A $1.6-million vacation payment to the CEO of the CAAT pension plan is “exceptional” and a “red flag,” according to corporate governance experts surveyed by the Star.
News of the payment emerged after the sudden departure of three senior executives at CAAT, a pension plan managing the retirement dollars for some 125,000 members from more than 800 employers (including the Toronto Star) with $23 billion in assets.
OPSEU, which appoints five trustees to the board, suspended Don Smith on Jan. 23 as one of its appointees. Smith has since been removed from the board. OPSEU also alleges that Smith and current vice-chair Kareen Stangherlin made decisions about the CEO’s compensation without informing the rest of the board of trustees.
Four experts surveyed by the Star say the chair and the vice-chair appear not to have followed best practice in corporate governance, arguing they should have disclosed the payout made to Derek Dobson, the plan’s CEO.
Stangherlin maintains the allegations against her are not true and that the plan is well-run.
It is still unknown whether Dobson is entitled to the $1.6-million payment, as CAAT will not confirm if the payout was done in accordance with his employment contract. But the governance researchers say the secrecy regarding the CEO’s pay threatens to erode members’ and employees’ trust in the non-profit pension plan.
“If $1.6 million is consistent with the (employment) contract, then we can question whether the contract is set up … in favour of the CEO. Why is it so generous? Why is it so exceptional?” said Frank Li, a researcher in corporate finance and executive compensation at Western University’s Ivey Business School.
“It’s a non-profit pension plan,” Li added. “And the leaders are the stewards of other people’s retirement security, retirement money. So that creates a higher bar for transparency.”
Stephen Hewitt, spokesperson for CAAT, said in a statement that they are aware of “concerns that have been raised with respect to vacation payments made to our CEO.”
Hewitt said CAAT has appointed an independent expert to conduct a review of the governance policies, procedures and practices. The review is currently underway, he added, and if changes are recommended as a result, the board will consider them.
“Until the governance review is complete, we have no further comment.”
When contacted by the Star about the OPSEU’s allegations against her, Stangherlin said in an emailed statement that they are “false and defamatory.”
“I encourage you to consider the agendas and ulterior motives of your ‘sources.’ I expected the Star to have more journalistic integrity,” she wrote.
Stangherlin emphasized that CAAT is “among the most well-governed and financially secure pension plans in Canada, and members’ pensions are more secure today than ever before,” adding that “it’s important that members are not misled to believe otherwise, as your sources seem to imply.”
Smith did not respond to the Star’s request for comment.
CAAT has previously said the $1.6-million payout to the CEO was for vacation days not used by the CEO over multiple years.
“Where is this number from? (The company is) like a black box,” said Ivey’s Li. He added that many pension plans, including CPP Investments and the Ontario Teachers’ Pension Plan, publicly disclose their frameworks for calculating executive compensation, despite not being required to do so.
According to Li, executive pay should be tied to measurable, objective performance metrics. He also said that, for most companies, vacation pay is capped, both in terms of accrual and payouts, typically amounting to four to six per cent of total annual pay.
Rodney Nelson, a corporate governance professor at Carleton University, said he believes the sheer value of the payout is a “red flag.”
“I’m sure it’s based on a salary calculation, but it seems very high. Especially for this kind of business,” he said. “I prefer my CEOs to have down time to refresh and avoid burnout as the job is demanding and very high paced. But, that is not always possible.”
Aside from the value of the payout itself, there is the issue that decisions surrounding the CEO’s pay may not have been approved by the entire board.
“The ($1.6 million) amount itself, in my view, would have necessitated at least it being presented to the board, not just members of the board,” said Richard Powers, professor at the University of Toronto’s Rotman School of Management.
He said he believes the alleged actions by the board’s chair and vice-chair were “a mistake in judgment.”
The CAAT pension plan remains well-funded, holding $1.24 for every dollar in promised benefits.
“It seems like these issues haven’t yet hit the bottom line,” said Paul Calluzzo, professor at Smith School of Business at Queen’s University.
“I don’t think it’s a reason for panic,” he added, “but it is a reason for concern.”
