'It appears to be that this board lacks independent oversight and independent directors'

Expert: $600,000 director bonus unheard of


An expert in corporate governance and ethics says he's never before heard of a corporate director getting a bonus as high as $600,000, especially with no public information about the director's actual responsibilities.

"A payment of that nature for purely directorial duties could be thought to be excessive. It doesn't mean it's not justified, but it would raise eyebrows, or appear to," said Richard Leblanc, who teaches corporate governance, law and ethics at York University.

Leblanc is also co-author of Inside the Boardroom: How Boards Really Work and the Coming Revolution in Corporate Governance.

First Air's board of directors created a furor across the North last month when it was revealed that they paid themselves bonuses totalling $1.5 million, including a $600,000 payment to First Air's chair, Pita Aatami, and a $250,000 payment to corporate secretary George Berthe.

Leblanc, in a telephone interview, said that appears to be more than what even the biggest corporations in North America pay their directors.

He said only the very largest companies in the United States and Canada pay any director more than $100,000 or $200,000 in a single year.

"They would be expected to perform many duties and serve on various committees," Leblanc said.

And Leblanc said the trend among companies, whether public or private, small or large, is towards full disclosure of how much money board members are paid and what they do to earn it, Leblanc said in a telephone interview.

The majority of board members are also independent of the companies they oversee, Leblanc added, which means they have no ties to the company the board is responsible for.

"That's the purpose of having independent directors, so they can say ‘wait a second here,'" Leblanc said.

After a series of corporate and government scandals in the United State and Canada recently, many companies have scrambled to change the way they work, eliminating cronyism and acquaintance as reasons to be nominated to sit on a board, Leblanc said.

In the growing trend towards complete disclosure and transparency, public companies are leading the way, setting a standard for best practices among private and not-for-profit companies, he said.

Leblanc said over the past few years "the terrain has completely changed" with respect to all corporate governance practices.

"Now it's completely public. It's not that you're not earning it or that it's not appropriate, but ‘we' make that judgment – the shareholders, outsiders, and stakeholders," Leblanc said.

In the case of the sizeable bonuses given the First Air board, Leblanc noted some "anomalies."

The first concerns the lack of independence of First Air's board, because it's comprised mainly of people with direct links either to the owner, Makivik Corp., or to the airline itself.

"It appears to be that this board lacks independent oversight and independent directors, and it's a complete opposite of best practices. Best practices are having a majority of independent directors," he said.

Leblanc said setting up a board that lacks independence is asking for problems, especially when a decision is made to give a major amount of money to board members.

"That's not where the best practices are. It's having independent directors on the board to say ‘no, this is not right, we cannot justify a bonus of this nature,'" Leblance said.

First Air does, moreover, also not publicize what its board members do to earn their money.

"I'm not sure what these directors are doing," Leblanc said. "If you're working 20 working days a year at $1,500 day that's $35,000, not $600,000. And why weren't you paid in those [past] years? It looks like a cash grab by executive directors who lack independent oversight."

As a comparison, there's West Jet, a Canadian airline with about the same revenues as First Air.

At WestJet, the total amount of money paid to the airline's board in 2007 was $293,750.

In 2007, each independent director was paid an annual retainer of $20,000, and some received more for extra duties.

West Jet's web site at http://www.westjet.com/pdffile/WestJetInfoCircular2008.pdf spells out exactly who does what on its board, how much they're paid and what benefits, such as reduced airfare, they're allowed to receive.

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