Finance Committee on April 28th, 2009

[Donald Raymond]

That's correct.

[Thomas Mulcair, NDP, Outremont, QC]

Are you aware of the fact that a lot of Canadians would find it inadmissible for you to again be paying yourself large bonuses this year? Even though Mrs. Warmbold said there will be downward pressure, her words were chosen carefully.

This is a public institution. Your base salary is greater than the salary of the Prime Minister and the salary of the Chief Justice of the Supreme Court. Are you aware of the impact on the CPP investment plan if you give yourselves bonuses in a context where you've lost billions of dollars of the money that's been put aside by people for their pensions?

[Benita Warmbold]

If you look at our overall performance system that we have in place, as determined by our board, it has several key principles, which I think are important to focus on. First, it rewards performance over the long term. Short-term periods definitely have an impact, but the system is meant to match and align our interests with the long-term interests of the fund. We measure that over four-year periods. It's also measured on a pay-for-performance basis, which I outlined earlier in my response to Mr. McCallum.

[Thomas Mulcair, NDP, Outremont, QC]

You made that point in your presentation. We all have it in writing. Now I'm asking you a question of trust, based on your role as fiduciaries of public money. You head a public institution; you're not in the private sector. You lost $13 billion in the first three-quarters of last year. The money lost overall will no doubt be greater than that, once we get the overall figures.

Is it not ethically important for you to understand that Canadian taxpayers and the contributors to that plan will not put up with you paying yourselves bonuses under that circumstance?

[Donald Raymond]

Mr. Chairman, I'd like to clarify a few points. First of all, our board of directors is the organization that determines incentive payments to executive officers and approves compensation for the entire organization. As my colleague pointed out, it's the four-year performance, both at the value-added level and that of total fund returns, that primarily drives the long-term incentive programs. Over the last four years, the fund has generated over $10 billion of investment income, and as a management organization we've added over $5 billion in value added.

It's important to look at these long time horizons, because they are aligned not only with the mission but also with what regulators, central bankers, and finance ministers have said, including our own central bank governor, Mark Carney, and Prime Minister Flaherty--

[Thomas Mulcair, NDP, Outremont, QC]

Mr. Flaherty is going to be thrilled at the promotion you just gave him.

[Donald Raymond]

Sorry--Finance Minister Flaherty.

It's the focus on short-term results—in fact, one-year results—that many would point to as one of the primary causes of the global financial crisis.

[Thomas Mulcair, NDP, Outremont, QC]

That's well said, Mr. Raymond, but I think it might also be pointed out that greed and excessive compensation is also one of the reasons we're in such difficulty worldwide. A lot of people would agree with that too.

You paid yourself several million dollars in addition to a base salary that exceeds that of the Prime Minister and the Chief Justice of the Supreme Court.

My question to you has to do with ethics. Right now you have someone in your organization responsible for developing a culture of integrity and ethical conduct. If I'm not mistaken, it's a former justice of the Supreme Court right now.

[Donald Raymond]

That's right.

[Thomas Mulcair, NDP, Outremont, QC]

Before that, up until recently, it was Purdy Crawford, wasn't it?

[Donald Raymond]

Correct.

[Thomas Mulcair, NDP, Outremont, QC]

Up until when was it Mr. Crawford?

[Donald Raymond]

I'm sorry, I don't know the exact date.

[Thomas Mulcair, NDP, Outremont, QC]

You don't know?

[Donald Raymond]

It was a couple of years ago.

[Benita Warmbold]

It was before my time, so it was a couple of years ago.

[Thomas Mulcair, NDP, Outremont, QC]

Let's get back to the question of compensation. In your presentation you talked about benchmarks. During the 2007-08 year, the one for which you were all paid several million dollars in bonuses, do you disclose the benchmarks for private markets--in other words, real estate, private equity and infrastructure--in your policy portfolio? If not, without disclosing those benchmarks, how will we ever know if the value added was really value added or simply due to the leverage used in those investments?

[Benita Warmbold]

Let me start by talking about the reference portfolio, which is our baseline that is set by the board of directors. That's a passive portfolio designed to deliver the returns and help sustain the CPP.

[Thomas Mulcair, NDP, Outremont, QC]

The bonuses are based on benchmarks. My question had to do specifically with the benchmarks in the private markets.

[Benita Warmbold]

Sure.

Don, do you want to describe the benchmarks?

[The Chair, Conservative, James Rajotte]

Very briefly, you have only about 45 seconds left.

[Thomas Mulcair, NDP, Outremont, QC]

We'll have time to come back to it in the second round.

[Donald Raymond]

Sure.

There are two different components of value added. One of them is due to broader diversification of the portfolio and one of them is value added relative to specific benchmarks. In fact, we measure total performance relative to the referenced portfolio. Private equity, for example, does include an additional premium due to the higher leverage in private companies relative to their public market counterparts. In fact, there is a premium over which they have to earn returns to compensate for the leverage in private markets.

[Thomas Mulcair, NDP, Outremont, QC]

You aren't too transparent in the benchmarks governing these private market investments. You're not, in your annual report.

[The Chair, Conservative, James Rajotte]

A quick response to that.