The Riddle of Executive Compensation in Cannabis

When truth is stranger than fiction

Few topics raise the ire of cannabis employees and investors as much as the executive compensation (EC).  And for good reason.  Corporate results are in the toilet and many staff have suffered layoffs while their leaders seemingly cash in on riches. How big is this problem?       

First off, let's be clear on the facts around EC, a nebulous and emotionally charged phrase.  There is no definitive evidence that shows EC (cash and share-based remuneration) is widespread across the cannabis industry.  Yes, many leaders are being overpaid relative to their company’s performance. But that is also true in many organizations in the private and public sectors. And scratch the surface of private cannabis firms and you'll find that most leaders are significantly underpaid on a salary basis.

We need to go beyond conjecture and examine this topic objectively. EC is often framed in terms of absolute pay as well as organizational equity.  Lets explore each in turn.

1. How much is enough for an individual?

This is a complex business and ethical question with no simple answer.  In a free enterprise system, people are entitled to maximize their earnings based on their talents, negotiating skills and the needs of the employer.  I don’t fault executives (or aged rock stars, or young football players) for acting selfishly especially when their professional shelf life is limited, and they operate in a high-pressure environment.   Greed and individual value perceptions are two sides of the same coin. 

2. What is equitable, given the role?

This is also a challenging question. Extreme wage differentials could be corrosive to employee morale and stunt incentives.  However, what should be the ideal compensation ratio between the highest and lowest paid cannabis worker, especially when they are compensated through different means? 

We also can’t ignore the war for talent.  Many lament the lack of quality management in the cannabis industry. Yet, how do you attract and keep the very people you need, given industry challenges and stigmas?

For me, the real ethical issue is whether the larger number of lower paid workers are being paid reasonable wages, not how much the few executives at the top make.  Equity is company and market dependent – and in the eye of the beholder. 

Whatever it is, EC is a tricky subject and worth addressing for no other reason that shareholders deserve value for their executive money and that stock-based EC can be highly dilutive while obscuring a company’s true financial position.  

Addressing this problem is the responsibility of the Board, whose job it is to design shareholder-friendly compensation programs, hold management accountable for performance and bring in the right talent.

I work with Boards on these specific issues.  DM if you want to chat.

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