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Tobi Lutke, CEO of Shopify, and his wife Fiona McKean walk to a morning session at the Allen & Company Sun Valley Conference on July 13, 2023, in Sun Valley, Idaho.Kevin Dietsch/Getty Images

Shopify Inc. SHOP-T granted stock awards to chief executive officer Tobi Lutke valued at close to $200-million, making it one of the largest compensation packages in Canadian history.

Shopify disclosed the recent stock awards in filings on SEDI, an electronic system maintained by Canadian securities regulators to track stock ownership by directors and officers of public companies.

The Ottawa-based company granted Mr. Lutke 2.6 million options and close to 470,000 restricted shares on Feb. 22, the filings show. Because the compensation came in its 2024 fiscal year, Shopify is not required to disclose an estimate of its value or discuss the reasons for it until 2025.

Experts offered mixed reactions to the compensation, with some saying it serves as a useful incentive for Mr. Lutke to take steps to improve the company’s share price, and others questioning the motivation for granting the executive such a large compensation package.

“There are some open questions remaining as to why this much, and why now? Why, when the marketplace share price has come down so much,” said Christopher Chen, managing partner of executive compensation advisory firm Compensation Governance Partners.

Shopify shares have jumped sharply over the past year, but remain well below all-time highs set in late 2021. The company has recently posted solid growth and improved bottom-line results, but that followed a period of significant losses and some strategic reversals under Mr. Lutke’s watch.

The Globe and Mail used the same pricing model and assumptions Shopify used in 2023 to arrive at a value of about US$115-million for the stock options. The restricted shares would be valued at about US$37-million using Shopify’s methods.

The company did not respond to The Globe’s requests for comment, including questions about why the latest stock awards were issued, any conditions placed on the awards and estimates of their potential value.

Mr. Lutke, the founder of the company, owns more than $8-billion in Shopify stock at current prices on the Toronto Stock Exchange.

Experts say the grant may be a multiyear award delivered in one chunk, in order to incentivize Mr. Lutke to raise the company’s stock price, which is still far below 2022 highs. The grant also reflects the company’s efforts to benchmark its executive compensation to the U.S. tech companies with which it compares itself.

Shopify’s option grants to Mr. Lutke, who currently has a US$1 salary and no cash bonus plan, have been on an upward trend. Shopify valued the grants at US$4-million in 2018, US$10-million in 2019, US$15-million in 2020 and US$20-million in each of the next two years.

In 2023, Shopify gave Mr. Lutke 879,304 options that would be valued at about US$18.5-million, given the pricing model. Shopify will disclose its estimate of their value in its 2024 proxy circular, due in the coming weeks.

In its 2023 proxy, the company said this compensation reflects Mr. Lutke’s strong belief in the long-term performance of the company, and “to ensure that his realized pay outcomes continue to be aligned with the interests of our shareholders over the long term.”

Mr. Lutke’s disclosures of the 2024 stock grants say they vest, or become usable, over five years. But the disclosures do not say if Shopify considers them multiyear compensation. Some Canadian tech companies, such as BlackBerry Ltd. BB-T, have given CEOs large grants of stock in one year, then no stock awards in the next several years.

An option is the right to buy a company’s stock at a set price, called an “exercise price,” during a defined future period. There’s tremendous upside with options if the company’s stock price rises, but it also means that Mr. Lutke’s options could be worth nothing should the stock price decline.

This award will add to Mr. Lutke’s substantial holdings in the company. According to records from the company’s 2023 proxy circular, published last May, and SEDI filings of his transactions since then, Mr. Lutke’s holdings in Shopify would be US$6.3-billion, or $8.6-billion, at recent prices.

Compensation adviser Mr. Chen noted the award is 7.5 times what Mr. Lutke earned in the last two years and would put him among the highest paid CEOs in Canada. “What is the rationale for a 7.5 times grant of long-term incentives?”

Shopify’s share price is less than half of what it was at its peak in November of 2021, and the company posted a series of net losses until last year, including a $1-billion loss in the second quarter of 2023. In the last two years, the company laid off thousands of employees, prompting an apology from Mr. Lutke for overestimating e-commerce growth, and backtracked on its delivery business, which it paid $2-billion for in 2022.

Mr. Chen said that as an analyst, his main question to the board would be whether there are any performance-based metrics attached to the grant. “One would query why this whole amount would not have been a performance share unit,” Mr. Chen said.

Richard Powers, an associate professor of corporate governance at University of Toronto’s Rotman School of Management, said the grant likely represents multiple years’ worth of compensation – though he acknowledges this has not been confirmed. He said it’s not an unusual grant when compared with other similar technology companies.

“United States salaries tend to be quite a bit higher. Having said that, I don’t think he’s overpaid,” Prof. Powers said. “I think it shows the faith that the board has in the CEO and management team.”

Mr. Lutke’s annual compensation in 2021 and 2022 falls within the bottom range of the peer group of 20 companies, all American, that Shopify uses to inform compensation decisions. This group includes Adobe Inc. ADBE-Q, Twitter Inc., Uber Technologies Inc. UBER-N and Zoom Video Communications Inc. ZM-Q

While large compensation grants sometimes reflect a retention strategy, he said he does not believe that’s behind this particular award, given Mr. Lutke’s extensive ownership and control over the company.

Mr. Lutke already holds a 40-per-cent voting share, given his stock holdings and a special founders share awarded in 2022 to ensure his future control of the company. Shareholders approved the founders share with only 54 per cent of the vote, signalling some shareholder pushback.

Mr. Lutke’s February grant was part of a broader stock grant to Shopify executives. On the same day, company executives Harley Finkelstein, Jessica Hertz and Jeff Hoffmeister received option grants valued between US$3-million and US$7-million apiece.

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