to the overall success of the organization?” can all be answered by looking at the organizational culture. Another way to conceptualize corporate culture is as an organization’s “personality” or “feel.” A company’s culture can be defined and thought about in various ways. Ultimately, though, comprehending it is far more crucial than defining it. We must emphasize this (Graham, 2008, p. 146).

 Chingos (2004) stresses that executive pay programs be evaluated to ensure:

• Alignment with performance
• Market competitiveness
• Support of business strategy
• Fit with company culture and compensation philosophy.
• Compliance with relevant regulations and governing entities
• Identification of program components requiring redesign
• Cost-efficient, motivational, and responsible pay practices concerning shareholders and executives.

Culture, be it organizational, regional, or national, is a significant factor in predicting CEO compensation. The enterprise’s beliefs and aspirations, or its culture and values, serve as the foundation for any organizational system. The organizational climate, or the working environment, differs from culture and values. Values and culture are enduring and challenging to alter. It is much more challenging to alter deeply rooted cultural and value systems, whether they are expressed or not. Nevertheless, culture and values are essential factors that influence an organization’s capacity to implement strategy, even though this component is qualitative (Chingos, 2004, p. 16).

Integration

Integration, also known as Internal equity or internal Fairness, is achieved if the CEO pay is determined based on competence, position within the firm, conformance with internal requirements and policies, and the consideration of the salaries of the Top Management Team (TMT) members who report to the CEO (Hilb, 2011). Integration results in compensation, which denotes internal Fairness or equity. CEO remuneration should be in accordance with internal requirements and paid in accordance with internal equity. Internal requirements include the organization’s bylaws, human resources (H.R.) employee reward policy, and the executive compensation policy determined by the compensation committee, among other things. Internal equity is met if those who perform better than others are entitled to higher rewards and if the pay disparity between those who perform well is reasonable and fair (Eklund, 2019, p. 13).

 Internal Fairness at the CEO level can be measured by the pay disparity between the CEO’s Pay and the (average) Pay of the member(s) of the Top Management Team (TMT) who report(s) to the CEO (Hilb, 2011, p. 129).

 Internal equity dictates that the CEO’s salary should be established by balancing it with the other company’s salaries and establishing a reasonable pay gap between the CEO and other staff members. Treating the CEO differently from the TMT and other staff members is inappropriate. Compensation should be allocated equitably and proportionately at all levels, considering performance, tenure, position, and competence. An indicator of internal equity in the company is the CEO pay ratio or pay gap. A ratio or gap that is abnormally high suggests that internal equity is lacking (Eklund, 2019, p. 113).

Hilb (2011) defined internal Fairness or pay-according-to-integration as follows: “Only when the CEO’s compensation is established following internal regulations and policies, competency, position within the company, and the pay scales of the Top Management Team (TMT) members who report to the CEO will internal equity or Fairness be achieved.

While the effect of the above factors may vary from region to region, e.g., culture or industry to industry, e.g., risk, the experts quoted above unanimously agree on utilizing all the eight elements collectively as an evaluation tool in the construction of a fair CEO compensation. The subject of CEO remuneration is, in effect, more than just an arbitrary number. It is a reflection of the company’s image and success, financial or otherwise, as well as internal and external equity.

Chapter III: Theoretical Foundation & Methodology

Overview of the Study

While public indignation over excessively high CEO salaries has persisted unabatedly, particularly since the Great Recession of 2008–2009, CEO pay in Canada has been increasing.  The highest-paid CEOs in Canada regularly make the same amount of money on the first working day of each year as a full-time, year-round worker in the country.

When comparing CEO compensation to minimum wage earners, the difference is even more pronounced: by just after 2:00 p.m. on the first working day of the year, the 100 highest-paid CEOs would have earned the same as the Canadian weighted average minimum wage per hour. Furthermore, executive pay seems certain to reach even greater heights. The public’s indignation over the CEO pay disparity has not stopped corporate boards from wanting to pad their executives’ paychecks. Votes on “say on pay” were intended to send a warning about compensation, but they are merely advisory, and boards are free to disregard them—which they typically do (McKenzie, 2017, p.5). The lack of accountability in boards’ decision-making regarding CEO compensation creates the issue of defensibility in the construct of CEO compensation. Factors such as education, experience, and competency, as well as the organization’s performance and remuneration in comparison to the organization’s pay structure, should play a part in the final figure. According to the managerial power hypothesis, strong CEOs effectively determine their compensation and create packages for themselves that guarantee high payouts regardless of how well they manage the company or its financial performance. Those who believe in managerial power theory contend that business executives have taken control of the board rather than the board controlling them. Furthermore, by providing compensation to themselves through dubious channels that are less conspicuous to the public, these influential executives conceal the extent of their compensation (Kolb, 2012, p.32). This upward trend in CEO and executive compensation has resulted in the growth of incomes for the top 1% and top 0.1% while leaving ordinary workers with a smaller share of the economic gains and widening the gap between high earners and the bottom 90% (epi.org, 2022, p.1).

Statement of the Problem

This research aims to address the specific problem of the high compensation of Canadian CEOs in regular contracts and whether the actual CEO compensation in Canada follows the accepted compensation framework.

Gap in the Literature

The high compensation for CEOs compared to regular employees in the same company begs the question of why there is such a wide gap. This study reviews the commonly accepted components of CEO compensation and scrutinizes the compensation of the five highest-paid CEOs in Canada to decide how each measures up against the set components.

This research seeks to explore not only what the CEO compensation metrics consist of but also how they influence CEO compensation. A variety of elements used most commonly in the construct of CEO remuneration metrics were researched in the compensation literature, such as short-term incentives, long-term incentives, and stock options. Understanding if and how these metrics are impacted by organizations’ key performance indicators, as well as more subtle factors such as corporate culture, is important. Corporate culture, also known as organizational culture, refers to how employees interact with one another within an organization, with their work, and with the outside world. It also describes how one group of people sets itself apart from another group of people. Corporate culture must be aligned with corporate strategies and goals (Hofstede Insight, 2019).

The next step was to research a compensation framework that included all the factors that impact the organization in both the short and long run. “The goal of this framework is to reach a fair and optimal compensation contract, which is developed based upon the equity principle and stakeholder and behavioral agency theories.” (Eklund, 2019, p.9)

Finally, the literature gap this study aims to address is to ascertain:

• Whether or not the presented and discussed compensation framework determines the actual compensation of CEOs in Canada.
• If not, how is the compensation for CEOs finalized
• If so, how can companies justify the wide gap between CEO compensation and employees?

Research Methodology

This research uses a secondary data collection method, as primary data collection was highly unlikely in this instance. In primary research, information is gathered directly from the source rather than from a book, database, or journal. Surveys, observations, questionnaires, focus groups, case studies, and interviews are some sources of primary data. By contrast, Secondary data is information about an unobservable phenomenon that is gleaned from the descriptions or interpretations of one or more individuals of primary data (Leedy & Ormrod, 2018).

Utilizing previously collected data for a purpose other than the one for which it was intended is known as secondary data. Secondary data are those that were gathered for a different reason and at a different point in time in the past by a party unrelated to the research project. Research on businesses both domestically and internationally can benefit from the use of secondary data. Secondary data can be methodically used to screen for potential markets, risks, and expected operating costs across international borders. Financial statements, research reports, files, sales call reports, customer letters, customer lists, Census reports, trade association studies and magazines, business periodicals, and commercial publications are some of the sources of secondary data. (Unachukwu et al, 2018). Books and articles that evaluate primary sources are known as secondary sources; they are typically authored by and for other researchers. Specialized dictionaries and encyclopedias that feature essays authored by experts in a particular field are also examples of secondary sources. There are three reasons to use secondary sources:

1. To stay current on recent findings, scholars peruse secondary sources to stay abreast of the research being conducted by other scholars, to hone and clarify their own ideas, and to inspire their own work by contributing to an established body of work.
2. To locate alternative viewpoints. A research report should acknowledge and address the opinions of others as well as the inevitable queries and disagreements. Secondary sources offer different viewpoints, proofs, and counterarguments.
3. To explore models for investigation and evaluation. Secondary sources can be used to learn not only what other people have written about a subject but also how they have written about it, namely, the reasoning process, the language used, and the types of evidence provided (Turabian, 2018).

Since the focus of this study is to research the established metrics of CEO compensation and to compare those with the actual compensation of highest-paid Canadian CEOs, it could only be achieved through historical data published publicly; hence, the secondary data collection method because, unlike primary data, secondary data already exists and has been previously collected or produced by others and can be used in meta-analysis. A family of related, quantitative methods for examining a corpus of literature is called a meta-analysis. The computation of effect size estimates and statistical evaluation of the degree to which effect sizes are correlated with variables like population characteristics or features of the research designs of published studies are among the commonalities among meta-analytic procedures (Guzzo et al., 1987). A group of statistical techniques known as meta-analyses are used to aggregate quantitative findings from several studies to create a comprehensive overview of empirical knowledge on a particular subject. It is employed to account for bias and error in a body of research as well as to examine key trends and differences in findings between studies. The original study’s results are typically translated into one or more standard metrics, known as effect sizes, and then aggregated across studies. This method enables us to combine findings from research that employ various metrics for the same construct or present findings in various formats (Littell et al., 2008).

Compensation models were evaluated through the secondary data collection method to decide what factors, whether intrinsic or extrinsic, positively affect an organization’s performance. While one obvious element is the organization’s financial success, other elements, such as non-financial success and meta-analysis, were obtained for both past compensation records of the selected CEOs and the respective C-suite. It was also possible to examine the non-financial aspects of operations through articles and news regarding conflicts, misconduct, and lawsuits.

Research Design

As the first step, it was imperative to explore the pattern of the current trends in CEO compensation and to determine what influences the amount and to what extent. The correlation between compensation metrics, operational KPIs, and intangible factors such as company culture determines how much, if any, each factor has an impact on the final decision regarding CEO remuneration. The following eight elements resonated throughout the extensive literature review on the subject of CEO compensation structure:

1. Financial performance,
2. Non-financial performance,
3. Risk,
4. Peers,
5. CCIP (Characteristics, Competence, Individual Performance),
6. Strategy,
7. Culture; and
8.  

The above elements served as a benchmark to justify the compensation of the selected CEOs.

Population and Sample Selection

To examine the validity of claims about high CEO compensation and measure CEO compensation in Canada against compensation metrics discussed in Chapter 2, five companies were selected to be investigated in real-time. To approach the subject in an unbiased manner, the first four companies were randomly picked from the list of highest-paid CEOs in 2022, and the fifth, Dentalcorp Ltd., was selected as one of the fastest-growing companies in Canada. 

The process used in order to extract the data needed consisted of:

1. Visit the website of each company to review its vision, mission, and promise, as well as obtain information on each CEO.
2. Extracting the financial details, such as gross revenue, as well as non-financial details, such as C-suite turnover, of each company through a reliable source. Since all five companies are publicly traded on the NYSE (New et al.), the financial and non-financial details of each company are publicly available through firms that follow and document the NYSE daily. The site publishes each company’s quarterly financial reports and analyzes other factors that might question the health of the operations, such as the remuneration of C-suite members.
3. Consult news outlets to see how each company has been portrayed in the media and the public eye.

The above data was utilized to determine the following:

• The CEOs’ most recent (2022) compensation figure, including the components.
• The performance of the company during the same year.
• The CEO performance against the CEO compensation metrics.

Instrumentation, Validity, and Reliability & Data Collection

The quantitative review method known as meta-analysis aids in the assessment of existing knowledge in a field by:

1. Integrating results from various studies,
2. Comparing study results in an attempt to pinpoint the significant and methodological study characteristics that contribute to variances in study results and
3. Developing and testing theoretical hypotheses using data-analytic datasets (Cooper & Hedges, 1994).

Kirca & Yaprak (2010) posit that Meta-analytic inventories extend knowledge by methodically and quantitatively synthesizing the results of primary studies, which goes beyond qualitative narrative reviews. Furthermore, path analyses of more comprehensive models that have yet to receive enough attention in a given research domain can be utilized to test theories through meta-analytic reviews. In conclusion, meta-analysis offers a thorough and impartial summary of the existing research findings in a specific research domain, which is a complement to the conventional narrative literature reviews.

As such, Kirca & Yaprak (2010) propose a Five-stage framework and common practices in meta-analysis as follows:

1. Problem formation
2. Data collection
3. Data evaluation
4. Data analysis
5. Interpretation and discussion

The issue of high CEO compensation and the widening gap between CEO compensation and that of employees was picked for this study as it remains contentious in Canada. Conceptual as well as empirical articles were reviewed on the topic to verify the facts, and the decision was made to use meta-analysis to examine the validity and reliability of the data, based on which the preliminary framework for the study, the correlation between compensation metrics and the influence of performance and other environmental factors were constructed. To shed light on the constructed framework and the effect of the components on each other, relevant academic literature was assessed and analyzed. Throughout the literature reviewed, eight elements that significantly influence the compensation metrics were identified. Each of the eight elements was closely scrutinized through academic literature. Based on the established criteria, four CEOs from the list of the highest-paid Canadian CEOs, along with a CEO of one of the fastest-growing companies in 2022, were picked. The details of the five CEOs, including education, tenure, compensation, and the components that made up the final figure, were scrutinized through publicly available data. Findings are presented in chapter 4 through figures and tables. Then, the compensation of each is measured against the eight criteria of compensation to verify if the remuneration was justified. The study closes with suggestions for future research directions.

Ethical Considerations

 The possibility of participant harm must always be taken into account when designing research projects. Many times, there are risks associated with certain treatments that researchers may wish to use in their experimental investigations (Patten, 2005, p.25). Kjellström et al. (2010) identify a total of seven ethical topics to consider:

1. Ethical approval is whether an ethics review board has vetted the dissertation.
2. Information and informed consent: Ensure that the information-giving process is discussed and informed consent is collected.
3. Confidentiality, assuring the information is accessible only to authorized persons.
4. Ethical aspects of methods, considering research ethics issues in collecting data.
5. Use of ethical principles and regulations,
6. Rationale for the study; and
7. Fair participant selection

According to Hoglund & Oberg (2011), some examples of ethical considerations are:

• Are there potential risks for the participants (interviewees, informants, survey respondents) from their involvement in the study?
• If so, how can the anonymity of informants be ensured?
• How are potential participants in the study informed about its purpose so that they can make an informed decision on whether to participate?
• How are the collaborating parties affected by the study?
• How can the data I collect be securely stored?

Since all five organizations picked are publicly traded companies, the research used publicly available data online to delve into each CEO’s financial and non-financial performance. Since no surveys or interviews were conducted, subjects such as anonymity, confidentiality, data security, and safe disposal of data were not relevant to this study. 

Summary

To put the notion of unjustifiably high CEO compensation in Canada to the test, this research used secondary data and a meta-analysis method to extract and interpret the compensation of five of the highest CEOs, along with the performance scorecard and other organizational details for the year 2022. The overall performance of each CEO was appraised against the compensation metrics discussed in the previous chapter. Since the historical data of the companies and the CEOs were gathered through publicly available sources online, there were no ethical issues to consider regarding the handling and discarding of collected data.

Chapter IV: Data Analysis and Results

In this chapter, the performance of five Canadian companies is reviewed in detail: four of which made the list of highest CEO compensation in 2022 and one named one of the fastest growing companies in Canada. The compensation level is then tested against each company’s past performance based on the criteria set in the previous chapters to determine if it is deemed fair or reasonable.

Enbridge Inc.

Enbridge Inc., a global pipeline and energy corporation based in Calgary, Alberta, Canada, is a pipeline owner and operator that transports natural gas, crude oil, and natural gas liquids across North America.

In both Canada and the U.S., natural gas pipelines, gathering, and processing facilities are investments made by the Gas Transmission and Midstream segment. In addition to natural gas distribution operations in Quebec, the Gas Distribution and Storage segment is engaged in natural gas utility operations serving residential, commercial, and industrial customers in Ontario. In North America, power-generating resources, including wind, solar, geothermal, waste heat recovery, and transmission assets, are managed by the Renewable Power Generation segment. Refiners, producers, and other companies are served by the Energy Services segment’s physical commodity marketing and logistical services (Enbridge Inc., 2023).

Overall Performance

The company is trading at 30.2% below the estimate of its fair value, and as such, interest payments are not well covered by earnings. 2022 saw a diluting of shareholders, lower profit margins (6.7%) than in the previous year (10.5%), and a dividend of 7.67% that is not adequately offset by earnings (Simplywall, 2023).

Past Performance

Simplywall lists the full-year 2022 results as follows:

• EPS: CA$1.28 (down from CA$2.88 in F.Y. 2021).
• Revenue: CA$53.3b (up 13% from F.Y. 2021).
• Net income: CA$2.59b (down 56% from F.Y. 2021).
• Profit margin: 4.9% (down from 12% in F.Y. 2021).
• Growing Profit Margin: ENB’s current net profit margins (8%) are lower than last year (9.4%).
• Earnings Trend: ENB’s earnings have grown by 7.7% per year over the past five years.
• Accelerating Growth: ENB’s earnings growth has been negative over the past year, so it cannot be compared to its 5-year average.
• Earnings vs Industry: ENB had negative earnings growth (-22.6%) over the past year, making it difficult to compare to the Oil and Gas industry average (-13%)

Enbridge has been growing earnings at an average annual rate of 7.7%, while the Oil and Gas industry saw earnings growing at 40.9% annually. Revenues have been growing at an average rate of 1.4% per year. Enbridge’s return on equity is 6.5%, and it has net margins of 8%.

Table 4

Enbridge Inc. Performance Report 2022. Simplywall, 2023

CEO

Albert Monaco served as President, Chief Executive Officer, and Director of the Company up to 2022. Since joining Enbridge in 1995, Mr. Monaco has occupied progressively higher-level roles. Prior to taking over as President and CEO on October 1, 2012, he was Enbridge’s Director and President from February 27, 2012, until September 30, 2022. Mr. Monaco is a Chartered Professional Accountant and has an MBA (Master of Business Administration) from the University of Calgary (Wallmine, 2023).

According to the Economic Research Institute, Al Monaco’s total compensation as Director, President, and CEO of Enbridge Inc. was $19,039,968 in 2021. Total cash received was $6,273,390; equity received was $11,122,295; and pension and other forms of compensation received was $1,644,283 (ERI, 2023).

Figure 12

1. Monaco’s annual compensation breakdown. Economic Research Institute, 2023

Albert Monaco, 60, was paid a total of $17,993,400 by Enbridge Inc. for his roles as president, chief executive officer, and director. No other Enbridge Inc. executive receives a higher salary (Wallmine, 2023).

Financial Health

Enbridge has a total shareholder equity of CA$64.0B and a total debt of CA$79.5B, which brings its debt-to-equity ratio to 124.1%. Its total assets and liabilities are CA$173.9B and CA$109.9B, respectively. Enbridge’s EBIT is CA$9.4B, making its interest coverage ratio 2.7. It has cash and short-term investments of CA$1.3B.

Simplywall lists the full-year 2022 results as follows:

• Short-term Liabilities: ENB’s short-term assets (CA$ 9.0 B) do not cover its short-term liabilities (CA$ 14.0 B).
• Long-Term Liabilities: ENB’s short-term assets (CA$9.0B) do not cover its long-term liabilities (CA$95.9B).
• Debt Level: ENB’s net debt-to-equity ratio (122.1%) is considered high.
• Reducing Debt: ENB’s debt-to-equity ratio has increased from 90.9% to 124.1% over the past five years.
• Debt Coverage: ENB’s debt needs to be better covered by operating cash flow (16.4%).
• Interest Coverage: ENB’s interest payments on its debt are not well covered by EBIT (2.7x coverage).

CEO Compensation Analysis

Not only Albert Monaco’s financial performance Enbridge Inc.’s performance is considerably lower than that of the industry, but it is increasingly lower than its past performance. Revenue for 2022 has been declining markedly with higher levels of debt and low debt coverage. The average growth rate per year is noticeably lower than the industry, which indicates poor performance. The company’s debt-to-equity level has increased gradually. However, Monaco needs to also catch up on other fronts, such as non-financial performance and, more specifically, environmental issues. Enbridge failed under Ottawa’s environmental policies under the Trudeau government. The federal ban on crude oil tankers in 2015 effectively killed the Company’s Northern Gateway pipeline project, which was intended to connect Kitimat, British Columbia, to Alberta’s energy heartland. The prime minister officially rejected the project in November 2016 (Vandaelle, 2022, p. 8).

Monaco took risks that could have paid off in the long term. The plans for Monaco’s expansion were ambitious but not feasible. Due to a Minnesota permit dispute, the company’s contentious Line 3 replacement project experienced delays that caused it to be delayed by two years before it was finally put into service (Vandaelle, 2022, p. 6).

Monaco’s expansion strategy needed to align with local communities. For example, the business and Michigan Governor Gretchen Whitmer have argued over Line 5, which the state attempted to shut down due to environmental concerns after a boat anchor struck it under the Straits of Mackinac in 2018 (Vandaelle, 2022, p. 7).

Even though Monaco has an MBA degree, a CPA designation, and a long tenure in the industry, which is in line with CCIP criteria, Monaco’s compensation is not in line with peers in similar industries. For example, Monaco makes  almost twice the amount of his closest competitor and peers, Francois Poirier, the CEO of T.C. Energy.

Monaco’s compensation also lacks the integration factor, as Enbridge’s next highest compensation is Cynthia Hansen, executive vice president and president of gas transmission and midstream, which is half of Monaco’s at $10.92m.

T.C. Energy

T .C. Energy Corporation operates as an energy infrastructure company in North America. The company is divided into five segments: Liquids Pipelines, Power and Energy Solutions, U.S. Natural Gas Pipelines, Mexico Natural Gas Pipelines, and Canadian Natural Gas Pipelines.

The company constructs and manages a 93,700-kilometer network of pipelines for the transportation of natural gas from supply basins to local distribution companies, LNG export terminals, power plants, industrial facilities, and other businesses. Additionally, it has regulated natural gas storage facilities with a 532 billion cubic foot working gas capacity. Additionally, it has a liquids pipeline system that spans about 4,900 kilometers and links the Alberta crude oil pipeline to the refining markets in Illinois, Oklahoma, and Texas. Also, the company owns or has interests in seven nuclear and natural gas-powered power generation facilities in Alberta, Ontario, Québec, and New Brunswick, totaling approximately 4,300 megawatts. Furthermore, the company owns and operates approximately 118 billion cubic feet of non-regulated natural gas storage capacity in Alberta. In May 2019, the business, which was formerly known as TransCanada Corporation, changed its name to T.C. Energy Corporation. The head office of T.C. Energy Corporation is in Calgary, Canada, where it was established in 1951 (T.C. Energy, 2023).

Overall Performance

The company’s current trading price is 0.6% less than its estimated fair value. Earnings or cash flows do not cover a dividend of 7.53% well. In addition, profit margins (6.1%) are significantly lower than they were the previous year (22.5%), and earnings do not adequately cover interest payments (Simplywall, 2023).

Past Performance

T.C. Energy’s earnings have been declining at an average annual rate of -16.3%, while the Oil and Gas industry saw earnings growing at 42.4% annually. Revenues have been growing at an average rate of 2.1% per year. T.C. Energy’s return on equity is 3.2%, and it has net margins of 6.1%.

Simplywall lists the full-year 2022 results as follows:

• Quality Earnings: TRP’s significant one-off loss of CA$3.8B impacted its last 12 months of financial results to March 25 and March 25, 55463.
• Growing Profit Margin: TRP’s current net profit margins (6.1%) are lower than last year (22.5%).
• Earnings Trend: TRP’s earnings have declined by 16.3% per year over the past five years.
• Accelerating Growth: TRP’s earnings growth has been negative over the past year, so it cannot be compared to its 5-year average.
• Earnings vs Industry: TRP had negative earnings growth (-69.6%) over the past year, making it difficult to compare to the Oil and Gas industry average (-19.8%).
• High ROE: TRP’s Return on Equity (3.2%) is considered low (SimplyWall.com, 2022).

Table 5

T.C. Energy Performance Report 2022. Simplywall, 2023

CEO

Francois Poirier, a 57-year-old executive, was appointed as T.C. Energy’s CEO in January 2021 and has been there for 2.83 years. His total yearly compensation is CA$10.60M, which is made up of 89.8% bonuses, company stock and options, and 10.2% salary. He directly owns CA$5.57 million, or 0.011%, of the company’s shares. The board of directors and the management team have average terms of four and 2.3 years, respectively. 

Financial Health

In 2022, T.C. Energy had a total shareholder equity of CA$34.2B and a total debt of CA$61.8B, which brought its debt-to-equity ratio to 180.8%. Its total assets and liabilities are CA$117.0B and CA$82.9B, respectively. T.C. Energy’s EBIT is CA$6.6B, making its interest coverage ratio 2.4. It has cash and short-term investments of CA$1.7B.

Simplywall lists the full-year 2022 results as follows:

• Short-Term Liabilities: TRP’s short-term assets (CA$ 7.6 B) do not cover its short-term liabilities (CA$ 12.6 B).
• Long-Term Liabilities: TRP’s short-term assets (CA$7.6 B) do not cover its long-term liabilities (CA$70.3 B).
• Debt Level: TRP’s net debt-to-equity ratio (175.9%) is considered high.
• Reducing Debt: Over the past five years, TRP’s debt-to-equity ratio has increased from 160.5% to 180.8%.
• Debt Coverage: TRP’s debt needs to be better covered by operating cash flow (11.8%).
• Interest Coverage: TRP’s interest payments on its debt are not well covered by EBIT (2.4x coverage).

CEO Compensation Analysis

Figure 13

T.C. Energy CEO Compensation Analysis

Francois Poirier has failed as the leader of T.C. Energy on multiple fronts. Not only is the company’s financial performance in spiral decline, with a net profit of almost a quarter of the year before, but it has also failed in non-financial performance. A pipeline operator, T.C. Energy Corp., is the target of an Indigenous-backed energy company seeking C$50 million ($38.2 million) following a disagreement between partners on the now-canceled Keystone XL project. Natural Law Energy Inc., a group representing several Indigenous communities in Western Canada, is asking for “financial compensation for all the losses of income and the lost opportunities for future income” associated with an investment agreement signed in November 2020, according to a letter signed by Natural Law Chief Executive Officer Travis Meguinis and seen by Bloomberg News (Bloomberg, 2022, p. 1).

Although Poirier’s compensation is in the medium range in the industry, the integration factor needs improvement. Poirier’s compensation is almost twice that of Stanley Chapman, Executive vice president and COO of Natural Gas Pipeline.

Francois Poirier’s performance could be better on all significant elements, e.g., financial, non-financial, strategy, risk, and integration, yet this did not result in a decrease in compensation, as it has increased year over year.

Dentalcorp Holding Ltd.

Dentalcorp Holdings Ltd., through its subsidiaries, acquires and partners with dental practices to provide health care services in Canada. The company was formerly known as Dentalcorp Overbite Ltd. Dentalcorp Holdings Ltd. was founded in 2011 and is headquartered in Toronto, Canada (Dentalcorp, n.d.).

Company Overview

• Trading at 68.8% below the estimate of its fair value.
• Earnings have grown 16.8% per year over the past five years.
• Significant insider selling over the past three months.

Currently unprofitable and not forecast to become profitable over the next three years.

Past Performance

Dentalcorp Holdings has been growing earnings at an average annual rate of 16.8%, while the healthcare industry saw earnings decline at 6.7% annually. Revenues have been growing at an average rate of 21.2% per year.

Table 6

Performance Report 2022. Simplywalll, 2023

CEO

Dentalcorp Holdings’ CEO is Graham Rosenberg, appointed in Jul 2011, and has a tenure of 12.33 years. Total yearly compensation is CA$1.90M, comprised of 30.3% salary and 69.7% bonuses, including company stock and options. Rosenberg directly owns 4.92% of the company’s shares, worth CA$53.84M. The average tenure of the management team and the board of directors is 2.8 years and 4.9 years, respectively.

Figure 14

Dentalcorp CEO Compensation Analysis

Financial Health

Quality Earnings and Growing Profit Margin are non-existent as DNTL is currently unprofitable.

• Accelerating Growth: It is impossible to compare DNTL’s earnings growth over the past year to its 5-year average as it is currently unprofitable.
• Earnings vs. Industry: DNTL is unprofitable, making it difficult to compare its past-year earnings growth to the Healthcare industry (-66.5%).
• High ROE: DNTL has a negative Return on Equity (-2.75%), as it is currently unprofitable.

Dentalcorp Holdings has a total shareholder equity of CA$1.8B and a total debt of CA$1.1B, which brings its debt-to-equity ratio to 60.5%. Its total assets and liabilities are CA$3.4B and CA$1.6B, respectively. Dentalcorp Holdings’ EBIT is CA$700.0K.

Figure 15

Dentalcorp Earnings & Revenue History

• Short-Term Liabilities: DNTL’s short-term assets (CA$241.4M) exceed its short-term liabilities (CA$175.6M).
• Long-Term Liabilities: DNTL’s short-term assets (CA$241.4M) do not cover its long-term liabilities (CA$1.4B).

Figure 16

Dentalcorp Debt to Equity History & Analysis

CEO Compensation Analysis

Despite the tenure of over a decade, Dentalcorp has failed to become profitable, and even though, at first sight, the company’s revenue is over and above that of its competitors, the high debt of over 54% puts the company far behind in the industry. The CEO has yet to be successful in non-financial areas. The company suffers from high turnover among top management teams. The company has a 0% yield, while the competitors average at 5%. Nevertheless, the CEO’s bonus is almost $1.5 million annually. Rosenberg’s compensation is twice the highest compensation in the Company at Dentalcorp, which puts him at odds with the integration factor. 

Suncor Energy

In Canada and abroad, Suncor Energy Inc. is a fully integrated energy company. It is divided into three segments: Oil Sands, Production and Exploration, and Refining and Marketing. Bitumen, synthetic crude oil, and associated products are investigated, developed, and produced by the Oil Sands segment. In addition, this segment deals with the marketing, supply, transportation, and risk management of crude oil, natural gas, power, and byproducts. It also mines and upgrades synthetic oil sands. On Canada’s East Coast, the Exploration and Production segment engages in offshore operations. Through the retail and wholesale networks, the Refining and Marketing segment markets, transports, and oversees the refined and petrochemical products as well as other purchased goods. It also refines crude oil and petrochemical products. Power, natural gas, and crude oil trading are also activities in this segment.

In April 1997, the business changed its name from Suncor Inc. to Suncor Energy Inc. The headquarters of Suncor Energy Inc. are in Calgary, Canada, where it was established in 1917. (Suncor Energy, 2023)

Performance Overview

Simplywall lists the full-year 2022 results as follows:

• Earnings are forecast to decline by an average of 4.2% per year for the next three years.
• Unstable dividend track record.
• Profit margins (11.5%) are lower than last year (18.5%).

Past Performance

Suncor Energy has been growing earnings at an average annual rate of 19.6%, while the Oil and Gas industry saw earnings growing at 42.4% annually. Revenues have been growing at an average rate of 9.2% per year. Suncor Energy’s return on equity is 14.9%, and it has net margins of 11.5%.

Table 7

Suncor Energy Performance Report 2022.Simplywall, 2023

CEO

            Mark Little, 57, was the CEO of Suncor Energy in 2022. He also served as president and Director of the Company. He previously served as the company’s president and chief operating officer before being appointed to his current position in May 2019. As the President, Chief Executive Officer, and Director of Suncor Energy, Mark Little’s total compensation is CAD$11,718,700. There are no executives at Suncor Energy getting paid more.” (Wallmine, 2023)

Financial Health

Simplywall lists the full-year 2022 results as follows:

• Quality Earnings: S.U. has a significant one-off loss of CA$2.6B, impacting its last 12 months of financial results.
• Growing Profit Margin: S.U.’s current net profit margins (11.5%) are lower than last year (18.5%).
• Earnings Trend: S.U.’s earnings have grown by 19.6% per year over the past five years.
• Accelerating Growth: S.U.’s earnings growth has been negative over the past year, so it cannot be compared to its 5-year average.
• Earnings vs Industry: S.U. had negative earnings growth (-35.3%) over the past year, making it difficult to compare to the Oil and Gas industry average (-19.8%).
• Stable Dividend: S.U.’s dividend payments have been volatile in the past ten years.
• Growing Dividend: S.U.’s dividend payments have increased over the past ten years).

CEO Compensation Analysis

In the case of Mark Little’s performance, earnings have declined. On top of that, the CEO failed on multiple marks, e.g., risk and culture, with fatal incidents under his watch. “Suncor Energy Inc. chief executive Mark Little has stepped down as president and chief executive officer and resigned from its board of directors just one day after the company announced its oil sands operations have suffered another workplace fatality.” (Stephenson, 2022, p. 1)

Mr. Little also failed on the integration front, as the next top compensation at Suncor Energy was merely half of what he made. Even though Mr. Little has a long tenure in the industry in various management positions, his performance, both financial and non-financial, was mediocre. Nevertheless, his compensation was one of the highest in the market.

Pembina Pipeline Corporation

Pembina Pipeline Corporation offers midstream services and energy transportation. It is divided into three business segments: marketing, new ventures, pipelines, and facilities. With a transportation capacity of 2.8 million barrels of oil equivalent per day, a ground storage capacity of 11 million barrels, and a rail terminal capacity of roughly 105 thousand barrels of oil equivalent per day serving markets and basins across North America, the Pipelines segment operates conventional, oil sands, heavy oil, and transmission assets.

The Facilities segment offers an infrastructure that supplies customers with natural gas, condensate, and natural gas liquids (NGLs), such as ethane, propane, butane, and condensate. This infrastructure comprises pipeline and rail terminal facilities, a capacity of 354 thousand barrels per day for NGL fractionation, and 21 million barrels for cavern storage. Natural gas and hydrocarbon liquids that originate in the Western Canadian Sedimentary Basin and other basins are purchased and sold by the Marketing & New Ventures segment. The headquarters of Pembina Pipeline Corporation are in Calgary, Canada, where it was established in 1954 (Pembina, 2023).

Performance Overview

Pembina is trading at 32.2% below the estimate of its fair value. Earnings do not cover the dividend of 6.08% well, and the profit margins (12.8%) are lower than last year (23.3%). The company has a high level of debt (Simplywall, 2023).

Past Performance

Pembina Pipeline has been growing earnings at an average annual rate of 15%, while the Oil and Gas industry saw earnings growing at 42.4% annually. Revenues have been growing at an average rate of 10.4% per year. Pembina Pipeline’s return on equity is 8.5%, and it has net margins of 12.8%.

Table 8

Pembina Performance Report 2022. Simplywall, 2023

Figure 14

Pembina Earnings & Revenue History

Simplywall lists the full-year 2022 results as follows:

• Growing Profit Margin: PPL’s current net profit margins (12.8%) are lower than last year (23.3%).
• Earnings Trend: PPL’s earnings have grown by 15% per year over the past five years.
• Accelerating Growth: PPL’s earnings growth has been negative over the past year, so it cannot be compared to its 5-year average.
• Earnings vs Industry: PPL had negative earnings growth (-55.2%) over the past year, making it difficult to compare to the Oil and Gas industry average (-19.8%).

CEO

Pembina Pipeline’s CEO is J. Burrows, 43, appointed in November 2021, and has a tenure of 1.75 years. Burrow’s total yearly compensation is CA$11.31M, comprised of 11.1% salary and 88.9% bonuses, including company stock and options, and directly owns 0.006% of the company’s shares, worth CA$1.47M. The average tenure of the management team and the board of directors is two years and 6.1 years, respectively (Simplywall, 2023).

Financial Health

Pembina Pipeline has a total shareholder equity of CA$15.6B and a total debt of CA$10.6B, which brings its debt-to-equity ratio to 67.6%. Its total assets and liabilities are CA$31.0B and CA$15.3B, respectively. Pembina Pipeline’s EBIT is CA$1.9B, making its interest coverage ratio 4.1. It has cash and short-term investments of CA$86.0M.

Simplywall lists the full-year 2022 results as follows:

• Short-Term Liabilities: PPL’s short-term assets (CA$1.3B) do not cover its short-term liabilities (CA$1.9B).
• Long-Term Liabilities: PPL’s short-term assets (CA$1.3B) do not cover its long-term liabilities (CA$13.4B).
• Debt Level: TRP’s net debt-to-equity ratio (175.9%) is considered high.
• Reducing Debt: Over the past five years, TRP’s debt-to-equity ratio has increased from 160.5% to 180.8%.
• Debt Coverage: TRP’s debt needs to be better covered by operating cash flow (11.8%).
• Interest Coverage: TRP’s interest payments on its debt are not well covered by EBIT (2.4x coverage).

Figure 15

Pembina Debt to Equity History & Analysis

CEO Compensation Analysis

1. Burrows has also been unsuccessful on both the financial and non-financial front, as company debt has skyrocketed to a staggering 180% in the past five years. Moreover, both short-term and long-term liabilities are much higher than assets to be able to cover them. The comparison between compensation and earnings brings some odd results. Mr. Burrows’ compensation has increased by more than 20%, while company earnings have fallen more than 20% in the past year.

On top of that, the CEO needs to improve on the cultural front. “The battle for a controversial Canadian oil pipeline is heating, with Pembina Pipeline Corp. forming a partnership with an Indigenous group to buy the key Trans Mountain pipeline in a challenge to another native group seeking full ownership.” (Bloomberg, 2021)

Once again, this CEO fails the integration element since his remuneration is five times that of the following executive in line.

This chapter detailed the financial and non-financial performance of five of the highest-paid CEOs in Canada in 2022.

Chapter V – Conclusion & Future Considerations

Introduction

This study starts by focusing on the issue of high CEO compensation and the elements it is impacted by, e.g., operational KPI. The study then highlights eight prevalent factors in an extensive CEO compensation framework that should be taken into account when constructing a CEO pay package. These factors consist of financial, non-financial, risk, peers, CCIP (characteristics, competence, and individual performance), strategy, culture, and integration. The research also scrutinized the details of compensation and performance of five of the highest-paid CEOs in Canada and challenged them against the compensation framework through meta-analysis.

The research questions guiding this investigation were:

• What performance KPIs factor in CEO compensation?
• How does culture, from national to functional, affect CEO compensation?
• How does culture influence performance?
• How are compensation metrics, performance KPIs, and culture factored into equilibrium in CEO remuneration?
• How long is the current trend in CEO compensation sustainable?

The first four chapters of this study serve as a foundation for the subsequent discussion sections by setting the stage, detailing the methodology, presenting the findings, and outlining the implications and limitations of the study. By providing a comprehensive overview of the research process and results, these chapters ensure that the reader is well-equipped to engage with the more nuanced discussions that follow.

This chapter presents the summary of findings and conclusion along with recommendations and suggestions for future research.

Findings

Based on the research questions in the chapter, the following were the major findings of the study. 

General Findings

1. The following operational KPIs play a pivotal role in CEO compensation:
   1. Financial performance consists of meeting budget targets, total revenue, and ROI.
   2. Non-financial performance, including employee/vendor/client satisfaction and overall public image.
   3. Risk refers to the risk-taking initiatives of the CEO to meet and exceed company targets.
   4. CCIP (characteristics, competence, Independent Performance) focuses on the CEO’s personal and professional traits and past performance.
   5. Strategy: measuring how much the CEO’s mindset aligns with company strategy.
2. Culture refers to the way of thinking and attitude of a certain group.
3. Culture at all levels plays a major role in equitable CEO compensation within that culture. The following findings are notable for Canadian CEOs.
   1. Power Distance: 39%. Canadian society is not tolerant of high CEO remuneration, which explains the prevalent perceived injustice regarding the matter.
   2. Individualism: 80%. The high emphasis on personal interests and prioritizing one’s own needs is a notable factor in high CEO compensation.
   3. Masculinity: 52%. Although scoring in the middle, male CEOs outnumber female ones by a landslide.
   4. Uncertainty Avoidance Index: 48%. Higher tolerance towards ambiguity allows high CEO compensation to go unchallenged.
   5. Long-Term Orientation: 36%. A low score in this category indicates a focus on quick results and short-term gratification.
   6. Indulgence: 68%. High indulgence hints at an inclination towards instant gratification rather than following social norms.
4. Performance is directly correlated to the location in which the company operates.
5. Collectively, KPIs and cultural aspects can predict a CEO’s performance at the time of hiring; hence, they enable the devising of a reasonable compensation package.

Specific Findings

Enbridge Inc.

1. Financial Performance: Albert Monaco’s financial performance is considerably lower than that of the industry, but it is increasingly lower than its past performance for the fiscal year of 2022.
2. Non-Financial Performance: Under Monaco’s leadership, Enbridge needed to align with Canadian environmental policies.
3. Risk: Monaco took risks with pipeline expansion. However, they were not feasible and failed.
4. CCIP: Monaco has an MBA degree, a CPA designation, and a long tenure in the industry, which is in line with CCIP criteria.
5. Peer: Monaco’s compensation is not in line with that of peers in similar industries. The compensation package he received was almost twice the amount of the closest competitor and peer, Francois Poirier, the CEO of T.C. Energy.
6. Strategy: Monaco’s aggressive expansion strategy does not align with the vision and mission of Enbridge Inc.
7. Culture: Monaco needed to align itself with regional culture as there were conflicts between the company and the residents.
8. Integration: Monaco’s compensation also lacks the integration factor, as Enbridge’s next highest compensation is Cynthia Hansen, executive vice president and president of gas transmission and midstream, which is half of Monaco’s at $10.92m.

T.C. Energy Corp.

1. Financial Performance: The Company’s financial performance is in spiral decline, with a net profit of almost a quarter of the year before.
2. Non-Financial Performance: Poirier underperformed in the non-financial area as the company was the target of an Indigenous-backed energy company seeking $50 million following a disagreement between partners on the now-canceled Keystone XL project.
3. Risk: Poirier risk-taking traits in expansion backfire both financially and culturally.
4. CCIP: Mr. Poirier holds an MBA and has a long tenure in investment banking. He has held several high-level positions at T.C. Energy.
5. Peer: Although Mr. Poirier’s compensation is half that of Mr. Monaco’s, it still stands at the higher end of the compensation spectrum in the oil industry.
6. Strategy: Mr. Poirier’s strategic approach has failed to profit either the shareholders (the company has not been financially profitable) or the stakeholders (the company has been dealing with conflicts with the locals).
7. Culture: The Company is responsible for job and income loss locally and needs to integrate into the regional culture.
8. Integration: Although Poirier’s compensation is in the medium range in the industry, the integration factor needs improvement. Poirier’s compensation is almost twice that of Stanley Chapman, Executive vice president and COO of Natural Gas Pipeline.

Dentalcorp Inc.

1. Financial Performance: Although Dentalcorp is deemed the fastest-growing company in Canada, it has yet to become profitable in more than a decade of operation. Although, at first glance, the company’s revenue seems sizable, the high debt of over 54% puts the company in a considerable deficit.
2. Non-Financial Performance: Dentalcorp suffers from high turnover among top management team and staff.
3. Risk: Rosenberg took great risks in entering Dentalcorp into the TSX (Toronto et al.) and NYSE (New et al.) in 2021 at a price of $14 per share. The price per share has since dropped to less than half, which means that the risks Rosenberg took did not pay off.
4. Peer: Since Dentalcorp is unique in its operations, the “peers” factor is unknown.
5. CCIP: Rosenberg holds an MBA, BBA, and CPA and has a long tenure in investment banking. However, prior to starting Dentalcorp, he had yet to have considerable experience in Healthcare or Dentistry.
6. Strategy: Rosenberg’s expansion strategy looks good on paper but has yet to yield any financial benefits. His plans to sell Dentalcorp in the past couple of years have yet to be successful.
7. Culture: The high turnover means that the company needs to create a sustainable organizational culture.
8. Integration: Rosenberg’s compensation is twice the highest compensation in the Company at Dentalcorp, which puts him at odds with the integration factor.

Suncor Energy Inc.

1. Financial Performance: Under the CEO, Mark Little, earnings greatly declined in 2022.
2. Non-Financial Performance: Multiple workplace fatalities forced Mr. Little to step down as president and chief executive officer and resign from its board of directors.
3. Risk: Negligence in Health, safety, and Training cost Mr. Little his job and tarnished the company’s reputation.
4. CCIP: Even though Mr. Little has a long tenure in the industry in various management positions, his performance, both financial and non-financial, was mediocre. Nevertheless, his compensation was one of the highest in the market.
5. Peer: While Mr. Little’s compensation was in line with that of the highest-paid CEOs in Canada, it was still considerably higher than that of his peers, especially considering his mediocre performance.
6. Strategy: The Company’s push to take up the highly controversial oil sands operation could have been a better strategic move.
7. Culture: Suncor’s attempt to partner with one indigenous group needed to be in better faith. Not only did it create a clash between Suncor and the indigenous group, but it also created a clash between the two regional indigenous groups.
8. Integration: Little also failed on the integration front, as the next top compensation at Suncor was merely half of what he made.

Pembina Pipeline Corp.

1. Financial Performance: The CEO, J. Burrows, failed on the financial front. The company’s debt has skyrocketed to a staggering 180% in the past five years and continues. Both short-term and long-term liabilities are much higher than assets to cover them. Comparing compensation and earnings yields some odd results.
2. Non-Financial Performance: The company ranks low in subjects such as job security, culture, and management (Indeed, 2023)
3. Risk: Pembina, under Burrows’ leadership, risked regional unrest by attempting to partner with one indigenous group while ignoring others.
4. CCIP: Burrows has a long tenure in Pembina and has held many positions in the company, including CFO; however, his financial performance leaves much to be desired.
5. Peer: Burrows’ compensation is in line with the peers in the higher echelon of the industry.
6. Strategy: His partnership strategy in expansion has created controversy in the region and the industry as a whole.
7. Culture: Burrows also failed on the cultural front. His attempt to form a partnership with one Indigenous group to buy the key Trans Mountain pipeline put the company in confrontation with another native group seeking full ownership.
8. Integration: Burrows fails the integration aspect since remuneration is five times that of the following executive in line. Mr. Burrows’ compensation has increased by more than 20%, while company earnings have fallen more than 20% in the past year.

Discussion

The focus of this research was to seek out an equitable framework for constructing CEO compensation and to measure the performance of a select number of the highest-paid CEOs in Canada against the framework to decide whether the seemingly excessive CEO compensation pattern was justified or not.

The results indicate that the compensation of the highest-paid CEOs in Canada is, in fact, excessive as the performance of each CEO and the respective organization needs to meet the criteria for equitable compensation. It is noteworthy that each of the five CEOs selected, along with the respective organization, failed even to become financially successful. The CEOs frequently needed to improve many elements of the framework as well. Fatalities, lawsuits by locals, high turnover, and lack of remuneration integration even within the compensation framework of each company put all the CEOs at odds with the elements of the framework.

While high CEO compensation has been the fodder of the public and the media, the compensation of the highest-paid CEO has never been tested before. This research aimed to do just that. The experiment provides a true-and-tested insight into the legitimacy of CEO compensation against the remuneration framework of organizations if such frameworks truly exist.

Study Limitations

It is beyond the scope of this study to investigate the remuneration framework of each of the above organizations since even if such frameworks exist and are actively used, companies have no intention of making them public.

Recommendations for Future Research

Organizations need to be more responsive when it comes to CEO compensation. The ones that are known and documented here are those of publicly traded companies. Further research is required to verify whether:

1. An established compensation framework exists in companies that make the list of highest-paid CEOs.
2. The framework plays a role in CEO’s compensation.

Based on the empirical evidence in this study, further longitudinal studies could be designed to examine the long-term effects of the factors identified in inequitable CEO compensation. This would, in turn, clarify which of these factors has a greater impact on CEO compensation in the long run.

Another notable fact is that even though Canada ranks in the middle at 52% in Hofstede’s masculinity dimension (fig 2.10), male CEOs dominate the highest-paid list. Future research is recommended to address the role of gender and high CEO remuneration. 

Conclusion

In conclusion, this study aimed to investigate the relationship between Leadership Remuneration and Organizational Performance. To achieve this, the correlation of CEO compensation with financial and non-financial factors was investigated through published literature regarding equitable CEO compensation and how to arrive at it.

            The findings suggest that currently, there is not a significant relationship between Leadership Remuneration and Organizational Performance. In all case studies in this research, the common theme was that there was no visible correlation between organizational performance and leadership compensation models. While remuneration packages are designed to incentivize desired behaviors leading to improved performance outcomes in mind, the lack of desired performance does not affect CEO compensation.

            This study is significant because it contributes to understanding how robust leadership compensation strategies must be devised to achieve optimal organizational performance and how the latter’s outcome must drive the fluidity in CEO compensation. By providing a synthesis of existing empirical evidence, the hope is to guide future research in this area and inform best practices for the design of leadership remuneration models.

In terms of methodology, a meta-analytic approach was adopted to aggregate quantitative findings from several studies. This approach allowed to account for bias and error in the body of research, examine key trends and differences in findings between studies, and translate original study results into standard effect size metrics. This approach should provide a reliable means of integrating empirical knowledge on the issues of Organizational Performance vs Leadership Remuneration.

Moreover, finally, the study finds that a balanced approach to CEO compensation, considering both short-term and long-term performance KPIs, is crucial for ensuring equitability and harmony. Additionally, the research suggests that national and regional culture significantly influences perceptions of fairness in CEO compensation. To address this issue, it is recommended that more transparent and equitable compensation practices be developed that take into account the specific cultural context of each organization.

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