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Who Are Canada’s Most Overpaid CEOs?

Is there anything worse than an overpaid CEO?

Down in the U.S., CEO pay (or shall we say “overpay”?) is a constant discussion in the media, and yet nothing is ever done to solve the problem.

The U.S.-based nonprofit shareholder advocacy group As You Sow put out a 49-page report in February called “The 100 Most Overpaid CEOs: Are Fund Managers Asleep at the Wheel?” It looks at the reasons CEOs are overpaid and how it hurts the overall U.S. economy as a result.

“CEO pay is a core contributor to America’s extreme and growing income inequality,” states the report’s introduction. “The Economic Policy Institute (EPI) notes that over the period of 1978 to 2015, the inflation-adjusted pay of a typical worker grew by about 0.4% a year (a total of 10% over 35 years) while the pay of a typical CEO grew almost a hundred-fold. CEO pay grew an astounding 943% over the past 37 years, nearly doubling the growth of the S&P 500 at 544% and the Dow Jones Industrial Average at 543% over the same time period.”

If you think it’s any better in Canada, think again. We just do a better job hiding it. As investors, we have an obligation to speak out when we’re not happy with CEO compensation.

As You Sow found CBS Corporation (NYSE:CBS) CEO Les Moonves to be the most overpaid CEO in the S&P 500. Who are the most overpaid CEOs in Canada?

There are many criteria you could use, but the simplest method would be to look at a list of the highest paid CEOs and narrow the choices to those whose stocks have seriously underperformed the S&P/TSX Composite Index over the past five years.

To qualify, they must still be in the job and have been CEO for the entire five-year period. This disqualifies former Valeant Pharmaceuticals Intl Inc. CEO Michael Pearson.

Here are my three choices.

Jeffrey Orr

According to Canadian Business, the CEO of Power Financial Corp. (TSX:PWF) made $11.7 million in 2016 and has been in the top job since 2005. In the past five years, PWF stock has delivered to shareholders an annualized total return of 8.6% — 120 basis points better than the S&P/TSX Composite Index.

I know what you’re thinking: “How can a CEO whose company stock outperformed the TSX be on a list of the most overpaid?” Well, you could ask the same question about Les Moonves. CBS stock achieved an 18.4% annualized total return over the last five years, and yet he’s at the top of As You Sow’s list.

I’m a fan of the Desmarais family, but paying a guy almost $12 million to run a holding company is downright silly.

George Cope

Named Canada’s Outstanding CEO of the Year in 2015, Cope was the 16th highest-paid CEO of a public company in 2016, pulling in $11.5 million. That’s not a bad payday for a company whose stock achieved an annualized total return of 5.6% over the past five years, underperforming the TSX by 177 basis points.

BCE Inc (TSX:BCE)(NYSE:BCE) is probably one of Canada’s most despised media companies, yet it continues to attract lots of income investors who love its 4.9% dividend yield. Fool.ca contributor Andrew Walker might like it, but once you back out the dividend, BCE stock basically has gone sideways for the last five years.

That’s not being responsible to shareholders.

Edward Sonshine

Ask anyone who’s anti-development in Toronto about RioCan Real Estate Investment Trust (TSX:REI.UN) and they’ll probably give you a piece of their mind. I live in the centre part of Toronto, very close to RioCan’s head office; it has at least three projects in various stages of completion within a 15-minute walk of my apartment.

Don’t get me wrong; I’m not anti-development, but when the CEO is also the founder of the company, it seems crazy to pay Sonshine $5.7 million when he already owns $11 million in company stock.

But most egregious is the performance of RioCan stock. Over the past five years, it’s generated an annualized total return of 3.9% — 346 basis points worse than the index. By comparison, First Capital Realty Inc. (TSX:FCR), which also own a fair bit of real estate in central Toronto, achieved an annualized total return of 6.5% over the same period.

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Fool contributor Will Ashworth has no position in any stocks mentioned. Tom Gardner owns shares of Valeant Pharmaceuticals. The Motley Fool owns shares of Valeant Pharmaceuticals.

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