" Today’s edition of the London Free Press had this article on the front page. The story, titled “Execs live high on hog”, admonishes Farm Credit Canada (FCC), its executives in particular, for what it calls a “lavish” employee rewards program.
Several things bother me about this story. I’ll discuss four.
First, the article implies that the executives of FCC are overcompensated because they are employed by a publicly owned firm. It always baffles me that people don’t understand the opportunity costs of public servants. Civil servants, at least those in management and policy positions, are very highly educated and at the top of their fields. More often than not, these individuals could earn much higher wages in the private sector. Instead they accept non-pecuniary rewards – such as interesting work or location of employment – which motivates them to remain in their current position. All Canadians benefit from this. As that opportunity cost grows however, it becomes more challenging to attract the same highly qualified workers. Quite simply, they must forego too much money to work for the public sector.
This logic applies to executives at FCC in particular. FCC is essentially a specialized bank. Qualified bank executives do not have problems finding alternative employment. Still you never know. Maybe FCC’s executives over-compensated. Let’s do a comparison to see how FCC stacks up against a comparable private sector institution, Canadian Western Bank (data are from the annual reports).
Cdn Western - 1400
Cdn Western-$11,636 million
Cdn Western-$328 million
Cdn Western-$2,461,647 ($550,000 base salary)
Exec VP comp...
Cdn Western-$666,568-$786,886 ($247,400-$292,875 base salary)
I think that these numbers highlight the underlying issue. Let’s say that a talented executive VP at FCC was headhunted by Canadian Western Bank. Do you think that they’d stay in Regina? Neither do I.
Next, the article refers to “ailing farmers” more than three times. This sentence is a particular gem:
Farm Credit Canada’s travel and hospitality expenses reveals spending many Canadian farmers can only dream about.
Two points. First, similar to many other Canadians, I can only dream about doing these things. I don’t know why farmers get singled out. Of course, maybe it should be mentioned that neither of us (the farmers nor me) are executives at a bank. My second point is what really irritates me about this argument. Farmers are rich. Farmers are much wealthier than the average Canadians (look at the figures in this post if want proof). Farmers choose not to allocate money towards travel and hospitality. It’s not that they can’t afford them.
Moreover, many of the policies aimed at farm income are social policy (they do not correct market failures). Agricultural lobbyists should be cautious that they don’t attract too much attention to these programs. If the general population starts scrutinizing agricultural funding, farmers will not enjoy the results.
Third, the article quotes Canada’s Auditor General Sheila Fraser:
“Farm Credit Canada should review its award program against a formal, reputation-risk policy to ensure that all awards are in keeping with positive public perceptions and the desired image/reputation of FCC as a Crown corporation.”
If the infamous Sheila Fraser doesn’t call a news conference proclaiming that these employee reward programs are excessive, then these programs are not excessive. Case closed. It might be bad PR, but these programs are likely good for business and employee morale.
Fourth, my favourite paragraph in the article is this:
In March 2009, Farm Credit Canada president Greg Stewart and his wife boarded a plane to Disney World for five expense-paid days . . . Their children remained home in Regina.
Who goes to Disney World and leaves their children at home?
Here’s my conclusion. Canadians want a highly skilled public service. We do not want fraudulent expenses or excessively compensated executives. However, it is important to remember that public servants have opportunity costs. If downward pressure on wages and other forms of compensation continues, the civil service will get hollowed out with less skilled workers remaining. This will be to the detriment of the country.
Based on the information in this article, FCC’s compensation and reward packages seem very reasonable. The media should stop feigning outrage. (It is interesting to note that the total travel and hospitality expenses of the top 8 executives equaled less than 0.25% of net income, a figure so small that it doesn’t even factor into rounding.)"
Do you agree with Brandon's view?
I agree with parts of it, at least around the idea of rewarding good employees and maintaining employee morale. It's an important part of business. Compare 508 million dollars in REVENUE, with an average of 300K/year in special trips. That doesn't seem excessive at all.
Are users of other banks upset their fees are going to pay for a customer service rep to take a holiday? No (And it happens in other banks too)
How about the box seats that the company I bought my car from has in a number of big sports venues across the US? No
Just because it's a crown corporation - doesn't mean they are wasting money.
Time to move on to bigger issues.