Bombardier Inc.'s turnaround attempt may require the issuance of more shares to new investors – but the company also says it needs stock for its employee-compensation plans. Too much stock, according to a prominent proxy adviser and at least two major Canadian pension funds.
The opposition suggests that while the stock plans will likely pass at Friday's AGM – the Bombardier family controls 53 per cent of the shareholder votes – minority shareholders may cast a significant number of votes against the proposals.
In February, Bombardier's board approved the expansion of the company's stock-option plan to increase the number of shares available for its employees from just under 136 million to nearly 225 million, an increase of 65 per cent. The new figure represents 10 per cent of the currently outstanding Class A and Class B shares of the company, Bombardier says.
"The Corporation believes that stock options are a valuable tool in retaining and compensating officers and selected employees, and recruiting such qualified personnel," Bombardier says in its explanation to shareholders. "In order to ensure that the Corporation can continue to use stock options to attract, retain and motivate valuable human resources required to meet its business objectives, the Board of Directors believes that it is necessary to increase the number of options available to be granted." (Spokeswoman Isabelle Rondeau said the company would limit its comment to what is in the proxy.)
Proxy-advisory firm Institutional Shareholder Services, which introduced a new framework for evaluating companies' equity-compensation plans, says this proposed expansion of the Bombardier stock-option plan flunks its tests, however, because of its "excessive cost."
Using a methodology called "shareholder value transfer," ISS estimates the value of the 88.9 million new shares, plus 35.7 million shares remaining under the previous plan, at $178-million, or 3.8 per cent of the company's market capitalization at the time of the analysis.
ISS's benchmark for available stock options, new and unused, is for them to be worth no more than 2 per cent of Bombardier, a figure it arrived at via an analysis of a company's market capitalization, industry, and the performance indicators that correlate most strongly to total shareholder return.
ISS is also recommending a no vote on Bombardier's amendments to its Deferred Share Unit Plan, which raises the cap on the number of units the company can issue. ISS says raising the cap could lead to more share issuance, and "adequate rationale for this change has not been provided."
Pension fund giants Canada Pension Plan Investment Board and Ontario Teachers' Pension Plan have said they are opposed to the amendments.
Teachers says the shareholder dilution from the plan expansion, as well as the number of shares Bombardier granted last year, are above their thresholds, prompting their "no" vote on the plan.
The two plans are also supporting a shareholder proposal to have Bombardier disclose voting results from the company's Class A and Class B shares separately.
David Milstead