Yahoo Finance Matthew Lau: Galen Weston deserves his raise, which is Loblaw’s business not anyone else’s
The pay raise Loblaw gave CEO Galen Weston in 2022 has been roundly condemned, by everyone from NDP leader Jagmeet Singh (of course) to the Toronto Sun’s Brian Lilley (who usually writes sensibly, but not in last week’s column, “Galen Weston’s big raise was really dumb move for Loblaw.”) These condemnations, whether from economically illiterate socialist politicians or usually sensible conservative columnists, should be ignored. In private transactions, third-party objections are irrelevant. The only people who might legitimately complain are the shareholders who pay the CEO’s salary, and they don’t seem too upset: last week, Loblaw shares were up 2.3 per cent, versus 0.5 per cent for the S&P/TSX composite index.
Lilley’s objection to the Weston raise is that the Loblaw board wasn’t thinking about the “optics” and that their statement explaining the raise was “tone deaf.” The problem for Weston and Loblaw, says Lilley, is that news of the pay raise feeds the perception that grocery store profits are excessive and “as any politician can tell you, far too often, perception is reality.” He proceeds to write that those who sit on the Loblaw board have tremendous experience running successful businesses, “but not the political smarts to see this pay raise would cause headaches for the company.” As if it’s a bad thing that the Loblaw board operates the company as a business instead of as a political party! Loblaw is in fact a business, and if corporate boards tried to operate their businesses as political enterprises, it would be economic suicide.
Financial and economic considerations, not political perception, should guide business decisions. Boards should base executive compensation on what the executives in question are worth, not “optics” or “people’s perceptions” of excessive business profits. Loblaw is a company worth, at time of writing, $40.7 billion, which includes the value not only of its grocery business, but its pharmacy and bank. Basing executive compensation on what is good optics makes about as much sense as basing general employee compensation, prices paid to suppliers, contracts negotiated with vendors or rent paid to landlords on optics. It is a sure formula for making disastrous business decisions and not a very good way to run a company. It would be a good way to lose $40.7 billion.
It is also far from certain that giving the CEO a pay raise is bad optics in any real way. Grocery shoppers choose where to shop based on prices, quality, variety and convenience. No one chooses their grocery store based on which pays their CEO the least. Or at least, no serious person does – Jagmeet Singh and other moralizing socialists might. Meanwhile, rewarding corporate executives for good performance resonates with employees and investors. It tells Loblaw employees that if they do a good job they will be rewarded – and that their compensation will be determined by what they are worth, as opposed to determined by whatever nutty economic theories are the flavour of the month. Increasing executive pay as profits and share prices rise also reinforces to investors that the board is properly incentivizing executives to manage the company in an efficacious manner.
Jagmeet Singh’s objections to Loblaw’s profits and its CEO’s compensation is the standard socialist tripe that corporate profits and executive compensation represent a loss to consumers and ordinary workers. We may soon hear him insisting that a surgeon’s income reduces the welfare of the patients on whom he or she operates, that star athletes’ salaries are a loss to the fans who pay for them through ticket prices, and that restaurant diners are made worse off if the chef is paid more. In reality, we do not live in a zero-sum world. One person’s economic production is not another’s loss. Skilled surgeons, talented athletes, brilliant chefs, and astute corporate executives make many people better off, and society is not worse off for it.
At bottom, a society functions best when businessmen behave as businessmen instead of as politicians, and businesses function as businesses instead of political enterprises. The responsibility of the corporate executive is to act in the interests of his employer, the shareholders, and the responsibility of business in a free society is to increase its profits. In 2022, Galen Weston and Loblaw did just that: adjusted diluted net earnings per common share rose from $5.59 in 2021 to $6.82 in 2022. Galen Weston having fulfilled his responsibility with considerable success, there is no good reason for anyone to begrudge him his raise.
Matthew Lau is a Toronto writer.
