Committee’s incentive compensation efforts
The Committee continued the work it had undertaken in 2009 to develop and implement a new compensation policy. With the assistance of its external advisor, Hugessen Consulting, it analyzed the various compensation policy elements, particularly those related to incentive compensation, and made recommendations to the Board for approval. This program is described in the Report on Compensation Policy section of the 2009 Annual Report on pages 86 to 91.
Accordingly, the Committee, in particular, analyzed and recom- mended the following to the Board for approval:
Potential incentives for positions at all levels. •
Components of incentive compensation and their relative weight •
in its calculation.
Incentive compensation clawback. •
Deferred and co-invested mechanism for the incentive compen- •
sation program (for more details, see page 108).
Moreover, in accordance with the transitional incentive compen- sation program adopted for this period, the Committee reviewed the incentive compensation for 2009. It also discussed the incentive compensation and salary conditions of the Caisse’s employees for 2010, recommending them to the Board for approval.
Finally, the Committee received from its external advisor, Hugessen Consulting, an update on compensation market trends to ensure proper implementation of its compensation policy and independent advice on the application of the new incentive compensation program in 2010.
Regulation Respecting Internal Management
The Caisse’s compensation policy is governed by Appendix A of the Regulation Respecting Internal Management, revised by government decree in 1996. This policy:
Defines the maximum levels for total employee compensation •
and reference markets.
Indicates that the data reflecting the reference market profile •
must be compiled through an annual survey by a recognized independent firm, and must be administered and analyzed according to generally accepted methodologies and rules in this field.
Stipulates that the Caisse’s payroll must not exceed 100% of the •
In 2010, the Caisse retained the services of Towers Watson for benchmarking the markets. The company selection criteria for the reference markets include the following: size, industry, companies that recruit talent similar to the profiles the Caisse seeks, organiza- tions offering products and innovative and diverse investments, firms recognized for their best practices in human resources, companies with performance-driven cultures and businesses participating in the Towers Watson database.
Reference markets and compensation level position1
For the President and CEO position, the reference market includes a sample of eight large Canadian pension funds, whose list is shown in Table 57. For this position, total compensation must be between the median and third quartile (75th percentile) of the reference
market, depending on whether the Caisse’s performance is average or superior.
For investment duties, the Canadian institutional investment market serves as the reference. This must include a representative sample, including institutions, insurance companies, trust companies, pension funds, investment advisors, brokerage firms and fund managers or their counterparts in similar industries. The current sample includes 60 organizations. The list can be found in Table 55. For these positions, the total compensation must be below the top 10 percent (90th percentile) of the reference market.
For non-investment duties, the Québec market serves as the reference, which must include public sector jobs. It therefore contains a representative sample of large public and private-sector Québec firms and private financial companies. The current sample includes 49 organizations. The list is shown in Table 56. For these positions, the total compensation must be at the third quartile (75th percentile) of the reference market.
Strategic objectives of the compensation policy
The Caisse must rely on highly skilled employees who enable the institution to achieve its mission: achieve an optimal return on depositors’ capital in accordance with their investment policies, while contributing to Québec’s economic development. Therefore, the total compensation policy pursues the following three objectives:
1. Pay for performance: Incentives should be proportional to the returns delivered to depositors. This goal is built around four key elements:
long-term focus
• : Reward consistent performance over many years.
Risk-return balance
• : Encourage prudent risk-taking to make it easier to produce sustainable, long-term returns for depositors, taking into account their risk tolerance.
Overall assessment
• : Strike a balance between individual,
portfolio and Caisse performance. Emphasis on Caisse perspective
• : Increased weighting of
employees’ contribution in supporting the Caisse’s strategic priorities and contributing to its overall performance, including an increased weight on leadership and desired behaviours. 2. Offer competitive compensation: Attract, motivate and retain
employees with experience and expertise consistent with the Caisse’s strategic objectives, respecting the guidelines contained in the Regulation Regarding Internal Management presented in the previous section.
3. link the interests of executives and depositors: Ensure that they orient their individual and team efforts toward the Caisse’s long-term, sustainable success.
This goal has been translated into a deferred and co-invested incentive compensation mechanism, established in 2010 and mentioned on page 108 of this Annual Report.
Finally, the Caisse’s incentive compensation policies comply with the Principles for Sound Compensation Practices issued by the Financial Stability Forum (FSF) and endorsed by G20 nations, effective compensation governance, an alignment between compensation and long-term, prudent risk-taking and regular review of compensation practices.
Total compensation components
For the Caisse’s employees, total compensation is based on four components:
1. Base salary
2. Incentive compensation 3. Pension plan
4. Benefits
For compensation purposes, the first quartile ranges from the 1
1. st to 25th percentile, the second quartile from the 26th to 50th percentile, the third quartile
Report of the Human
Resources Committee
Base salary
The Regulation Respecting Internal Management states that the average base salary must not exceed the midpoint of the salary ranges. Within these parameters, the annual base salaries are set according to prevailing reference market salary conditions. Furthermore, the base salaries of certain employees may have been adjusted during the year to reflect significant changes in responsibilities or due to exceptional circumstances. Each year, the Human Resources Committee submits the payroll budget to the Board for approval.
For 2011, the Caisse’s management recommended that the Board approve:
A salary scale freeze for all positions. •
A senior executive salary freeze. •
A 1.6% merit increase in the payroll budget, which is below the •
median of the market increase forecasts. Incentive compensation
In the investment community, incentive compensation is an essential component of the compensation package for employees in this sector because it aligns financial incentives with the performance targets of clients.
Incentive compensation at the Caisse serves to recognize perform- ance, objective achievement and efforts to execute strategic guide- lines. The Regulation Respecting Internal Management positions total compensation in the top 10 percent (90th percentile) of the
reference markets for investment duties or the third quartile (75th
percentile) of the reference markets for non-investment duties. Incentive compensation is an essential part of total compensation. It has a direct influence on the total compensation level and its position relative to the reference market.
It should also be noted that, from 2010 to 2012, limits will be applied on incentives that can be paid under the Caisse’s new incentive compensation program, which came into effect last year. The purpose of this interim measure is to ensure that the objective of the program, which is to reward the long-term performance of employees, is respected.
Performance incentives are never guaranteed. They depend on the evaluation of performance criteria, as established by the incentive compensation program. Accordingly, employees receive performance incentives based on the three factors outlined in Figure 52.
2010 achievements
In 2010, the Caisse generated a positive absolute return of 13.6%, which represents:
An outperformance that exceeds the benchmark index by 4.1%, •
generating $5,084 million of added value in 2010, continuing a trend that began in the second half of 2009.
A return that compares favourably to the performance of peers, •
according to RBC Dexia data.
FIGURE 52
INDIVIDUAl’S OBJECTIVE ACHIEVEMENT lEVEl Individual contribution
EACH GROUP’S BUSINESS OBJECTIVE ACHIEVEMENT lEVEl
OR SPECIAlIZED PORTFOlIO PERFORMANCE Portfolio performance or business plan execution
THE CAISSE’S PERFORMANCE OBJECTIVE ACHIEVEMENT lEVEl The Caisse’s overall performance