Canadian Fund Finds no Link Between CEO Pay and Performance

May 31, 2006 ( - A study by the Ontario Teachers' Pension Plan (OTPP) has found no relevant correlation between companies' CEO pay and stock returns.

“The results of this study raise serious questions about the alignment between CEO compensation and the market performance of their companies,” stated Brian Gibson, senior vice-president, Public Equities, OTPP, in a press release.

The study compared company results for the years 2001 – 2003 of 65 large companies listed on the Toronto Stock Exchange (TSX) and their CEO pay for the years 2002 – 2004, considering that executive pay would be based on prior year performance.

According to the study report, “Based on the results of this analysis, we cannot conclude that statistically significant correlation exists between the excess total return of a company and the relative pay of its CEO. While this is a challenging analysis to do in the Canadian marketplace given the limited sample size, our results indicate that, on average, companies with the greatest increase in CEO pay provide only median levels of excess total returns.”

According to Gibson, company boards have tried to improve the pay and performance link in executive pay in recent years. “While a few individual companies may have made good progress, in general there is no empirical evidence that compensation has become better linked to performance. On behalf of the many active and retired teachers who are shareholders in Canadian companies, we are encouraging boards to re-examine their executive compensation structures to find ways to improve the link between pay and performance,” he said in the release.

The study results are here .