Increased sensitivity around executive bonus compensation is pushing employers to prioritize transparency and communication when explaining why bonuses were awarded.

The compensation method has seen increased scrutiny after Catherine Tait, CBC/Radio-Canada’s president and chief executive officer, didn’t rule out the deployment of management bonuses right after the public broadcaster announced last December it was cutting 800 jobs due to a projected $125 million shortfall in the coming fiscal year. During a parliamentary committee hearing in January, Tait was grilled on the company’s decision not to rule out performance pay amid mass layoffs.

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While many people are questioning the organization’s decision to pay bonuses amid mass layoffs, Neena Gupta, a partner at Gowling WLG, says from a management perspective, those two things aren’t actually contradictory.

The decision to award a bonus is typically determined by a board of directors that examine financials, performance and other metrics of interest to a company. However, increased calls for financial transparency will have a significant impact on the way executive compensation is carried out, she says, noting the CBC’s recent compensation woes may lead more employees to request total compensation disclosure from their employer.

Executive compensation is one of the most scrutinized aspects of corporate governance, says Ani Huang, president and CEO of the Center On Executive Compensation. “What [employers] want to do is to make sure that they’re really clearly explaining the specific metrics and objectives that the executive met . . . to qualify for the bonus,” she adds, noting it’s also important they have data to back up how their bonuses compare with those of their peers in the market and company performance.

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The recent criticism of bonus compensation shouldn’t focus on the effectiveness of the financial tool but on what employers are doing to improve how they measure performance, says Stephen Wolpert, senior partner at Whitten & Lublin Employment Lawyers. “If an organization makes a bad deal with its executive because it pays too much for a bonus or because it doesn’t properly calibrate it to the right kind of performance metrics [then] shame on them for having done it wrong.”

Executive bonuses play a crucial role in the attraction and retention of top talent, so they aren’t going away anytime soon, he says. “I’ve seen really interesting ideas about tying executive compensation to minimum wage and capping it at some multiplier of the minimum wage or some multiplier of the company’s average wage, so that, no matter what, that imbalance doesn’t grow. But the reality is that employers are competing for talent.

“It’s hard to pick one player in the market and say, ‘You cap your bonuses,’” Wolpert adds. “Because the risk for them is a brain drain, a flight out of top talent.”

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