1. The 27th Quarterly C-Suite Survey:
Cash Reserves, Debt, Interest Rates and
CEO Compensation
June 18th, 2012
Sponsored by:
Published and
broadcast by:
2. Introduction
This is the 27th edition of the C-Suite Quarterly survey, conducted on
behalf of KPMG; published and broadcast by the Globe and Mail’s
Report on Business and BNN. Previous quarters’ surveys are available
at GandalfGroup.ca .
This quarter’s survey and this presentation focus on:
Companies’ savings or cash reserves
Debt levels
Access to financing
Interest rates
CEO compensation
Exporting, the dollar and emerging markets
Methodology: telephone interviews were conducted with 156 C-Suite
executives from ROB1000 companies between May 17th and June 5th 2012.
The margin of error for this study is +/- 7.85% 19 times out of 20.
2
3. Summary of Key Findings
Based on renewed optimism about the US economy, business expectations for
Canada’s economy are improved this quarter.
There are still a number of dark clouds that executives see, but none darker
than Europe which is preoccupying the Canadian business community.
These concerns particularly manifest themselves in concern about another credit crisis
where debt financing is unavailable.
Concern about those risks has business sitting on healthy balance sheets,
hoarding for a rainy day.
There is considerable concern about the impact rising interest rates would
have, and most in Ontario are opposed to any move by the Bank of Canada to
raise rates even a point.
Most business leaders think that CEO’s compensation cannot be justified by
improvements in shareholder value, and see growing income disparity as a
negative development in society.
Most Canadian businesses do not have and think they do not need a strategy
for emerging markets.
3
4. The Economic Outlook
The outlook of executives for the US economy has improved slightly
since last quarter; confidence in growth is now back to the same level
as June of last year, recovering from a pessimistic September 2011.
The C-Suite’s evaluation of the Canadian economy at the current time
continues a year long trend of steady incremental improvement. Four
in five executives said the economy is in moderate growth.
The outlook of executives for the Canadian economy is effectively
unchanged from last quarter with the vast majority expecting the
economy to grow only moderately over the next 12 months.
In the past we have typically seen a 15 point difference between Western and
Ontarian executives, but this quarter finds the two sets of executives on the
same page.
4
5. Current Growth Levels In The
Canadian Economy
“Which of the following do you think best describes the Canadian economy at the current time -
strong growth, moderate growth, moderate decline, strong decline?”
May/Jun. '12 1 81 14 3
Feb. '12 1 77 15 1 7
Dec. '11 75 25 1
Sept. '11 3 68 29 1
Nov/Dec. '10 1 89 9 1
Sept. '10 1 84 16
May/Jun. '10 10 85 5
Mar. '10 5 90 41
Dec. '09 1 75 23 1
1
Sept. '09 67 31 2
May/June '09 17 71 11 2
Feb. '09 2 73 25
Nov. '08 13 78 8 1
0 20 40 60 80 100
Strong growth Moderate growth Moderate decline Strong decline DK
5
6. Projections For The Canadian
Economy
“What are your expectations for the Canadian economy over the next 12 months, strong growth,
moderate growth, moderate decline, strong decline?”
May/Jun. '12 1 81 15 11
Feb. '12 4 81 12 3
Dec. '11 69 29 2
Sept. '11 1 74 24 1
Jun. '11 2 93 5
Mar. '11 3 93 4
Nov/Dec. '10 3 89 8 1
Sept. '10 1 85 14
May/Jun. '10 3 89 7 1
Mar. '10 7 92 1
Dec. '09 2 89 8 1
Sept. '09 1 84 12 1 2
May/Jun. '09 55 42 3 1
0 20 40 60 80 100
Strong growth Moderate growth Moderate decline Strong decline DK
6
7. The US Economy
Over The Next Year
“What are your expectations for the U.S. economy over the next 12 months, strong growth,
moderate growth, moderate decline, strong decline?”
May/Jun. '12 1 71 26 11
Feb. '12 3 66 26 13
Dec. '11 1 50 45 22
Sept. '11 33 59 8 1
Jun. '11 1 70 27 11
Mar. '11 3 78 16 12
Nov/Dec. '10 1 60 37 1
Sept. '10 1 49 45 51
May/Jun. '10 2 68 29 2
Mar. '10 2 75 21 1
Dec. '09 1 65 27 5 2
Sept. '09 68 27 32
May/Jun. '09 55 42 31
0 20 40 60 80 100
Strong growth Moderate growth Moderate decline Strong decline DK
7
8. Companies’ Expectations
We have found for many quarters now that executives with Canada’s
top companies have a more positive outlook for their companies than
for the economy.
Although resources executives have tended to be more confident of their
company’s growth relative to other sectors, this quarter sees resources
executives approximately as confident about their company’s growth as
manufacturing executives.
Previously about half of resources executives predicted strong growth for
their companies. The past few months have seen that drop to about one in
three.
Western executives remain much more confident of growth for their
companies than executives in the Rest of Canada.
8
9. Expectations: Company
“What are your expectations for your company over the next 12 months, strong growth,
moderate growth, moderate decline, strong decline?”
Total 27 66 6 1
West 36 56 8
Rest of Canada 20 74 5 1
Resources 31 58 9 2
Services 21 76 2
Manufacturing 30 64 6
0 20 40 60 80 100
Strong growth Moderate growth Moderate decline DK/NR
9
10. External Impacts On The Canadian
Economy
Growing optimism about the Canadian economy results from
executives thinking that a strengthening US economy outweighs a
Europe-in-crisis.
Most executives are modestly concerned about weakness in the US, a
slow down in China, and high levels of household debt.
Many are also concerned about a renewed credit crunch, labour
shortages, and the high value of the Canadian dollar.
The majority of Western and resource executives are concerned about labour
shortages, while just over one third of those in Ontario and in manufacturing
are concerned.
Only one in ten business leaders is highly concerned about a rise in Canadian
interest rates.
Overwhelming all of those concerns is optimism about the
US, Less than a year ago most Canadian business people saw
recession and many were “very concerned”; now most see
growth.
10
11. Where Do The Threats Lay?
“I’m going to read a list of market forces and economic factors and I’d like you to tell me how
concerned you are about each. When it comes to ____, are you very concerned, somewhat
concerned, not very concerned, not at all concerned?”
European political instability 49 40 9 2
The US economy 17 62 19 2
High levels of household debt among… 14 56 21 10
Slowing Chinese economy 15 54 21 10
Ability of companies to access financing 15 40 38 71
The possibility of higher interest rates 9 44 29 18
Labour shortages 17 35 28 20
The value of the Canadian dollar 18 32 29 20 1
US retail sales 5 43 37 13 2
Canada's housing market 5 42 35 17 1
Canadian retail sales 9 34 43 12 3
0 50 100
Very concerned Somewhat concerned Not very concerned
Not at all concerned Don't know
11
12. Tracking Concerns Over US
Economy
“I’m going to read a list of market forces and economic factors and I’d like you to tell me how
concerned you are about each. When it comes to the US economy, are you very concerned,
somewhat concerned, not very concerned, not at all concerned?”
17 62 19 2
May/Jun. '12
43 48 73
Sept. '11
27 58 12 31
Mar. '11
0 50 100
Very concerned Somewhat concerned Not very concerned
Not at all concerned Don't know
12
13. Debt Levels and Financing
Most leading Canadian businesses will need to borrow money over the
next year, and the balance of risk is seen as shifting back toward
restricted credit.
Two thirds of those that said they are not holding cash said they would access
debt financing, while less than half of those that are holding onto cash said
the same.
Executives were more likely to say they expect equity financing, rather than
debt financing, to become more difficult over the next year compared to last.
The majority of executives said their companies were not close to the
maximum limit of loan covenants.
13
14. Accessing Financing
“Please tell me with a yes or no answer if your company is likely to access financing through any
of the following means in the next 12 months?” (% saying yes)
59
Debt
39
Equity
14
Do not plan on accessing financing
Acquisitions and Mergers (incl. joint 4 21% said don’t know.
partnerships)
0 50 100
14
15. Accessing Financing
“Are you anticipating that it will be less difficult or more difficult for you to raise money from
_____ over the next year, compared to the last twelve months? Will it be much more difficult,
somewhat more difficult, somewhat less difficult or much less difficult or no different?”
25 37 34 31
Debt
16 21 47 13 3
Equity
0 20 40 60 80 100
Less difficult No different More difficult N/A Don't know
15
16. Accessing Debt Financing
“Are you anticipating that it will be less difficult or more difficult for you to raise money from
banks or other debt financing over the next year, compared to the last twelve months? Will
it be much more difficult, somewhat more difficult, somewhat less difficult or much less
difficult or no different?”
Total 4 21 37 24 10 3 1
Support keeping interest rates 3 19 29 32 14 3
at current level
Oppose 6 22 44 17 5 41
Concerned about ability to 2 10 35 34 15 31
access financing
Not concerned 8 37 41 11 3
0 50 100
Much less difficult Somewhat less difficult
No different Somewhat more difficult
Much more difficult N/A
16
17. Accessing Equity Financing
“Are you anticipating that it will be less difficult or more difficult for you to raise money from
equity markets over the next year, compared to the last twelve months? Will it be much
more difficult, somewhat more difficult, somewhat less difficult or much less difficult or no
different?”
Total 3 13 21 26 21 13 3
Resources 2 14 6 33 38 8
Service 5 10 33 21 10 16 5
Manufacturing 3 18 24 24 9 18 3
Concerned about ability 1 11 14 30 32 9 3
to access financing
Not concerned 6 17 30 21 5 19 2
0 50 100
Much less difficult Somewhat less difficult
No different Somewhat more difficult
Much more difficult N/A
17
18. Accessing Equity Financing
“Are you anticipating that it will be less difficult or more difficult for you to raise money from
equity markets over the next year, compared to the last twelve months? Will it be much
more difficult, somewhat more difficult, somewhat less difficult or much less difficult or no
different?”
May/June 3 13 21 26 21 13 3
2012
2 12 28 39 17 3
Sep-11
0 50 100
Much less difficult Somewhat less difficult
No different Somewhat more difficult
Much more difficult N/A
Don't know
18
19. Accessing Financing
“Is your company close to or at the maximum limit of its loan covenants?”
56 10 3 27 5
0 50 100
Not close to limit Close to limit At the maximum N/A Don't know
19
20. Company Cash Reserves
Almost half of Canada’s biggest companies - 45% - are holding on to
cash reserves rather than investing that money in capital, human
resources or otherwise, as policy makers are urging them to do.
Mostly, they are doing so to give themselves a buffer against the risks
they see out there.
20
21. Holding onto Cash Reserves
“Recently, it’s been noted that companies have been choosing to hold on to cash reserves, rather
than reinvesting or distributing it. Would you say this:”
16 29 54
0 50 100
Strongly applies to your company
Somewhat applies to your company
Does not apply at all to your company
21
22. Reasons for Holding onto Cash
Reserves
“Why is your company choosing to hold on to cash reserves rather than deploying or investing
them?”
46
Uncertainty in the economy
Need to conserve/ reserve profit/ capital 27
for the future
14
Need it for future/ current growth
8
Obtaining financing is difficult
0 20 40 60
22
23. How Cash Reserves Will Be Deployed
“How is your company likely to deploy the money it has been holding on to?”
23
(Re)investing in growth
16
Capital investments
Mergers and acquisitions 14
Putting money back into company 7
(general)
Dividends 6
R&D 6
Do not plan to spend 5
Other responses less than 3%.
4 28% said don’t know.
Debt retirement
0 10 20 30
23
24. The Role and Importance Of
Emerging Markets
Most leading Canadian business executives do not think that it is
critical that their company be globally competitive, nor do they think
an emerging markets strategy would be strongly beneficial.
Again this shows the divide between the exporting Western companies
that are focused on global markets and the manufacturing or service
sectors in Ontario that are locked into North America.
Many manufacturers are undertaking emerging markets strategies, but think
the Canadian dollar is working against them in global markets.
24
25. Global Competitiveness
“How important is global competitiveness to your company’s business plans? Is it:”
36 29 22 12 1
0 50 100
Very important Somewhat important Not very important
Not at all important Don't know
25
26. Emerging Markets
“The Government of Canada and others have said trade policy and Canadian companies have to put
a greater focus on emerging markets. Is an emerging markets strategy something that would have a
positive or negative impact on _______?”
28 53 13 31 3
The Canadian economy
26 26 45 11 1
Your company
0 50 100
Strongly positive Somewhat positive No impact
Somewhat negative Strongly negative Don't know
26
27. Emerging Markets
“The Government of Canada and others have said trade policy and Canadian companies have to put
a greater focus on emerging markets. Is an emerging markets strategy something that would have a
positive or negative impact on your company?”
Total 26 26 45 11 1
West 39 27 32 2
Ontario 14 21 58 44
Resources 34 27 36 2
Manufacturing 24 30 39 33
Services 17 22 57 22
0 20 40 60 80 100
Strongly positive Somewhat positive No impact
Somewhat negative Strongly negative Don't know
27
28. Exportation
“I'm going to read some statements about exporting. For each, please tell me if you strongly agree,
somewhat agree, somewhat disagree, or strongly disagree.”
The high value of the Canadian dollar makes it difficult for companies to move on
an emerging markets strategy.
Total 22 46 24 6 1
West 20 45 23 11 2
Ontario 26 46 23 42
Resources 19 50 17 13 2
Manufacturing 42 33 24
Services 14 50 31 32
0 20 40 60 80 100
Strongly agree Somewhat agree Somewhat disagree
Strongly disagree Don't know
28
29. Exportation
“I'm going to read some statements about exporting. For each, please tell me if you strongly agree,
somewhat agree, somewhat disagree, or strongly disagree.”
Canadian companies have become too
23 58 14 4
complacent in relying on the US for
exports
The high value of the Canadian dollar
22 46 24 61
makes it difficult for companies to move
on an emerging markets
Fear of the unknown is keeping many
20 44 24 7 5
Canadian companies from expanding or
selling into offshore markets
0 50 100
Strongly agree Somewhat agree Somewhat disagree
Strongly disagree Don't know
29
30. Emerging Markets
“Does your company have a strategy in place to access these markets?”
39 61
May/Jun. '12
42 49 9
Feb. '12
31 59 10
Dec.'11
39 58 3
Sept.'11
0 20 40 60 80 100
Yes No Don't know
30
31. Emerging Market Initiatives
“What are key initiatives your company is undertaking as part of your strategy to access emerging
markets?” [Among those who have an emerging markets strategy n=61]
Began/ continue operations in emerging 39
markets
16
Partnering with foreign markets/ ventures
Strategic planning/ analysis of expenditures
15
Product/ service development for the 15
market
Customer/ client demand and satisfaction
3
Don't know 11
0 10 20 30 40
31
32. The Bank Of Canada and Interest
Rates
There is significant resistance in the business community, especially in
Ontario, to even a one point increase in interest rates.
Most Ontario executives are prepared to tolerate higher inflation in
exchange for keeping rates where they are.
Those who think the economy has a little wind in its sails are
attributing that to current low interest rates.
The majority of executives in the resources industry support raising
interest rates, while only about one third of those in manufacturing
and services said the same.
Ontario executives overwhelmingly said that keeping the dollar at a
level where Canadian exporters can compete is important, while fewer
(two-thirds) from the West said the same.
When setting rates, executives want the BOC to be considering a
number of, sometimes contradictory, objectives, but most want the
Bank to place more emphasis on encouraging growth than on fighting
inflation.
32
33. Government Action on Borrowing
“Would you strongly support, somewhat support, somewhat oppose or strongly oppose the
Government of Canada imposing new rules to tighten lending standards used by the banks to loan
money?”
13 37 33 14 3
0 50 100
Strongly support Somewhat support Somewhat oppose
Strongly oppose Don't know
33
34. Bank of Canada Actions
“Would you strongly support, somewhat support, somewhat oppose or strongly oppose the Bank of
Canada doing the following?”
Warning Canadians about the dangers 49 41 4 41
and risk inherent in high borrowing levels
Raising interest rates by as much as
necessary to keep inflation below two 13 40 29 16 2
percent
Leaving interest rates at the current level 12 36 36 15 1
even if that means rising inflation
Raising interest rates by one percent 7 38 35 18 1
0 50 100
Strongly support Somewhat support Somewhat oppose
Strongly oppose Don't know
34
35. Considerations for Setting Interest
Rates
“How important should the following considerations be when the Bank of Canada is setting interesting
rates?”
Preventing an interest rate shock that 55 39 41
causes mortgage defaults
Stimulating economic growth 38 57 42
Keeping inflation in check 29 56 12 21
Keeping the dollar at a level where 38 40 13 9
Canadian exporters can compete
Not damaging consumer spending 20 56 18 7
0 50 100
Very important Somewhat important Not very important
Not at all important Don't know
35
36. Interest Rates and Consumer
Spending
Most executives agreed that the level of household debt in Canada
represents a serious threat to the economy. Yet most also agreed that
the economy needs more consumer spending, not less.
Most Canadian business leaders think the success of their business is
not strongly linked to domestic consumer spending. Western and
resources executives were overwhelmingly likely to agree that their
business is not materially affected by Canadian consumer spending.
36
37. Conflicting Economic Needs
“I’m going to read you a few statements about consumer spending and debt. For each, please tell me if
you strongly agree, somewhat agree, somewhat disagree, or strongly disagree.”
The level of household debt in Canada
13 60 21 32
represents a serious threat to the
economy
Our economy needs more consumer 15 51 27 34
spending, not less
Your business is not materially affected 35 27 16 21 1
by Canadian consumer spending.
0 50 100
Strongly agree Somewhat agree Somewhat disagree
Strongly disagree Don't know
37
38. CEO Compensation
Half of executives believe that the growing wage disparity between
executives and average workers has a negative impact on society.
Those that said it has a positive impact were mostly from the West, and those
in resources were the least likely to say it has a negative impact, relative to the
other sectors.
Executives are more likely to think growing CEO compensation has a
negative impact on shareholder value than think it is a benefit.
38
39. CEO Compensation
“The 100 highest paid CEOs of TSX listed companies earned just over $8 million on average in 2010,
or 180 times the average worker's salary. In 1995 average pay of Canada's top 50 CEOs was only 85
times that of the average worker. Does this growing disparity have:”
Total 6 33 54 7
West 11 38 47 5
Rest of Canada 2 30 61 7
Resources 9 42 41 8
Services 3 24 66 7
Manufacturing 3 33 58 6
Expect strong 14 38 45 2
company growth
Moderate growth 3 30 57 10
0 20 40 60 80 100
A positive impact on society No impact on society
A negative impact on society Don't know
39
40. CEO Compensation
“And what impact has the upward trend in CEO compensation had on returns to shareholders? Is it:”
19 43 32 6
0 50 100
A positive impact on shareholder returns No impact on shareholder returns
A negative impact on shareholder returns Don't know
40
41. CEO Compensation
Most believe that the disparity will not continue to grow - most expect
the ratio between CEO and average workers’ salaries will decrease or
stay the same.
Indeed, almost no executives believe Canadian CEO’s are underpaid.
A minority believe that CEO’s are overpaid.
Roughly half said they think Canadian CEOs are paid about what their
performance is worth.
Executives outside of the west were twice as likely to say CEOs are paid more
than they are worth, as western executives.
Executives who expect strong growth were less likely to agree that CEO’s are
paid more than their worth, compared to executives who expect moderate
growth for their companies.
41
42. CEO Compensation
“In the next five years, do you foresee this disparity between CEO's and average workforce salaries:”
28 39 33
0 50 100
Continuing to grow Staying at the same ratio Decreasing
42
43. Why would CEO pay disparity
increase?
“You said you foresee wage disparity continuing to grow, why do you say that?”
Due to societal/ economic trends 35
Good CEO too important 21
Society/ public does not have enough 21
control
Boards not doing their job, continue to 16
support high wages
Due to public/ shareholder/ government 7
pressure
Greed 7
Cannot see them justifying anything 7
higher
Don't know 2
0 50 100
43
44. Why would CEO pay disparity
decrease?
“You said you foresee wage disparity decreasing, why do you say that?”
Due to public/ shareholder/ government 52
pressure
Boards not doing their job, continue to support 15
high wages
Due to societal/ economic trends 10
Society/ public does not have enough control 4
Change not strongly supported 2
Cannot see them justifying anything higher 2
0 50 100
44
45. CEO Compensation
“Do you think Canadian CEOs are paid:”
Total 33 49 4 13
West 21 68 2 9
Rest of Canada 44 37 7 13
Expect strong 14 67 10 10
company growth
Moderate growth 39 44 3 15
0 20 40 60 80 100
More than their performance is worth About what their performance is worth
Less than their performance is worth? Don't know
45
46. High Income Surtax
Most executives oppose the new 2% surtax on annual incomes above
$500k, introduced in Ontario, while one third support it.
Support nearly matched opposition among those that said that the
CEO wage disparity has a negative impact on society.
Most executives who said the CEO/worker wage disparity will continue
to grow support the surtax.
46
47. High Income Surtax
“Recently the Ontario Liberal government amended its budget to add a 2% surtax on annual incomes
over $500,000. It is a temporary deficit reduction measure. Would you say you strongly support,
somewhat support, somewhat oppose or strongly oppose this measure?”
Total 14 24 17 41 4
Ontario 7 30 18 44 2
CEO compensation has a negative… 20 26 21 30 2
No impact 6 21 12 60 2
CEO wage disparity to grow in next 5 yrs. 26 33 12 28 2
Same ratio 15 11 20 48 7
Decrease 4 31 19 44 2
0 50 100
Strongly support Somewhat support Somewhat oppose
Strongly oppose Don't know
47