For months, BCE Inc. has been trying to shake its past performance, touting the energy, ideas and action of its new CEO George Cope after a rich takeover bid for the company collapsed.
But on Wednesday, the past regime of Michael Sabia reared its head one more time as it emerged that the former president and chief executive officer left the company with a $21-million package last summer.
The payment includes $14.6-million in severance, accelerated stock options and several incentive amounts for a man whose six-year tenure was marked by frequent criticism that he acted too slowly while BCE's share price languished.
"Our board determined that Michael Sabia provided exemplary service to this company. The payments are made in terms of his contract that was signed in 2002," company spokesman Mark Langton said. "A contract is a contract and we honoured the terms of his."
Mr. Sabia's BCE windfall is the latest in a string of rich payouts for departing CEOs in Canada, raising fears that U.S.-style "golden handshakes" are moving north at a time when executive pay is the subject of increasing scrutiny - and anger - by investors around the globe.
Last week, for example, Manulife Financial Corp. said retiring CEO Dominic D'Alessandro will receive $12.6-million (U.S.) for five months of work in 2009 to recognize his "extraordinary performance" over 15 years at the company.
Torstar Corp., meanwhile, revealed this week that CEO Robert Prichard will receive $9.58-million (Canadian) when he voluntarily steps down as CEO on May 6. Torstar said it renegotiated his employment deal last year so he would get the same severance for voluntarily resigning as being fired.
"We're certainly seeing some very large packages in the U.S., but they're also starting to show up in Canada, which is very troubling for investors," said Stephen Griggs, executive director of the Canadian Coalition for Good Governance, a coalition of Canada's largest shareholders.
Mr. Griggs said that while Canadian law makes it difficult for a company to refuse to pay severance to underperforming executives, investors want boards to minimize payments if at all possible. "Too often what we see are very large severance packages being granted simply as a way of getting rid of a person quietly and without much fuss," he said.
"As a general rule, we think that is quite wrong. We think boards should be looking at methods to reduce the severance payments."
Shareholder resentment at BCE was growing even before the full details of Mr. Sabia's package emerged in a regulatory filing on Wednesday.
The company will face shareholder proposals at its annual general meeting in May demanding that the board cut pay and bonuses for executives and directors, as well as adopt the same sort of independence policy for the board's compensation committee as exists for the audit committee. BCE also faces a call for a "say-on-pay" vote to give shareholders a non-binding vote on executive compensation - an idea the company now says it supports.
Board members were not available for comment on Wednesday, said Mr. Langton, who emphasized that Mr. Cope has brought a new pay-for-performance culture to BCE. His employment contract awards him a pension comprised of restricted share units and stock options rather than cash. In addition, executive salaries have been frozen since 2006 and only performance bonuses have risen, he said.
In addition to his severance payments, BCE said Mr. Sabia also started collecting an annual pension of $968,750 last year at age 55. He joined Bell Canada International Inc. in late 1999 and became CEO of BCE in 2002.
Last month, Mr. Sabia was appointed CEO of the Caisse de dépôt et placement du Québec, and recently said he will not take any bonuses in his first two years, as well as a $235,000-a-year pension or any golden handshake.
Compensation experts say despite large severance payments to Mr. Sabia and others, there is also evidence that some boards have started to tackle the severance issue.
Robert Levasseur, senior executive compensation consultant at Watson Wyatt in Toronto, said some emerging payouts stem from old contracts put in place before the current era of heightened shareholder concern, while others are unusual, including Torstar's deal for a resigning CEO.
Many companies - especially in the U.S. - moved to trim their severance packages following the controversy over the $210-million (U.S.) separation package paid to Home Depot Inc. CEO Robert Nardelli after he was fired in 2007, Mr. Levasseur said.
He said some companies have cut severances entirely for their CEOs - including Toronto-Dominion Bank, which announced in February that CEO Ed Clark had agreed to waive all rights to severance pay in his new employment contract. He could have received more than $10-million if he were fired, the bank said.
But few other companies are moving in the current market environment to go further on severance reforms.
Christopher Chen, senior compensation consultant at Hay Group in Toronto, said he has been surprised that none of his clients have sought to tighten up their severance plans since the economic downturn hit, instead focusing on retooling their bonus and long-term incentive plans.
He believes boards don't want to alarm executives by opening talks to reduce their severance payments. "We think it will be the last piece of the compensation package they will touch," he said.
But Mr. Chen said there could be severance change coming on the horizon.
In Britain, he noted, CEO severances dropped sharply after companies were forced to hold annual say-on-pay votes on their compensation plans.
One result was that average CEO severance payments dropped to one times the annual compensation from two to three times previously.
In Canada this year, 10 major companies have announced they will hold non-binding say-on-pay votes at annual meetings starting next year.
Mr. Chen said the same reduction in severance payments may come to Canada, where the average CEO severance is still between two and three times annual compensation.
"If the shareholders become activist enough, you will see a move down. But will they?"
Janet McFarland