Pay for performance? What a concept

Ontario Premier Dalton McGuinty is proposing legislation—delightfully entitled the “Excellent Care for All” bill—to connect the salaries and bonuses of provincial hospital chief executive officers with their on-the-job performance.

METRO LOGO GREENWe’re not talking here simply about how well the CEOs manage to shave operating room costs or slash vital support jobs to meet too-small budgets, but what they do to improve the quality of patient care. Has the hospital reduced the rates of infection among patients from one year to the next, for example? Has it reduced the number of patients who are discharged, only to be re-admitted? And what about the number of medical errors? Up? Down? As patient care goes, so goes executive compensation.

McGuinty thinks this is such a good idea he’s considering applying it to the CEOs of every Ontario crown corporation and agency.

Why not do the same in Nova Scotia? And why stop with the public sector? What if we applied more than just bottom-line calculations to private sector compensation?

Last month, Emera, which owns our electrical power utility, announced its CEO, Chris Huskilson, had earned more that twice as much in bonuses and stock options—a nudge above $1.5 million—as he took home in salary, which in 2009 amounted to a paltry $649,038. Rob Bennett, the president of Emera’s Nova Scotia Power subsidiary, received more than twice his $336,692 salary in benefits.

The company’s management circular attributed the executives’ good fortune—both men did even better in 2009 than in 2008—to Emera’s showing in the stock market.

But what if those bonuses had been based on other factors? Customer satisfaction, for example? Electricity rate increases not requested? How about the number of times power outages were not blamed on salty fog? Better, the number of outages that didn’t happen, or the speed with which power was restored when they did?

Those are all also signs—perhaps more telling in the long term—of a well run company. Why not recognize them when doling out bonuses?

Or how about Eastlink, one of the companies that got federal and provincial funding but failed to meet its deadline—“the project completion date has moved,” in corporate-speak—to supply broadband Internet service to all rural Nova Scotians? Why not reduce its CEO’s compensation package for each day it fails to complete? In 2010, that’s 126 days… and counting.

Dalton McGuinty is on to something here. There are other important measuring sticks for success beyond the bottom line. Time to factor them in too.

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