Unprofitable Air Canada gave its executives and managers $10-million in “COVID-19 Pandemic Mitigation Bonuses” and handed out other special stock awards that were designed to compensate them for salary cuts the airline announced publicly during 2020.
The extra compensation – revealed in Air Canada’s annual proxy circular to shareholders – came as the airline negotiated a multibillion-dollar bailout with the Canadian government. The $5.9-billion federal rescue plan, announced in April, included limits on executive compensation in the future. During COVID-19, Air Canada also took $656-million from the federal government’s Canada Emergency Wage Subsidy program in 2020, a larger number than any other company has publicly disclosed.
Air Canada’s board explained the compensation decisions by saying the company’s senior executives “reacted urgently, decisively and skillfully to mitigate the impact of the COVID-19 pandemic on the company,” taking measures that included reducing its staff by 20,000. “And with equal vigour, the leadership team played offence,” Air Canada said in the circular, including “industry-leading personal safety and sanitary measures” and investments in technology and aircraft.
Chief executive Calin Rovinescu and deputy CEO Michael Rousseau waived 100 per cent of their salaries last April, May and June, and 50 per cent of their salaries for the remainder of 2020. The three other top executives whose compensation is disclosed took a 50-per-cent pay cut for three months, then 20 per cent for the remainder of the year. The cuts effectively reduced salaries for the five by $766,723 in total, including $490,000 for Mr. Rovinescu.
However, on Dec. 31 – the last day of the 2020 pay cuts – Air Canada handed out special “stock appreciation units” to the affected executives, giving them “the opportunity to recuperate their foregone salary.”
The board also explained in the circular that it realized in the early days of the pandemic that the goals in its existing annual cash bonus program – including a heavy emphasis on profitability – “were no longer applicable nor pertinent,” so it scrapped the plan “early” in 2020. The program was replaced by a new one based on pandemic goals of customer service, maintaining the airline’s liquidity and cost-cutting.
Air Canada says “management’s exceptional performance” resulted in the board approving $20-million in bonuses to management compared with the potential bonus pool of $45-million from the scrapped program. However, it paid out $10-million in bonuses, including $1.84-million to the top five executives.
The company also said it realized the pandemic’s big losses would eliminate the payouts for performance-based share units and stock options granted from 2017 to 2020 in its long-term incentive plan, so it decided to drop 2020′s results from the formula.
“Having three years of performance-based [awards] not paying out ... could potentially create an important ‘retention’ issue thereby putting the organization at-risk at a time when we most need our key talents to ensure our survival and future recovery for the benefits of our shareholders,” the company explained.
To offset the benefit to executives from the formula change, Air Canada said, it cancelled one-third to one-quarter of the awards for each year.
All told, Air Canada reported total compensation for Mr. Rovinescu of $9.26-million last year, down from $12.87-million in 2019. The figure includes a salary of $910,005, down from $1.4-million in 2019, and a bonus of $723,000, down from just under $3.5-million in 2019. Air Canada valued Mr. Rovinescu’s share, option and stock-appreciation awards at $6.66-million, down from $7.1-million in 2019.
Air Canada says Mr. Rovinescu, who retired from the top job in February, 2021, would have received $7.7-million in stock awards in 2020 had the pandemic not occurred. Mr. Rousseau succeeded Mr. Rovinescu as CEO on Feb. 15 of this year.
The recuperative stock-appreciation units allow for a payout based on the increase in Air Canada’s share price from $22.90, the stock’s average price on the final trading days of 2020, to Dec. 31, 2022. If the stock falls below that level, there will be no payout.
Mr. Rovinescu received 21,398 stock-appreciation units, which Air Canada estimated to be worth $168,396.
Air Canada’s revenue fell by 70 per cent in 2020 and the flag carrier lost $4.6-billion as it eliminated 67 per cent of its seat capacity and laid off more than half its work force. In a bid to reduce its cash expenses of $13-million a day, Air Canada shed 79 planes and cancelled orders for 22 aircraft. Air Canada also pulled out of several regional airports and suspended routes to several small cities, blaming the pandemic and government travel restrictions.
As part of the bailout deal reached in April, Ottawa provided $5.375-billion in repayable loans to Air Canada, including a $1.4-billion credit facility the airline can use to refund customers for flights cancelled because of the pandemic. Under the rescue package, Air Canada will not be able to use the money to buy back its own shares, and compensation for executives will be capped at $1-million a year.
Stock ownership records filed with securities regulators show that on April 16, Air Canada took away tens of thousands of stock options and share awards it gave to executives on March 1 of this year.
Wesley Lesosky, president of the Canadian Union of Public Employees’ Air Canada component, said his members who were laid off didn’t benefit from CEWS, which was meant to allow Canadian companies to keep workers on the payroll.
“We’re disappointed the company was finding ways to keep paying bonuses to executives, while at the same time cutting off a lifeline for thousands of my members … [they] were left out to dry, and the federal government stood by and let it happen.”
With a file from Eric Atkins
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