May 30, 2006

The Honourable John Baird, P.C., M.P.
President of the Treasury Board
L'Esplanade Laurier, East Tower, 9th Floor
140 O'Connor Street
Ottawa, Ontario  K1A 0R5

Dear Minister:

As you know, the Advisory Committee on Senior Level Retention and Compensation recently held the first meeting in its renewed mandate to give consideration to the work ahead and to recommend compensation for senior levels of the public service. The Committee very much appreciated your warm welcome and opening remarks at this meeting. We are writing to you now to recommend salary range increases for members of the EX, DM, GC and GC-Q Groups and for CEOs of Crown corporations for 2006 - 2007.

It is important to emphasize the view of our Committee that timely compensation increases are crucial to good human resources management. Economic adjustments must be consistent and annual to be competitive in today's labour market. For that reason, we are urging you to give high priority to our compensation recommendations to be implemented retroactively to April 1, 2006 as soon as possible.

Compensation for Executives and Deputy Ministers

Our current recommendations are made with considerable attention to, and deliberation on, the changes in executive compensation that have occurred in the Canadian labour market over the past year and how those changes should affect the compensation paid to senior levels of the public service of Canada. The changes have been significant. The labour market data on executive compensation showed increases in total compensation up to 6 per cent. The Conference Board of Canada, for example, has cited 3.6 per cent increases for 2004-2005, along with an increasing emphasis on short term incentives in the total cash payments for executives. Our market data survey from Hay Management Consultants have indicated that an increase of 5 per cent would be necessary to maintain the cash compensation at the EX-1 level, our traditional benchmark, at the median of the labour market.

The labour market is reacting to an impending short supply of talent along with increased prosperity in the economy by providing higher cash compensation to executives. This trend may not be sustained, and after careful analysis and due consideration, we are recommending a prudent approach at this time. We recommend a salary range increase of 3.6 per cent for executives and deputy ministers, effective April 1, 2006.

Compensation for CEOs of Crown Corporations

Last year the Committee was advised that the government was experiencing difficulty in recruiting CEOs for Crown Corporations at certain levels. Consequently, and in order to ensure that compensation is both adequate and accurately reflects the value of each CEO position, the Privy Council Office (PCO) was asked to undertake a thorough review and analysis of the classification and compensation structure for this group including performance pay as well as benefits. The work is in progress and PCO will present its findings to the Committee later this year.

In the meantime, labour market data shows that Crown Corporation GRP 1 is now 15 per cent behind basic remuneration at the 50th percentile for comparable positions (last year it was 6.16 per cent). This increased differential represents an average market gain of 3 per cent to base salary and a significant increase in short term incentives.

Again, this may be a trend that is not sustained and pending the results of the PCO review, we are adopting a prudent approach and recommending a salary range increase of 3 per cent for CEOs of Crown corporations effective at the start of their fiscal year in 2006, which date varies from corporation to corporation.

Compensation for the GC and GC-Q Groups

Since GC-3 compensation was ahead of the market by 3.6 per cent last year, the Committee recommended a 2.5 per cent salary range increase for the GC and GC-Q groups for 2005, while other GIC groups received 3 per cent. This year, the data show that total compensation at the GC-3 level is in line with the benchmark. However, to address the broader concerns of attracting and retaining talent for these organizations, we recommend a modest salary range increase of 1 per cent for 2006 for members of the GC GC-Q Groups, effective April 1, 2006.

Summary of Recommendations

In summary, we recommend:

Conclusion

The Committee looks forward to further discussing with you our future work. Again, the committee very much appreciated your attending the opening of our first meeting, and we await your response to our recommendations.

Sincerely,

Carol M. Stephenson

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