More than 40 per cent of BlackBerry Ltd. shareholders expressed displeasure with the company’s pay practices at its annual meeting amid controversy over stock payouts for chief executive officer John Chen.
Glass Lewis & Co. and Institutional Shareholder Services Inc. (ISS), two major proxy advisory firms, recommended “no” votes on BlackBerry’s non-binding vote on executive compensation, also known as “say on pay.” Only 59 per cent of shareholders voted in favour. It is typical for shareholders of Canadian companies to vote more than 90 per cent in favour on say-on-pay motions.
Even though the votes are non-binding, compensation experts say companies feel strong pressure to make reforms when support is low.
“The say-on-pay resolution was … approved by the majority of the votes cast,” Phil Kurtz, BlackBerry’s deputy general counsel and corporate secretary, said at the Wednesday meeting. “Nevertheless, support for the motion was below our expectations.” Mr. Kurtz said the compensation committee on BlackBerry’s board believes its compensation program is necessary to attract and retain talent.
“With this said … the board and committee will review the result of our vote today in connection with their ongoing evaluation of the company’s compensation program,” he said.
BlackBerry’s compensation practices have made headlines before because of the substantial stock awards it gives to Mr. Chen. In 2018, Mr. Chen received a stock award of five million shares plus a long-term bonus plan that could yield close to $400-million if BlackBerry shares reached the $30 level in the next five years.
Glass Lewis noted that some of Mr. Chen’s most recent stock awards have vested, or become usable, largely because BlackBerry has become a “meme stock” in recent months. Meme stocks are shares in companies that are heavily promoted on social media, often by retail investors. Share prices in meme stocks are often volatile, and not necessarily tied to a company’s performance.
Mr. Chen earns each block of one million shares from the 2018 award if BlackBerry’s shares – traded in Toronto and New York – hit targets in one-dollar increments from US$16 to US$20. The targets seemed aggressive in 2018, when BlackBerry shares traded at US$10.63.
BlackBerry became a beneficiary of meme stock mania in late January, when its stock doubled in less than a week, hitting all five price targets in one day, and briefly trading above $28. BlackBerry disclosed in its proxy circular that three million of the five million awards will vest this year. The shares closed at $16.17 on the Toronto Stock Exchange on Wednesday.
ISS said that Mr. Chen’s guaranteed bonus and salary are above average compared with the company’s peers. ISS also said BlackBerry doesn’t disclose the goals behind the incentive pay for other executives, making it difficult to assess the link between pay and performance.
Glass Lewis and ISS recommended that shareholders withhold votes from director Prem Watsa, the CEO of Fairfax Financial who services as BlackBerry’s lead independent director and chairs the board’s compensation committee. BlackBerry said he personally negotiated Mr. Chen’s 2018 contract extension and share awards.
Mr. Watsa received 82.6 per cent voting support from shareholders. Last year, he got the support of 90 per cent of shareholders.
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