Hollowing out the public service: First on the chopping block is Farm Credit Canada
Posted by Brandon Schaufele in Business, Farming, Gov't Programs on Mar 2nd, 2010 | 21 commentsToday’s edition of the London Free Press had this article on the front page. The story, titled “Execs live high on hog”, admonishes Farm Credit Canada (FCC), its executives in particular, for what it calls a “lavish” employee rewards program.
Several things bother me about this story. I’ll discuss four.
First, the article implies that the executives of FCC are overcompensated because they are employed by a publicly owned firm. It always baffles me that people don’t understand the opportunity costs of public servants. Civil servants, at least those in management and policy positions, are very highly educated and at the top of their fields. More often than not, these individuals could earn much higher wages in the private sector. Instead they accept non-pecuniary rewards – such as interesting work or location of employment – which motivates them to remain in their current position. All Canadians benefit from this. As that opportunity cost grows however, it becomes more challenging to attract the same highly qualified workers. Quite simply, they must forego too much money to work for the public sector.
This logic applies to executives at FCC in particular. FCC is essentially a specialized bank. Qualified bank executives do not have problems finding alternative employment. Still you never know. Maybe FCC’s executives over-compensated. Let’s do a comparison to see how FCC stacks up against a comparable private sector institution, Canadian Western Bank (data are from the annual reports).
FCC Canadian Western Bank
Employees 1400 1400
Offices 100 50
Total assets $17,098 million $11,636 million
Revenues $508 million $328 million
ROE 11.2% 13.2%
CEO compensation $273,000-$313,010 $2,461,647 ($550,000 base salary)
Exec VP comp $204,660-$220,735 $666,568-$786,886 ($247,400-$292,875 base salary)
I think that these numbers highlight the underlying issue. Let’s say that a talented executive VP at FCC was headhunted by Canadian Western Bank. Do you think that they’d stay in Regina? Neither do I.
Next, the article refers to “ailing farmers” more than three times. This sentence is a particular gem:
Farm Credit Canada’s travel and hospitality expenses reveals spending many Canadian farmers can only dream about.
Two points. First, similar to many other Canadians, I can only dream about doing these things. I don’t know why farmers get singled out. Of course, maybe it should be mentioned that neither of us (the farmers nor me) are executives at a bank. My second point is what really irritates me about this argument. Farmers are rich. Farmers are much wealthier than the average Canadians (look at the figures in this post if want proof). Farmers choose not to allocate money towards travel and hospitality. It’s not that they can’t afford them.
Moreover, many of the policies aimed at farm income are social policy (they do not correct market failures). Agricultural lobbyists should be cautious that they don’t attract too much attention to these programs. If the general population starts scrutinizing agricultural funding, farmers will not enjoy the results.
Third, the article quotes Canada’s Auditor General Sheila Fraser:
“Farm Credit Canada should review its award program against a formal, reputation-risk policy to ensure that all awards are in keeping with positive public perceptions and the desired image/reputation of FCC as a Crown corporation.”
If the infamous Sheila Fraser doesn’t call a news conference proclaiming that these employee reward programs are excessive, then these programs are not excessive. Case closed. It might be bad PR, but these programs are likely good for business and employee morale.
Fourth, my favourite paragraph in the article is this:
In March 2009, Farm Credit Canada president Greg Stewart and his wife boarded a plane to Disney World for five expense-paid days . . . Their children remained home in Regina.
Who goes to Disney World and leaves their children at home?
Here’s my conclusion. Canadians want a highly skilled public service. We do not want fraudulent expenses or excessively compensated executives. However, it is important to remember that public servants have opportunity costs. If downward pressure on wages and other forms of compensation continues, the civil service will get hollowed out with less skilled workers remaining. This will be to the detriment of the country.
Based on the information in this article, FCC’s compensation and reward packages seem very reasonable. The media should stop feigning outrage. (It is interesting to note that the total travel and hospitality expenses of the top 8 executives equaled less than 0.25% of net income, a figure so small that it doesn’t even factor into rounding.)
21 Responses to “ “Hollowing out the public service: First on the chopping block is Farm Credit Canada”
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An excellent rebuttal to an article that smacked of ignorance or was perhaps written by the competition.
Well written Brandon
Will this be published in the Sun?
Hi Wonda,
No. I haven’t written anything for the Sun/London Free Press on this.
Cheers,
Brandon
I agree, this is well done..With recent press comments over the past few months from the competition whining about FCC’s unfair government advantage one wonders as to the root of the SUN/London Free Press story.
A far more thoughtful and insightful analysis than the sensationalistic reporting by some of the “responsible mainstream media”.
Well written, nice to see some balance to the “outrage”
Give me a break already – after obtaining my Undergraduate degree in Ag Economics from Guelph, I was a Credit Advisor with the Farm Credit Corporation from 1972 to 1973, and when I left (to get my MBA) I was making the princely sum of $8,200 per year.
At the time, we worked on wooden desks, sat on wooden chairs, and used a hand-crank adding machine, and if we were venturesome, we used an old Underwood typewriter which was probably in use during the First World War.
Just at the time I left, we got the first new furniture in living memory – I bought my desk for $20 (I still use it now) and my office chair for $10 (it broke about five years ago.
Anyways, at the time I believed that working for FCC to be more of a “calling” than a job for which I should be given rewards for good work – and I still do today.
I’m ashamed, and appalled, that the organization which treated me very well, even with absolutely no incentive program, should think, even for a moment, that waving “thirty pieces of silver” at employees, is appropriate, or even ethical – I don’t.
I’m definitely with the media on this – FCC blew it, and shame on anyone who supports this type of behaviour, and I’ll even willingly identify myself.
Stephen Thompson, Clinton ON
Just to make it abundantly clear, I obtained my MBA from the Ivey School in 1975.
How sad to read rebuttals from a person, it appears, that knows so little about agriculture.
1.What truly qualified person takes a job and forgoes a high salary “to work for the public sector”? Get real! You’re spinning conjecture like Rumpelstilskin spinning gold out of straw. Why wasn’t FCC completely audited on a regular basis to find these breaches of “entitlement”? Obviously the Minister has failed to monitor the performance of one of the Crown corporations he is obligated to oversee.
2.Farmers are rich you say? OMG! You say farmers choose not to spend on a vacation! That truly shows your complete ignorance. Farmers might show a large positive capital asset valuation but that does not reflect their ability to cash-flow their operation. If they are so rich why has the farm debt more than doubled in the last 5 years from $30 Billion to well over $60 B (old figure). Most farmers have a spouse to subsidize the operation which means you buy cheap food off by eroding farmers equity.
Farm support programs are social policies but you distort the meaning of that phrase. The social policy is an insurance contract for cost of production. FIPA entitles farmers to COP (supposedly) in the same way you are entitled to fair compensation for your labor. Do your research to understand when and why FIPA was created. FIPA would pay farmers their dues so the public had subsidized food. Farmers subsidize the public NOT the other way round.
3.Sheila Fraser did an audit of CAIS in 2007 and found FIPA was not in compliance. Who stopped her from calling a complete investigation into the doings of that department? Why was there no follow up audit? If Ms. Fraser could not completely address the short-comings of a large farm program in 2007, what makes you think a news conference will solve anything today? Case closed.
4.That fourth statement is completely petty and meaningless. Now you are just being a bully in a school yard scrap.
My conclusions to paraphrase your words. “However, it is important to remember that farmers have costs. If downward pressure on wages and other forms of compensation continues, the farms will get hollowed out with less skilled workers producing food production third world. This will be to the detriment of the country.”
Based on the media article and your conclusions it is extremely apparent the public is unaware of what really happens on Canadian farms and the people that support the farmers.
If you ate today, thank a farmer as he probably put in a honest day work to produce the food you enjoyed and mostly likely you did not pay the true cost of.
What Hank didn’t quite get around to mentioning was that FCC currently operates as if the only farmers in Canada, at least the only farmers that matter, are highly-protected, supply-managed, dairy and poultry farmers.
Given the way FCC shovels obscene amounts of often interest-only money at dairy and poultry farmers, resulting in ballooning land prices for the rest of us (as well as rewards for FCC employees) we, in non-supply managed agriculture, could do quite well without the FCC at all.
Stephen and Hank, thank you for your comments and alternative points of view.
Stephen: I’m making an argument about economics, not ethics. If there were more people like you – individuals who are willing to work at crown corporations for below market wages – we wouldn’t need to have this discussion. However, you have an economics degree, so you understand the concept of opportunity cost. It is possible that we disagree on the value of the next best alternative to working at FCC, but, again, that is an argument over numbers not ethics. I’d be happy to hear what you think a fair compensation package for the CEO of FCC is.
Also, as point of interest, $8200 in 1972 is equivalent to $42,834 after adjusting for inflation (Stats Canada data). AAFC has a current job posting for agricultural economists with a starting salary of $49,000, so the amount you earned isn’t much less. Moreover, AAFC is targeting individuals with MSc’s not bachelor degrees.
Two final points. As an agri-businessperson, you are free to obtain financing from any source that you want. If an alternative firm offers better terms, I’d suggest that you take them. Second, if you believe that supply management is artificially inflating land prices, then I suggest that you focus your energy on eliminating these policies (or on privatizing FCC).
Hank:
1. People often work for less than their maximum possible wage. The question is: what are they trading off for less money? We may disagree on particular values, but I fail to see how the opportunity cost logic is flawed. Moreover, I have no idea what you’re talking about when you discuss auditing. Maybe you should look at page 100 of the 2009 annual report.
2. I regret writing the statement about farmers being rich, but not because it’s incorrect. Rather, it is an irrelevant point. My argument in this post is about the opportunity costs of highly skilled workers in the public versus private sector. That FCC happens to focus on agriculture is immaterial.
However, since I did write about farmers being wealthy, let’s look at the topic.
First, it’s possible that you and I have different definitions of rich. I don’t mean to imply that farmers are Warren Buffet wealthy, but they certainly as wealthy as successful lawyers and doctors. Here are the data. The (non-farming) Canadian household at the 90th percentile (the family that is richer than 90% of all other Canadians) had a net worth of $862,900 in 2005 (Stats Canada). The average net worth of all farmers in 2007 was $1,189,893 (AAFC). So I think that I am justified in stating that the average farmer is rich when he is 38% richer than the family at the 90th percentile of the Canadian wealth distribution.
Second, when you refer to farm assets, I assume that you are talking about land. The value of farm land is determined by the sum of discounted future cash flows. This means that, by definition, if farm land appreciates faster than the rate of inflation, cash flows must be increasing faster than inflation. This is finance 101.
Third, stating that the level of debt doubled is meaningless unless you discuss how much asset values have increased.
Fourth, many Canadian families (greater than 50%), farming and non-farming, require dual incomes.
Fifth, farms are businesses. The only reason that farms should be treated any differently than other business is a) there is some market failure in agriculture that needs correcting or b) if the Canadian public wants to pay to maintain the social institution of farming. Either is possible, but I suggest that you read my post on inefficiency and social policy (http://www.canadianagrifood.ca/?p=247).
Sixth, due to high commodity prices, net farm income has increased for three consecutive years.
I could go on, but I think this is enough.
3. I didn’t mention anything about CAIS, a program which hasn’t existed for more than two years.
4. This statement was meant to be a joke. Apparently, I’m not funny.
I understand that I may have angered you with my comment on farm wealth. However, this post isn’t really about farmers or farming. It’s primarily about retaining highly skilled workers in the public sector.
One of my income tax clients works for FCC, and does exactly the same job I did when I was there – when I prepared his/her 2007 income tax, I noted that he/she made exactly ten times what I made ($7,800) when I started with FCC 35 years earlier.
In Huron County, this person’s damn well-paid, and I’m outraged to think that, on top of that, he/she may be entitled to even as much as one cent in bonus money, for no other reason than he/she shovelled out money to one sector of agriculture, to the detriment of other sectors.
You’re still completely missing the point – even without any of these bonuses, people would still fall all over themselves to get, and keep, a job with FCC.
I’d go back to FCC in a minute – and I’d be the first to demand the elimination of these practices.
The entire issue is about obscenity in the midst of misery – give it up my friend, you can quote facts and figures until you’re blue in the face, but you’re on the wrong side of the ethical, and moral compass of primary agriculture.
FCC’s Board of Directors made entirely the right call when they put an end to this nonsense.
Hank – don’t even think about responding to Brandon’s claim that net farm income has increased for three consecutive years, especially if you happen to be in the hog business.
I grew up in the cattle business, and therefore, heard my father mutter “big hat – no cattle” any time/every time he heard someone make that type of claim.
In addition, I’ve been preparing horrible-looking farm income tax returns for the past month, and have been just advised I’m about to get a substantial (and first-ever) AgriStability payment for 2009 for my own grains farm – and therfore, I’m not prepared to accept any proposition that farm income is anywhere near as rosy as Brandon would suggest.
So, just relax – the FCC Board of Directors seems to have at least some “cattle”, and did entirely the right thing.
PS – I’m almost 60 years old, and have never been to Disney World, and even with my pending AgriStability payment,am not likely to get there until well after I qualify for seniors discounts.
I served on the Board of Directors of a Hospital, and was part of the team responsible for hiring, and setting the compensation package for, a new CEO.
That our CEO would, or ever could, obtain any sort of performance “bonus” was so far outside the bounds of common decency, and ethical propriety, that we simply would not have hired any individual who even suggested the possibility.
We found the person we wanted, but he/she was already making more, as an assistant CEO elsewhere, than the top level of our salary grid allowed for a CEO – we promptly abolished the grid, made a new one, and hired the person who, not surprisingly, turned out to perform far better than we ever expected.
I can assure anyone that if our CEO had received any perk similar to those recently enjoyed by the top staff at FCC, I, as a Board Member, would have had my butt boiled in oil any time I showed my face in public, and rightly so.
I’m probably the only person posting on this matter who’s ever seen the issue from the Board of Directors view – and, therefore, can’t understand how anyone would, or ever could, suggest this type of compensation policy is ever acceptable in any part of the public, or quasi-public, sector.
Wow, Mr. Thompson. I’m absolutely speechless at your completely ignorant comments of FCC. I love how you say you’d come back to FCC in a minute. Here is some news – I am pretty sure that FCC doesn’t want you back.
In my day, a position at FCC was the equivalent of a calling to the priesthood. We were expected to, and did, conduct ourselves accordingly.
The other part of this obscenity is that FCC is widely, and with some good reason, seen in the farm community to now be little more than a wholly-owned subsidiary of supply management, existing for little purpose other than to shovel money at dairy and poultry farmers so that they, in turn, can run roughshod over other sectors of agriculture.
I can assure you that I’m only one of a great many farmers who really don’t like to see the higher interest rates we pay to FCC, simply because we’re not supply managed farmers, go to reward FCC executives for lending money at lower interest rates, and sometimes even on interest-only terms, to supply managed farmers who can, and do, use these better terms to outbid the rest of us for land.
Anyone who wants to, can “diss” me all they want, from behind the safety of an electronic veil, but at least I’m willing to publicly stand behind what I believe, and what my farm tax clients tell me – and I always will.
At least, in my day, we didn’t have this divisiveness, because everybody paid the same rate of interest at FCC. Therefore we couldn’t be, ane weren’t, rewarded for playing one sector of agriculture off against another.
Hopefully, the cancelling of the FCC rewards program is only the first step in the long-overdue shakeup in the attitude, and operational style, of the entire organization, and indeed, public bodies of all kinds which seem to have come to expect this type of “entitlement” as a given.
Stephen, you have to look at all sides of the issues. You need to understand that 0.10% of total revenues for travel expense and so forth is a small amount to pay to do necassary business. Yes, discretion needs to be applied by FCC management, that is obvious.
FCC’s dollar ratio is right around .48 cents. In otherwords, for every dollar earned, .48 cents is used for all expenses, including travel, salaries, etc. Now compare this to banks who’s ratio’s are closer to .65 – .70 cents. I think FCC is quite an efficient company.
Now for when you worked for FCC, it was a government funded crown. It was a lending institution of last resort for farmers who could not qualify at other financial institutions.
In today’s world, FCC is ran like a business and compete’s for it’s market share. It developes new lending products, many of which the banks copy. It has a treasury department to manage their investments, loans portfolio and risk. My point is, it’s a different entity from when you had worked there.
FCC does not get any cash injections from governement what so ever. Yes they have tax exemptions, but I think the public would rather have a succesful Crown supporting an industry that is necessary for economic growth and to live.
Stephen, I think you came across very narrow minded. And I can tell you, knowing a few that work for FCC, there are many working their butts off. Often in 6:30 am and not leaving till 6 sometimes 7:00 pm.
Hi there,
I work for FCC in an urban office and to say people are falling over to work here is a slight over statement!
I have forgone the opportunity for a high paying job to stick in Agriculture and therefore, a lower wage than counterparts in the same business at other institutions. But I am not complaining about it. I love Agriculture and for me to say other employees feel the same is something I don’t have trouble saying.
The wage may be high in small town SK, but in urban centers that is not the case. I still live on a farm, with family, as excessive housing costs and my salary don’t allow for mortgage payment cash flow on a single salary…
My parents are true cattle farmers and have nothing bad to say about FCC. FCC provides great opportunities for farmers outside of lending in the form of workshop, learning tours, and forums. All designed to help improve their operation.
FCC is strictly agriculture and sticks with farmers through the good and bad vs. banks who come and go!
It is sad to see how the media can twist a story so much!
I’d like to thank my critics for voicing their opinions – yet I think they’d have a completely different point of view if they spent even as little as one day listening to what I hear every day.
I may, indeed, be narrow, but I don’t really care, because every time I pull my punches, one, or usually more, of my farm clients tells me I didn’t go far enough. So take your pick – I get criticized in equal measure for either being too narrow, or not narrow enough.
I’ve spent my entire life effectively working with, and for, the dis-enfranchised, and while I may be a relic of a bygone era, I still believe in, and try to practice, the concepts of “duty”, “honour”, and “sacrifice” when it comes to public service. Therefore, I simply don’t care what percentage of total income these FCC perks came to, it’s still on the wrong side of my moral, and ethical, compass.
Furthermore, I think I must do something right every now and then, because current Ontario Ag Minister, Carol Mitchell, as well as former Ontario Ag Minister, Helen Johns, both know my home phone number, and both have been known to use it
I can’t end without taking a well-deserved swipe at Brandon on three points:
(1) I don’t care what you learned in Finance 101, in Canadian agriculture, when farmland appreciates faster than the rate of inflation, it absolutely DOES NOT mean cash flows are increasing faster than inflation – when I taught 02-323 Farm Management Analysis, it simply meant farmers were putting the “greater-fool” principle into practice.
(2) Nobody with any understanding of Canadian agriculture ever uses aggregate net farm income numbers to try to prove anything, simply because of the huge inter-sectoral income differences due entirely to protectionist legislation favouring only a few.
(3) I detest the term “opportunity cost” simply because it’s both lazy, and meaningless – opportunities have a range of net present values, not a cost.
[...] the heels of this post, I’ve had several exchanges regarding executive compensation, particularly with respect to [...]
I just read the article you mentioned, which lead me to your piece. I agree, excellent rebuttal. If it was myself writing here, I would refrain from a simple statement like “Farmers are rich.” Farming is capital intensive, and so farmers are incredibly wealthy when it comes to capital. However, this wealth is “tied up” so to speak. You’re right that they choose to allocate there money elsewhere, but that allocation is towards the farm, not to disposable income. Great piece though.