One of those problems, says Munn, is if an industry segment is going up, generally speaking, most companies shares will go up with them. “But you could still be underperforming your peers or the general market. A high tide raises all boats.” In such a situation, the long-term incentive is undeserved and dilutes share value for everyone.
Deborah McNeil is noticing a shift as well, especially at the more strongly governed trust companies, where options are generally not as effective an incentive tool because, except for the current anomaly of the Alberta market, unit prices tend to remain stable. Club memberships for such things as the Petroleum or Ranchmen’s clubs, fitness clubs, golf clubs and others, though nothing new, are being spread out amongst a greater number of employees in an organization.
“Let’s talk about cars. Whereas, maybe five or 10 years ago, you saw people driving things like Lincoln Town Cars, fairly soupy big boats of a thing – now you’re seeing really sassy cars, things like Jaguars, Porsches, the seven-series Beemers, the status ‘I have arrived’ cars, that cost the company quite a bit on the bottom line.” Executives are now, not infrequently, being given these wheels for keeps.
McNeil has also seen a big increase in car allowances. In the annual compensation survey her company does, allowances ranged from about $7,500 to $12,000. “I think we are going to exceed that substantially this year. We’ll see values probably over $20,000.” However other forms of incentive, such as deferred compensation, where a good chunk an executive’s total salary over, say, a five year period, is only released in the fourth or fifth year, have not caught on.
While stock options have proven invaluable in attracting and retaining Alberta energy sector employees in a tight boom-time labour market, the fact that options are currently making many employees rich could backfire in the long-term, speculates the PASC’s Douglas Baine.
“My concern is I believe we are going to be running into a further employment shortage. I think you have a lot of junior people who have moved up in the status of life who might be saying, ‘Well, at the end of my three years I’m gonna sock away a million dollars [thanks to options]. Therefore I’m going to move out of the industry. You’re going to have people who would normally retire at 55 years old now retiring at 45 or 48. I think there is going to be a big void in experienced people at a whole bunch of different levels. I don’t think people are looking far enough down the road, and this has to be a concern for a lot of smaller companies.”
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