Advisory Committee on Senior Level Retention and Compensation

The Honourable Vic Toews, P.C., Q.C., M.P.
President of the Treasury Board
House of Commons
Ottawa, On K1A 0A6

Dear Minister Toews:

In this report, our tenth since 1998, we have made recommendations about compensation for executives, deputy ministers, governor in council appointees and chief executive officers of Crown corporations.

In formulating the recommendations, we examined not only labour market data but also the compensation principles and methodologies that were established with our first reports, principles that the government has accepted.

We have also reviewed progress by the government in implementing previous recommendations.

In our eighth and ninth reports, we recommended that a portion of the compensation increase be put into performance pay to support the recognition of good performance and begin to address the gap with the Canadian labour market at higher levels of the executive cadre. We have recommended this approach again. On average, for the senior executives, we are recommending an increase of 4.1 per cent, consisting of an economic increase of 2 per cent applied to base salaries and 2.1 per cent increase to the maximum performance award. At the more senior levels, we are recommending a higher percentage increase to performance awards for the reason stated.

Finally, we urge you to make a timely decision on our recommendations. We believe it is important to implement compensation increases in a timely fashion such that they align with annual performance objectives of the executives of the public service.

I look forward to the continuing work of the Committee to provide advice and experience to the government in the effort to renew the Public Service of Canada.

Sincerely,

The paper version was signed by

Carol Stephenson

Chair:

Carol M. Stephenson
Dean
Richard Ivey School of Business

Members:

Gaétan Lussier
President
Gaétan Lussier and Associates

Patrick O'Callaghan B.A., M.B.A.,
President, Patrick O'Callaghan and Associates

Sarah E. Raiss
Executive Vice-President, TransCanada Corporation

Raymond Royer L.L.B., M.A.,
President and CEO, Domtar Inc.

Table of Contents

• Compensation
• Recommendations
• Progress since our last report
• Appendix One: Mandate of the Advisory Committee on Senior Level Retention and Compensation
• Appendix Two: The Advisory Committee on Senior Level Retention and Compensation
• Appendix Three: Recommended Salary Ranges and Performance Awards

Compensation

Our ninth report, dated January 2008, focused on broad human resources management recommendations for the public service, pointing to the aging demographics of the senior levels of the public service. The demographics, increased focus on accountability and increased competition for human resources are good reasons for strong management of all aspects of human resources. And, as we promised in the ninth report, we have turned our focus to compensation to ensure that senior level compensation continues to support the coming recruiting and retention challenges.

When our Committee began its work in 1997, we established compensation principles and methodologies that we have since followed rigorously.

• Compensation Structure: We developed a compensation structure that recognizes the responsibility, know-how, problem solving and accountability of executive positions and remunerates them accordingly.
• Benchmarking: We established a methodology of benchmarking the foundation of the compensation structure, namely the EX-1 position, to the median of the Canadian labour market to ensure that public service executive salaries support recruitment at the entry level. We study labour market data from over 500 Canadian organizations in addition to other labour market studies. We ensure that the compensation for all levels is somewhat above the broader public sector, recognizing the federal public service is the senior level of government.
• Timely Compensation Adjustments: We established a routine process for recommending timely increases to keep up with the labour market and maintain the purchasing power of senior levels.
• Fiscal Prudence: We have adopted a 'lag' strategy. As those experienced with the theory and practice of compensation know, in establishing a relation with the labour market, organizations typically adopt a 'lead, lag or match' compensation strategy. In comparison, a lead strategy means that changes to the organization's pay structure are timed to be ahead of other organizations in the labour market, to compete for labour. The implication of our 'lag' strategy is that the compensation we recommend is put in place after the labour market has already moved on to new salary levels. For example, in February 2008, we looked at compensation that was in place in September 2007 in the Canadian labour market to recommend compensation for public servants beginning in April 2008 for the next fiscal year.
• Total Compensation Methodology: We ensure that our recommendations are based on total compensation. This approach ensures that the right mix of components is in the compensation 'envelope' and that the envelope is consistent with recruitment and retention needs, and that in our labour market comparisons, we are comparing 'apples to apples'.
• Performance Pay: We take the government's record in administering performance pay into account. We are confident that the government is managing this program in a disciplined way, and as it was intended.
• Salary Inversion and Compression: We ensure that the incidence of compression and inversion is considered in our deliberations.

Recommendations

After taking the labour market research for 2007 into account and following the principles and methodologies we have established, we recommend:

• For executives and deputy ministers:
  • a 4.1 per cent increase to cash compensation, consisting of an economic increase of 2.0 per cent and an increase of 2.1 per cent increase to the maximum lump sum performance award to be paid based on performance, effective April 1, 2008.
  • that the government provide executives with annual information on the value of their total compensation, beyond the statement of benefits that employees already receive.
• For Governor in Council appointees:
  • For GC-1 to GC-5, a salary range increase of 2 per cent and a maximum performance award of 13.6 per cent
  • For GC-6 to GC-9, a salary range increase of 2 per cent and a maximum performance award of 23.4 per cent
  • For GC-10, a salary range increase of 2 per cent and a maximum performance award of 28.4 per cent
  • That the GC-Q salary ranges be adjusted accordingly
• For CEOs of Crown corporations:
  • That the compensation structure for Crown corporations move to an eight group structure from the current ten group structure:
    • A 20 per cent differential between groups
    • A 2 per cent salary range increase
    • An increase in the maximum performance award for CEOs of Crown corporations to be more in-line with EX/DM performance awards
    • For Groups 1 to 3, a maximum performance award of 15 per cent
    • For Groups 4 to 5, a maximum performance award of 26 per cent
    • For Groups 6 to 7, a maximum performance award of 28 per cent
    • For Group 8, a maximum performance award of 33 per cent
  • Given the completion of the structural and compensation review for the CEOs of Crown corporations, that a study be undertaken to look at the compensation for Directors and Chairs of Crown corporations.

The current and recommended salary ranges are shown in Appendix Three.

Progress since our last report

Progress in implementing our recommendations of the Ninth Report is summarized below.

Recommendation	Status as of April 2007
That the government continue the practice of putting some of future compensation increases into performance pay in order to address the gap with the Canadian labour market at higher levels of the executive cadre, while ensuring that their compensation remains above that of the broader public sector.	The government has consistently accepted and implemented our recommendations.
That the government pursue its practice of steady, timely progress in approving compensation increases to maintain the federal government's capacity to recruit and retain high potential individuals.	The Stephenson Committee met in February 2008 to consider recommendations to Treasury Board for salary increases for senior executives to take effect April 1, 2008.
That the government continue the practice of publishing results of the performance management program, in the interests of transparency and to ensure that executives see performance pay as part of the total value proposition.	The government has published results annually since 2003–2004. Results for the 2006–2007 fiscal year are the most recent.
That the excellent practice of using the Management Accountability Framework (MAF) as a critical element of deputy head assessment continue and that it be cascaded down to other executive levels in the organization.	Development of the MAF as a tool for assessing deputy head performance is ongoing and is being used for deputy head performance assessment again in 2008.
That the Canada Public Service Agency (CPSA) begin the research and consultations necessary for our Committee to provide recommendations to modernize severance pay as a retention tool by making a portion of it accessible to executives at different stages of their careers, for example at ten or twenty years of service.	Research and consultations are in progress.
That the CPSA develop a policy and tools to simplify the process of termination when there is a need to facilitate separation where there is no cause, such as lack of fit with the job.	The Canada Public Service Agency is conducting research and consultation on this question.
That deputy heads be fully accountable for the development and implementation of HR plans, and support these efforts in human resources planning with adequate recognition and resources.	The Deputy Ministers' Committee on Public Service Renewal developed the 2007–2008 Public Service Renewal Action Plan. One of the four priorities is planning and by March 2008, 35 of 36 departments and agencies will have developed and distributed their integrated plan to their employees and put it on their website.
That recruitment and retention at senior levels of high potential individuals be based on capacity, regardless of age and experience, with adequate supports such as a buddy system and capitalizing on the knowledge and experience of retired public and private sector executives.	Some initiatives are currently underway and will be pursued further in 2008–2009, for example: a bridging program, coaching services available from the Canada School and the Personnel Psychology Centre (PSC).
That executives be encouraged to take risks and learn from their mistakes to foster creativity and innovation.	This behaviour is being encouraged through incorporation in vision and cultural changes promoted in PS Renewal initiatives.
That deputy heads and their senior executives be personally involved in external recruitment on campus and that timelines match those in the private sector.	The 2007–2008 Public Service Renewal Action Plan stated that by March 2008, deputy ministers were to increase the number of post-secondary graduates appointed directly to indeterminate positions to at least 3,000. The Clerk's Fifteenth Report shows that over 4,000 recent post-secondary graduates have been recruited.
That the Key Leadership Competencies, with a focus on people management, be used in formal assessment of executive performance beginning in 2007–2008 and that emphasis on the management of people be further strengthened in 2008–2009.	The revised Policy on the Management of Executives (approved by Treasury Board in June 2007) requires deputy heads to attest that the Key Leadership Competencies were used to assess executive performance. The Canada Public Service Agency has provided tools and training to support this assessment in a publication, the Gold Standard for Performance Management.
That the government focus on promoting the excellent personal and career growth opportunities in the federal public service and continue expanding such opportunities. These should be discussed annually in individual development plans and department-wide.	The 2007-08 PS Renewal Action Plan stated that by March 2008, deputy ministers were to ensure at least 90 per cent of Public Service employees had learning plans in place and that a corresponding discussion and an assessment of the plans between employee and supervisor occurs annually in connection with performance review. The Clerk’s Fifteenth Report indicates that 30 of 36 deputy ministers have confirmed that at least 90 per cent of their employees will have learning plans in place by March 2008. In 2007-2008, the Agency developed guidance on learning to assist managers and employees to develop learning plans in the context of ongoing discussions. This guidance has also been integrated into the School's e-learning course "Introduction to Personal Learning Plans" and its online learning plan tool, "My Learning Planner". It is developing guidance on organizational learning strategies and updating the guidance for managers on learning as part of the integrated business and human resources planning process. This work will assist with improved planning and completion of individual learning and development activities to develop identified skills, competencies and knowledge, thereby better supporting employee development and departments’ business objectives, both now and into the future.
That the government create further initiatives to publicly celebrate the accomplishments of public servants and that when a public servant has been recognized, the government follow-up with media advertising nationally and especially regionally.	A new awards strategy is being developed including provision for increased visibility of public service awards, such as the Outstanding Achievement Awards, through such avenues as publication of award winners in national and regional newspapers and nominating PS executives for external awards.
That the government make more proactive use of Interchange Canada and the Fellows Program, enhance orientation programs for those new to the public service, and provide mentoring and coaching.	The inaugural intake of the Fellows Program has concluded with the selection of eight Fellows in the first year. Marketing of the program for 2008–2009 inside and outside the Public Service of Canada should lead to an increased number. A pro-active marketing strategy is being developed for Interchange Canada. As of March 20, 2008, there are 51 active incoming EX participants and 28 outgoing EX participants.
That the work on corporate talent management be extended, on a priority basis, to the rest of the EX population.	Talent management for Assistant Deputy Ministers will be further expanded in 2008-2009 to the rest of the EX cadre.

Appendix One: Mandate of the Advisory Committee on Senior Level Retention and Compensation

To provide independent advice and recommendations to the President of the Treasury Board concerning executives, deputy ministers and other Governor-in-Council appointees of the federal Public Service and public sector on:

• developing a long-term strategy for the senior levels of the Public Service that will support the human resource management needs of the next decade,
• compensation strategies and principles, and
• overall management matters comprising among other things human resource policies and programs, terms and conditions of employment, classification and compensation issues including rates of pay, rewards and recognition.

To present recommendations in a report to the President of the Treasury Board. The report will be made public by the President of the Treasury Board.

Appendix Two: The Advisory Committee on Senior Level Retention and Compensation

Carol M. Stephenson, B.A., (Committee Chair)
Dean, Richard Ivey School of Business, Ms. Stephenson, a widely respected CEO in the Canadian telecom industry, was appointed Dean of the Richard Ivey School of Business in July 2003. In 1999 she was appointed Chief Executive Officer of Lucent Technologies Canada. Prior to that, she was President and Chief Executive Officer of Stentor Resource Centre Inc., and Vice-President of Bell Canada.

Gaétan Lussier, O.C., B.Sc. (Agr.), M.Sc., Ph.D.
President, Gaétan Lussier and Associates, Mr. Lussier is a past Assistant Deputy Minister and Deputy Minister at the Quebec Ministry of Agriculture; and, federally, a past Deputy Minister of Agriculture Canada and past Deputy Minister and Chairman, Employment and Immigration Canada. Mr. Lussier was also President of the External Advisory Committee on Smart Regulation and is the founder of the Canadian Agri-Food Policy Institute (2004). Moreover, he was President of Boulangeries Weston Québec Ltd. and past President and Chief Executive Officer of Culinar Inc.

Patrick O'Callaghan, B.A., M.B.A.
President, Patrick O'Callaghan & Associates, Mr. O'Callaghan specializes in Board effectiveness and director recruitment in the public, private and not-for-profit sectors. Since 1992, Patrick O'Callaghan & Associates has provided Board governance advice to organizations in a wide range of industries throughout Canada, including assignments with federal and provincial crown corporations. Mr. O'Callaghan is a frequent speaker and seminar leader on corporate governance issues. He has first-hand experience as a director of public and private Canadian corporations and several not-for-profit organizations. Currently, Mr. O'Callaghan is a director of Women on Board^TM and a member of the Directors Advisory Group of the Canadian Institute of Chartered Accountants.

Sarah E. Raiss, B.Sc., M.B.A.
Executive Vice President, Corporate Services of TransCanada Corporation Ms. Raiss is responsible for human resources, information systems, aviation, real estate and corporate services at TransCanada Corporation. Prior to holding this position, she was President of S. E. Raiss Group, Inc.; Vice President of Customer Service, Training and IT Support at Ameritech; Senior Consultant at Metzler and Associates; as well as holding various positions in engineering and operations with Michigan Bell.

Raymond Royer, L.L.B., M.A.
President and CEO, Domtar Inc., Before his appointment at Domtar, Mr. Royer was President and Chief Operating Officer at Bombardier. He is noted for his outstanding financial management and his ability to integrate acquired businesses through a management system that engages employees.

Appendix Three: Recommended Salary Ranges and Performance Awards

Current and Recommended Cash Compensation for the EX and DM Groups

Level	Current 2007-2008			Recommended 2008-2009
	Salary Range Maximum	Maximum At Risk Pay	Maximum Bonus	Salary Range Maximum	Maximum At Risk Pay	Maximum Bonus
EX-1	113,100	9.6%	3.0 %	115,400	12.0%	3.0 %
EX-2	126,800	9.6%	3.0 %	129,400	12.0%	3.0 %
EX-3	141,900	9.6%	3.0 %	144,800	12.0%	3.0 %
EX-4	162,900	16.4%	6.0 %	166,200	20.0%	6.0 %
EX-5	182,500	16.4%	6.0 %	186,200	20.0%	6.0 %
DM-1	204,200	16.4%	6.0 %	208,300	20.0%	6.0 %
DM-2	234,900	19.4%	8.0 %	239,600	25.0%	8.0 %
DM-3	263,000	19.4%	8.0 %	268,300	25.0%	8.0 %
DM-4	294,500	23.4%	9.0 %	300,400	30.0%	9.0 %

 

Current and Recommended Cash Compensation for the GC Group

Level	Current 2007-2008			Recommended 2008-2009
	Salary Range Maximum	Maximum At Risk Pay	Maximum Bonus	Salary Range Maximum	Maximum At Risk Pay	Maximum Bonus
Level 1	78,300	8.5%	3.0 %	79,900	10.6 %	3.0 %
Level 2	90,000	8.5%	3.0 %	91,800	10.6 %	3.0 %
Level 3	103,800	8.5%	3.0 %	105,900	10.6 %	3.0 %
Level 4	119,300	8.5%	3.0 %	121,700	10.6 %	3.0 %
Level 5	137,200	8.5%	3.0 %	140,000	10.6 %	3.0 %
Level 6	157,700	15.3%	6.0 ù%	160,900	17.4 %	6.0 %
Level 7	181,400	15.3%	6.0 %	185,100	17.4 %	6.0 %
Level 8	208,500	15.3%	6.0 %	212,700	17.4 %	6.0 %
Level 9	239,800	15.3%	6.0 %	244,600	17.4 %	6.0 %
Level 10	275,700	18.3%	8.0 %	281,300	20.4 %	8.0 %

 

Current and Recommended Cash Compensation for the GC-Q Group

Level	Current 2007-2008	Recommended 2008-2009
Level 1	84,700	88,100
Level 2	97,400	101,200
Level 3	112,300	116,800
Level 4	129,100	134,200
Level 5	148,500	154,400
Level 6	181,800	188,900
Level 7	209,200	217,300
Level 8	240,400	249,700
Level 9	276,500	287,200
Level 10	327,000	338,700

 

Current Cash Compensation for CEOs of Crown Corporations 2007

Level	Job Rates	Maximum Performance Award
Group 1	132,000	10%
Group 2	147,800	10%
Group 3	165,600	10%
Group 4	185,500	10%
Group 5	207,700	10%
Group 6	238,900	15%
Group 7	274,700	15%
Group 8	315,900	15%
Group 9	379,100	20%
Group 10	455,000	25%

 

Recommended Cash Compensation for CEOs of Crown Corporations 2008

Level	Job Rates	Maximum Performance Award
Group 1	134,700	15.0%
Group 2	161,600	15.0%
Group 3	193,900	15.0%
Group 4	232,700	26.0%
Group 5	279,200	26.0%
Group 6	335,000	28.0%
Group 7	402,000	28.0%
Group 8	482,400	33.0%