Shaw Communications Inc. Shaw raised bonuses for most of its top executives in a year in which it also laid off employees during the COVID-19 pandemic.
The company says in its recently filed proxy circular that chief executive officer Bradley Shaw received a bonus of $5.27-million, down slightly from a $5.47-million bonus in the previous year. Four other top-paid executives received bonuses ranging from $774,400 to $964,000. For three of the four executives, the bonus payment jumped by nearly $100,000 from the year prior.
Shaw is the first major Canadian company to report its executive-compensation decisions for a fiscal year that includes the pandemic. It shows the challenges companies face in deciding whether to pay executives based on annual financial targets set before the coronavirus closed down large sections of the world’s economy. Those who make too many adjustments to their formulas for calculating them, or pay too lavishly, may find themselves under scrutiny by major institutional investors.
In coming weeks, boards of directors will have to decide how to deal with business results affected by the pandemic – both on the upside and downside. The big Canadian banks had an Oct. 31 fiscal year-end, and most of the remaining major corporations close the books around Dec. 31.
Shaw says it modified its bonus plan because of COVID-19, dumping revenue as a basis of calculating the bonuses for some of its executives “due to the unprecedented impact of the COVID-19 pandemic and the disproportionate effect that it had on certain business divisions.” The revenue-based metrics were “distorted by externalities and less relevant in fiscal 2020,” according to the compensation committee of Shaw’s board.
The only financial metrics it used were measures of cash flow and profit. During the pandemic, Shaw laid off about 100 field technicians across British Columbia’s Lower Mainland as the company accelerated a shift to customers installing their own equipment. The cuts represented about 8 per cent of Shaw’s technician work force.
Over the past two years, the company has been moving toward a self-service model, in which customers are sent gear such as modems and personal video recorders and instructions on how to install them. The global health crisis, which has made people wary of letting technicians into their homes, caused Shaw to speed up that shift.
The pandemic led to other cost reductions for telecom companies, as well. As stores temporarily closed during the first wave, fewer people shopped for phones, leading to reductions in device subsidies and sales promotions.
In response to questions from The Globe and Mail, Shaw pointed to July comments from chief financial officer Trevor English: “We didn’t have any significant huge one-time cost items related to COVID-19, and that being said, not a significant amount of cost savings related to temporary layoffs and people-related costs.” Shaw also said changes in the work force of field technicians “are a part of our long-term business plan and were not used to ‘boost’ our EBITDA performance.” (EBITDA is earnings before interest, taxes, depreciation and amortization.)
Shaw said it temporarily laid off about 1,000 workers during the pandemic, and recalled them by fall. Some employees were paid by Shaw, while others claimed the federal Canada Emergency Response Benefit “with a small top-up by Shaw,” the company said.
For the purposes of calculating executive bonuses, Shaw said it paid out based on reaching 100 per cent of its target for free cash flow, a measure of cash generated by operations before capital spending, and 88 per cent of its target for EBITDA. After abandoning the portion of the bonus formula for some executives that was tied to the business-unit revenue goals, it reallocated the money to “leadership performance” awards, which had no disclosed quantitative measures.
“Is this a bellwether? I think it’s going to be,” said Christopher Chen, managing director of Toronto consultancy Compensation Governance Partners. “I don’t think this is going to be the only one you’re going to see with a pandemic adjustment.”
Institutional Shareholder Services Inc. and Glass Lewis & Co., which advise major stockholders on how to vote on matters of governance, both issued statements earlier this year on what they’d be looking at when they reviewed companies’ 2020 pandemic-related compensation decisions. In normal years, the two want to see clear targets and measures, and less board discretion. This year, though, ISS said departing from those practices because of extraordinary circumstances may be reasonable, “so long as the justifications and rationale are clearly disclosed.”
Said Mr. Chen: “I believe that if you’ve got a plan design in place for your executives, you let the plan design run its course. And if there is some weird or strange discrepancy, a black swan, an act of God, a pandemic comes in – use discretion at the end to moderate what you’re going to pay, either up or down. I don’t believe in changing metrics in-flight or taking whole components out of your plan. I just don’t think it’s good compensation practice.”
All told, Mr. Shaw made $6.87-million in 2020. A quirk in pension accounting subtracted $2.77-million from his total pay, per disclosure rules mandated by Canadian securities regulators. He had a $2-million salary, $1.92-million in stock awards and $458,033 in other compensation aside from his $5.27 million bonus.
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