Supporting statement
Job action by United Auto Workers and Hollywood talent illustrates
the employee unrest impacting many industries and underscores
the discrepancy between corporate profits and increased executive
pay compared to workers’ trailing wages. Exacerbating this unrest
is stagnant wage growth combined with rising inflation, particularly
impacting necessities like housing, energy, and food1.
Sluggish wage growth trailing inflation for average employees is in
stark contrast to executive compensation, where realized wages
have continued to exceed inflation and diverge from the rest of the
workforce. This data is widely available, and this growing gap is
undisputed.
While companies with lower levels of unionization are less exposed
to direct labour action, they are still exposed to similar financial
impacts. This is often felt through increased employee turnover,
absenteeism, and lowered employee morale. For instance, research
has shown that a burnt-out employee can incur a cost equivalent to
over 30% of their salary and that replacing an existing employee
can cost up to 400% of their annual salary2.
To effectively implement strategies that increase company value,
senior executives need engaged employees to execute their vision.
Many studies show that social comparison is a powerful factor in
human interaction and employee satisfaction is heavily dependent
on perceived fairness in compensation3.
The perception that only executives benefit from company growth
and that the average worker is not fairly compensated for their
individual contribution is demotivating for employees. The CEOcompensation-to-median-employee-pay-ratio is a useful
mechanism to evaluate and assess wage distributions within a
company. When pay differentials are closely monitored and
managed, employees are more likely to be highly engaged and
productive.
Say-on-pay vote results have very little to do with a company’s
management of pay differentials. Shareholders are lacking
information on how exposed BMO is to human capital risks
associated with skewed compensation distributions. Vancity has
filed this proposal with several of BMO’s peers last year and
received over 10% support. MEDAC has previously filed a similar
proposal with BMO, indicating there is demand for this information.
As a financial institution, BMO is heavily dependent on human
capital to drive growth and in turn, shareholder value. The CEOcompensation-to-median-employee-pay-ratio provides a simple
cost- effective way for BMO to communicate how the company
manages pay differentials. Scotiabank provides this ratio and the
Global Reporting Initiative, which BMO already utilizes, offers a
well- recognized method to calculate this through indicator 2-21.
The aim of this disclosure is not to limit executive compensation
but to ensure that shareholders have the appropriate information
to evaluate BMO’s management of human capital risks. Disclosing
and tracking the ratio will allow BMO to better manage employee
engagement and morale, talent recruitment and retention and
mitigate the increasing financial and reputational risk associated
with growing pay differentials.