This is a continuation of our response to the information in the “Board of Directors Update & Special Resolution” booklet, Page 6
Coast Capital Savings now rewords their position on Director Compensation: “Framework” Approved – Not Compensation
Page 6 reads “Our director compensation framework is already member approved with built in checks and balances.”
Coast Capital used to state that “Directors Compensation is already member approved” until we called them on it. They have now changed their statement to “our director compensation framework is already member approved”.
That is a BIG difference.
Members lost their right to approve Director Compensation back in 2007. We think that’s wrong. We want Member’s ability to approve Director Compensation restored. That is what our Special Resolution is asking for. Vote YES is you agree.
We have always maintained the 2007 vote approved the PROCESS (FRAMEWORK) to facilitate comparison of Direction Compensation, not the amount of the compensation. Now they apparently agree.
What is their position? Is their compensation already approved by members?
Page 6 says that Director pay determination is “Conducted by an independent compensation consultant”. Remuneration is decided by the Directors. However they do make use of an “independent compensation consultant”.
Compensation consultants can operate under a huge conflict of interest. Consultants report to the client who hired them. If consultants want to be engaged by the client the next time, then they are wise to look after the people that hire them. In the case of Coast Capital, that client is the Board of Directors.
Conflict of Interest is a problem in the compensation consulting business but reducing the conflict is simple – have the consultant engaged by, and report to, the people that own the business – the members themselves (yes, that’s us) and not the Directors.
Another problem is compensation consultants are bound by the instructions issued by the client.
If the client instructs the independent consultant to “compare us to the Boards of other BC credit unions” then only Boards from that group will be referenced for the report. However. if the same client says “compare us to the Boards of mid-sized public companies across Canada”, only Boards of companies meeting those criteria will be referenced.
Under the two scenarios, the recommendations of the consultant will be entirely different. Obviously, the public company sector is different and pays more for good reasons. Coast Capital is not a public company, nor does it operate across Canada, so why include those criteria in the Remuneration Philosophy?
What instructions does the board give the compensation consultants?
The exact wording from page 6 of the Special Resolution booklet reads “established a Director Remuneration Philosophy that placed director compensation at the top end of cooperatives but no higher than the lowest quartile of public companies of similar size and complexity”.
But what does this mean?
The Directors are instructing the consultants to recommend pay that is above the top quartile of other Canadian Credit Unions. That means that they are asking to be paid more than other directors in other Canadian credit unions regardless of size. Wouldn’t you like to get paid more than anyone else in your industry? Sounds like a sweet deal for Directors. Yes, the booklet does point out that the consultants are also requested to recommend a pay level that is also within the bottom quartile of similar sized companies on the TSX. But is this reasonable? No, the pay of Directors in publicly traded companies is not relevant to the pay of director within a credit union or co-op. That’s an Apples and Oranges comparison. Can you ask your boss to pay you more than anyone else in your industry? No. Does it make you boss feel any better to tell him that you won’t be paid as much as execs in some unrelated but very highly paid industry? Still no. But those are the instructions given to the Compensation Consultants. That’s not right.
How does this compare to VanCity?
Vancity engages an independent compensation consultant that reports to a Compensation Committee with member participation. Their consultant is likely asked to reference the proper peer group – other BC credit unions. That is why there is a difference of over $100,000 a year between the pay of Vancity’s Chairman and our Chairman.
From Page 6 “The boards of directors of at least half of the 10 largest credit unions in Canada establish director remuneration”.
We don’t know who was first in BC, was it Coast Capital? Not that it matters, it is a mistake to let anyone or group approve their own remuneration.
Mr. Wellburn, Chairman of the Board, was a chartered accountant before he became a professional director.
Do you think he advised his accounting clients to let employees, consultants or directors set their own pay?
Do you think any of our Board members would make that recommendation to their clients?
From Page 6 “Every year on our web site we post………number of meeting directors attended…..”
This is not correct. In dictionaries, “attended” is defined as “being present”. Most likely that is the meaning Coast Capital members associate with “attended”.
Coast Capital permits Directors to “phone in to where a meeting is held” and then the Director is in Attendance. Directors get $1020.00 for attending each meeting.
We have asked for the web site information to be corrected so we can determine the frequency of Directors phoning in to meetings and being paid.
Members can phone the member service center and ask for the correct information to be forwarded.
The Board has made it very difficult to find out how much each Director is paid. The information is six clicks into the tabs on the web site (if you know where to go) and historical information removed so the curious see only the last year. ($178,173 collected by Mr. Wellburn in 2009).
We are pleased the Board has agreed with us that detailed information concerning the amount paid to each Director should be published in the annual report.
In the next post we will look into this statement on Page 6: “Directors earn fair compensation for the challenging work they do on behalf of members”.