He says the most important indicator of a company’s financial health resides in how senior executives are paid.
Last month, Teachers’ annual report showed that Lamoureux’s total compensation for the year came in at about $4.5 million. But a compensation scheme put in place back in 2000 at the pension plan has allowed such bonuses to be awarded.
In his address in the annual report, Teachers’ chair, Robert Korthals, explains the need for the incentives and the way in which they work. “The independent review was undertaken to ensure that our incentive plans were competitive within the investment industry and that the fund would not be at risk of losing its top people, as competition for the best performers can be fierce.”
He goes on to explain that the incentives received in 2004 are based on four-year performance and that last year was the first time the revised formula had an effect on compensation awards. Executives are usually given larger rewards the greater the fund beats its investment benchmarks.
Speaking to the press after the report’s release, Lamoureux was quoted as saying, “We want to make sure that our people have the ability, if we do well, to do very well and to stay here…the most expensive thing for us is to have turnover.”
According to a company spokesperson, the compensation given for beating benchmark targets is meant to approximate— and should be compared to— what is paid out in the private sector. For example, the OTPP consulted a Towers Perrin survey, which looks at, and compares, executive compensation.
Towers’ report shows the average top quartile compensation is about $4.3 million. The median compensation is $7 million for companies worth more than $8 billion. And finally, the top quartile earnings for companies worth more than $8 billion is $9.1 million. Companies looked at in the report include Allstate Insurance, American Express, Desjardins Group, Laurentian Bank and the National Bank.
Despite the relatively generous bonuses to the plan’s top executives, the OTPP still posted a larger shortfall than was seen in the same period last year. According to actuarial valuation at Jan. 1, 2005, the plan’s future benefits were 84% funded—10% lower than last year. And the culprit, according to the plan’s chief, are low interest rates. However, total net assets rose to $84.3 billion in 2004 from $75.7 billion in 2003.
“Low interest rates may be good for your mortgage or car loan, but they are hard on pension plans,” said Lamoureux. “Low rates mean this pension plan must have more money in the fund today to be prepared to pay pensions 70 years from now.”
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