Executive compensation packages: Who has the right to question them?

Welsh, Clitheroe highlight issue of who provides consent for lavish perks
By Mark Ellis
|Canadian Employment Law Today

Recent revelations regarding Jack Welsh, past chairmain of General Electric, and Eleanor Clitheroe of Ontario Hydro raise fresh questions regarding the nature and extent of benefits in the executive suite. In Welsh’s case many stakeholders are openly debating the justification for his enormous benefit entitlements; in the instance of Clitheroe, the courts may be the final arbiter of the propriety of a senior officer’s entitlement to non-conventional benefits arising from office.

The issue revolves around the fiduciary aspect of employment in a significant corporate role. Although there is little question there is a fiduciary quality to senior employment, the parameters of such fiduciary obligation is often a difficult matter. A senior employee owes a “duty of utmost good faith” to the employer which usually translates to a strict and strenuous obligation of full disclosure. More often than not this duty is litigated in the context of departing employees and the need for companies to protect secrets. But fiduciary obligations are increasingly being used to police the performance and behaviour of employees.

In the context of behaviour the Clitheroe case allows for timely analysis of good faith obligations of a senior officer and to whom those obligations are owed. Clitheroe was president and CEO of the government-owned utility, reporting to the board of directors. In the throws of privatization, the membership of the board changed. The new board became aware of numerous abnormal benefits of office being enjoyed by Clitheroe and terminated her employment allegedly for cause. In particular, the board alleged her conduct included: