Equity lifts director pay over $100,000, as more leading Canadian companies opt for mixed cash-equity compensation, says the 2006 Canadian Spencer Stuart Board Index.

Toronto, January 15, 2006 – Leading Canadian companies are increasingly relying on equity rather than cash to compensate directors, according to the 2006 Canadian Spencer Stuart Board Index released today.

The total average director compensation for the 100 publicly traded companies with revenues over $1 billion was $118,026 in 2006 — up by 15 per cent, according to proxy and survey results analyzed by Spencer Stuart. But equity accounted for 87 per cent of that year over year growth. Moreover, the total average director compensation paid by those CSSBI 100 firms that grant equity is now more than double that for firms that provide only cash-based remuneration ($144,747 versus $70,910).

“Investors can be encouraged that leading Canadian companies have increasingly taken positive steps to align shareholder and director interests as part of their governance reforms,” says Andrew MacDougall, who leads Spencer Stuart’s Board Services Practice in Canada. “The potential risk of an over-reliance on equity in director compensation will be an issue boards will face going forward.”

Also evident in the 2006 analysis is the ongoing decline in the use of stock options as a form of director compensation. “While about a fifth of the firms in our analysis allow options, we found that only eight Canadian firms actually grant them,” added MacDougall. “We’re seeing a similar trend in the U.S., where more than half of comparable companies still have option plans, but only 5 per cent exercise them. Most boards now opt for less controversial forms of equity compensation.”

The 11th annual Canadian Spencer Stuart Board Index, published by the global executive recruiting firm Spencer Stuart, features compensation and governance trends for 100 of the largest publicly traded Canadian companies with annual revenues exceeding $1 billion (the “CSSBI 100”) and contains comparisons with comparable U.S. firms, using Spencer Stuart’s proprietary board database. The 2006 CSSBI also includes a feature report: CEO Route to the Top: A Statistical Snapshot of CEOs of Leading Canadian Companies, Other highlights from the 2006 analysis

Compensation

• Total average director compensation exceeds $100,000. Director compensation in Canada jumped 15 per cent between 2005 and 2006. Among CSSBI 100 firms with more than $5 billion in revenues, directors in 2006 were receiving, on average, $143,808 —- 48 per cent more than firms with $1 billion to $5 billion in revenues.
• Still a big gap between Canadian and U.S. total average director compensation. Total average director compensation (including equity) for CSSBI 100 companies is just under two-thirds the amount (64 per cent) of the comparable U.S. firms; Canadian board member retainers are, on average, only half of those paid by U.S. companies.
• Minimum equity ownership requirements are more prevalent in Canada. Eighty per cent of Canadian boards have minimum equity ownership requirements for directors, compared to 62 per cent for comparable U.S. boards.
• Audit chair retainers have grown significantly. Audit chair retainers rose by 96 per cent between 2002 and 2006, reflecting the increased responsibilities arising from stringent new guidelines and regulations governing the activities and duties of audit committees.
• Pay parity between Canadian and U.S. audit chairs. Audit committee chairs at CSSBI 100 companies received, on average, $18,921 in retainers, compared to $19,858 for comparable U.S. firms. Among the larger CSSBI, audit chair retainers now exceed comparable U.S. firms by 13%.

Board Composition/Diversity

• Women are making some gains on Canadian boards, but continue to trail U.S. counterparts. Women currently occupy 13 per cent of board seats on CSSBI 100 boards, a 5 per cent increase over last year. But of the 59 CSSBI 100 companies that added new directors to their boards, more than a quarter recruited women. Just over half (51 per cent) of Canadian boards now have more than one female director (compared with 46 per cent last year), while only 9.5 per cent have none (compared with 14 per cent in 2005). But since 2002, female directors have been joining U.S. boards at a faster rate than comparable Canadian firms.
• Directors with relevant industry experience most in demand. Among the surveyed companies in 2006, individuals with relevant industry experience topped the preferred list for new directors.
• Canadian Boards have more international directors. There was a small (1 per cent) increase in the number of international directors on CSSBI 100 boards over last year, for an average of two per board. By contrast, comparable U.S. firms have an average of only one international director per board.

Governance

• In Canada, board chairs continue to be more independent than in the U.S. Four out of five firms on the CSSBI 100 separate the chair and the CEO positions, in contrast to a third of comparable U.S. firms. Since 2002, the practice has increased by 64 per cent in Canada and 38 per cent in the U.S. The proportion of Canadian chairs who also are independent directors — just over half of the CSSBI 100 — is five times higher than comparable U.S. firms.
• More evaluations for committee chairs and individual directors. The proportion of firms that formally evaluate committee chairs increased by 26 per cent in 2006, while individual director evaluations rose 12 per cent.
• Enhancing directors’ industry knowledge is a priority. Virtually all leading Canadian firms now provide continuing education for directors to improve their knowledge of sector-specific issues and governance practices.

The 11th annual Canadian Spencer Stuart Board Index will be published and posted on Spencer Stuart's web site (http://www.spencerstuart.com) by January 31, 2007. For inquiries, please contact Mark Limonchik, 416-203-5593.

About Spencer Stuart

Spencer Stuart is one of the world’s leading executive search consulting firms. Privately held since 1956, Spencer Stuart applies its extensive knowledge of industries, functions and talent to advise select clients — ranging from major multinationals to emerging companies to nonprofit organizations — and address their leadership requirements. Through 50 offices in more than 25 countries and a broad range of practice groups, Spencer Stuart consultants focus on senior-level executive search, board director appointments, succession planning and in-depth senior executive management assessments.

The premier firm for board counsel and recruitment, Spencer Stuart conducts over half of all director assignments handled through executive search. Spencer Stuart was the first global executive search firm to enter Canada, helping clients across the country achieve outstanding leadership solutions for their organizations from offices in Toronto (established in 1978) and Montréal (established in 1982). For more than 20 years, the Firm’s Board Services Practice has helped boards around the world identify and recruit outside directors, as well as provide advice to chairs, CEOs and nominating committees on important governance issues.

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