UWOFA comments on Western's proposed Executive Compensation Program

On April 25, 2018, Western University released its proposed Executive Compensation Program and invited comments on it. In sum, UWOFA (i) opposes the use of non-university comparators for establishing executive compensation at Western, (ii) proposes a more balanced selection of U15 universities as comparators, and (iii) proposes that the maximum annual increase in the compensation for the Designated Executives be reduced to 3%. Detailed comments are set out below.

Use of Non-University Comparators

1. UWOFA opposes Western's proposed use of non-university comparator organizations. The fact that, in isolated cases, Western has recruited Designated Executives from a hospital is not a sufficient reason to justify using hospitals as comparators. If Western had recruited a Designated Executive from private industry, that would not justify using the salaries of CEOs of major private corporations as comparators. Similarly, the fact that the selected hospitals have a similar governance structure to Western does not make them appropriate comparators. Many institutions, public and private, have similar governance structures. By comparison, Queen's University's Executive Compensation Program uses only other Canadian universities as comparators. This is equally appropriate for Western. Western has not made out a case for using hospitals as comparators. It is even less clear how using research institutes (Perimeter Institute and The Michener Institute) is appropriate.

2. If Western is permitted to use hospitals as comparators, it should use hospitals in the region in which Western is located (southwestern Ontario) rather than in downtown Toronto. Moreover, the Hospital for Sick Children and the Sinai Health System are among Canada's most accomplished and prestigious hospitals. They are not comparators for Western.

Choice of University Comparators

3. It is unclear why Western has excluded some of Canada's U15 group of universities, of which it is a member, as comparators. In particular it has excluded Queen's University and University of Waterloo, both of which are in Ontario. As shown in Appendix A, Western has chosen as comparators only U15 universities that have more total expenditures and more research revenue than it does. Arguably a more balanced comparator group would include at least some U15 universities with lower total expenditures and research revenue than Western. Western should be in the middle of its comparator group of universities, not at the bottom.

4. In addition, UWOFA notes that historically Western's administration has refused, in collective bargaining, to accept faculty salary comparisons between Western and some of the chosen comparator universities, particularly the University of Toronto. Western has long argued that its faculty salary comparisons should be with the University of Guelph, McMaster University, University of Waterloo and Queen's University. Yet it has included only one of these universities as a comparator for executive compensation. Western should be consistent in its choice of comparator universities for both executive compensation and for faculty compensation generally. Western's need to attract executive talent mirrors its need to attract and retain faculty talent.

5. University rankings also call into question Western's choice of comparators. In the 2018 Times Higher Education World University Rankings, The University of Toronto is 22nd, McGill University is 42nd, McMaster University is 78th and University of Alberta is 119th. In contrast, Western is between 200th and 250th. Western has chosen only comparators that are ranked at the same level as it or substantially higher. The comparator group should be more balanced with Western at its middle, not its bottom.

Annual Rate of Increase

6. UWOFA opposes allowing annual increases to be as high as 5%, for several reasons.

FIrst, this is greater than the annual increase to faculty salaries in recent years, which is listed as between 3.1% and 4.5%. Moreover, the annual increase to faculty salaries of $175,000 or higher, which is more closely comparable to executive compensation, has been significantly lower over the period (between 2.0% and 2.5%).

Second, concerns about compression are misguided. Not only are the examples Western provides not based on negotiated collective agreement increases (they are based on decanal salaries which Western establishes and high starting salaries which Western chooses to pay to certain people), they in any case do not establish that compression is something that needs redress. It is entirely acceptable that certain Deans and certain researchers, because of their skills and responsibilities, would be paid significant amounts that are close to the amounts paid to the Designated Executives. Salary spread for its own sake is not appropriate.

Third, a 5% increase each year would mean that the maximum salary would be reached in relatively few (four or five) years and then continue for the life of the Program. In accordance with the rationale behind the creation of these frameworks for executive compensation, the period of salary increases should be longer. A framework that reaches its maximum value quickly is not much of a framework.

Fourth, through some level of restraint, the Designated Executives can and should lead by example.

7. UWOFA rejects the argument that ongoing changes at Western in any way justify either the chosen comparators or the chosen maximum annual increase. Western is a complex and constantly-evolving institution. The examples of "expansion" Western lists are simply new projects that come on stream as earlier projects end. They are not significant changes in the nature of the Designated Executive portfolios. They fall within current portfolio descriptions and are already captured by the current levels of compensation.

Other Issues

8. It is noteworthy that the Program reflects a University that is in a strong financial position. It does not contain any cautionary language about attenuated revenue in the coming years or concerns about returns on invested funds. When it comes to executive compensation, Western is confident about its financial health.

9. Given that Western has made a commitment to a defined contribution pension plan, the Program should stipulate that any supplement paid to the President to adjust for moving from a defined benefit pension plan to Western's plan should not exceed the amount required to make this transition neutral in terms of its financial consequences. It should not be possible for the supplement to result in a net increase in the President's overall compensation.

10. The Program is silent about administrative leaves. These should be explicitly addressed because they are an important aspect of total compensation. The Program should note that the Designated Executives earn entitlement to administrative leave, explaining how the entitlement is earned and the compensation level for the leave. In addition, what is required of the Designated Executive during such a leave and how that work is to be evaluated should be clear. During the leave the Designated Executive is working for the University: it is not a period of recuperation or holiday and the money paid is not deferred compensation for earlier work. For an example of language addressing these issues, see Queen's University's Executive Compensation Program.

View UWOFA's original Comments on Western's Proposed Executive Compensation Program here