Thank you for the question.
As you can imagine, executive compensation is set by the board of directors, as is the case for most organizations. As it turns out, there was actually a comment piece that had been published in the National Post about CPPIB's compensation, which gave the opportunity for our chair of the board to respond. We'd be more than happy to provide the chair's response to the clerk for this committee, but if I have a bit of time, maybe I could summarize the contents.
First, just to be clear, the board did establish a salary freeze on the CEO's salary for the current year, as well as freezing salaries for all senior executives at CPPIB, in recognition of the economic circumstances caused by COVID-19.
In regard to incentive compensation, that's a look back. That's looking at past performance, at the past performance of 20 quarters, not only the 20th quarter that rolls out in the fifth year on which the incentive is based. That's essentially to recognize the importance of aligning investment behaviour—especially a long-term investor—with long-term decisions and not making short-term decisions that may not be in the best interests of the fund. As we have seen, significant economic problems have been caused by short-term thinking, in the financial sector specifically.
In the first 19 quarters of those 20, tremendous value was created, in the order of about $140 billion net income. In the 20th quarter, when the pandemic hit, the fund was impacted, so total fund returns were affected. Having said that, due to all of the decisions that had been made because of active management, because of the strategy put in place by the management team and because of a lot of the diversification well beyond what would be available on public markets, the fund was actually placed, because of its resiliency, in a safe harbour. Had it been invested in the passive strategy, a low-cost simple strategy of indices, the fund would have dropped by about $23.5 billion more.
I think it's a recognition in terms of both the incentive framework for the performance of total fund returns—those 19 quarters—as well as the relative return. As I've said, those details are laid out in the letter from our chair. We would absolutely share that with the committee through the clerk if that's appropriate.