Question: On November 18 2002 The Globe and Mail p

On November 18, 2002, The Globe and Mail ( p. B4) reported “ CEO assails pay dis-closure rules.” This referred to a speech by Claude Lamoureux, then CEO of Ontario Teachers Pension Plan Board. The Board is a major owner of and shareholder in numerous companies, hence vitally interested in questions of executive motivation and compensation. Mr. Lamoureux’s concern was with the OSC rules requiring firms to disclose and explain the compensation of their five most highly paid employees. He argues that the effect of these rules is simply to put upward pressure on pay levels, as executives demand raises to meet or exceed that of their peers in other companies.
In this regard, the RBC compensation plan (Example 10.1) states that an executive’s total compensation is positioned relative to the median of what is paid by a group of similar companies.

a. Explain the argument in favour of companies disclosing compensation information of their senior executives. Why do you think that Mr. Lamoureux, CEO of a very large and powerful institutional investor, rejected this argument?
b. How do you think the policy of RBC of relating its total executive compensation to the median of that paid by the comparable companies will affect the level of executive compensation in the banking industry over time?

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