Prime Minister Justin Trudeau said bonuses Air Canada paid to executives while the company was negotiating a government bailout are “completely unacceptable” and the airline owes Canadians an explanation.
“I completely understand the incomprehension and even anger of many Canadians regarding this news from Air Canada,” he said in French during Question Period on Wednesday.
Mr. Trudeau’s comments followed a Globe and Mail report that Air Canada paid $10-million in “COVID-19 Pandemic Mitigation Bonuses” to executives and managers earlier this year, while it was negotiating what became a $5.9-billion government bailout, announced in April. That agreement contains limits on executive compensation in the future.
The company also gave out a special batch of stock awards on Dec. 31 designed to compensate top executives for 2020 cuts in their salaries, according to the company’s proxy circular to shareholders.
Finance Minister Chrystia Freeland also weighed in on the issue at a Wednesday news conference. She said that she was “very disappointed” businesses aren’t behaving in the Canadian spirit by awarding large bonuses to executives during the COVID-19 pandemic, and says the federal government will use its new equity stake in Air Canada to voice its unhappiness with the airline’s recent pay decisions.
“On a going-forward basis, it was very important for me that we impose strict limits on executive compensation,” Ms. Freeland said Wednesday. “There was some resistance to that, but those limits are there, and they will be in place until 12 months after Air Canada’s loans are repaid.”
Air Canada did not respond to requests for comment late Wednesday.
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.
All told, Air Canada reported total compensation to then-chief executive officer Calin Rovinescu of $9.26-million last year, down from $12.87-million in 2019. Four other executives made between $1.6-million and $3-million in 2020. Securities regulations typically require disclosure for just five top-paid executives, meaning other Air Canada leaders may have made more than $1-million in 2020.
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.
Ms. Freeland said it was also important to her that the Canadian government receive an equity stake in the airline as part of the bailout package. Ottawa bought $500-million of Air Canada stock, or 21.6 million shares, at just over $23 each and has the right to buy 14 million more. The federal government’s voting interest in the airline is capped at just below 20 per cent.
“The people of Canada, who are underwriting the recovery of Air Canada, should have a part in the upside,” Ms. Freeland said Wednesday. “Our equity stake also means we are now, as the government, an important shareholder in Air Canada. That gives us a voice in decisions taken by the company, and we will not shy away from using that voice to express our very reasonable view of what constitutes responsible corporate behaviour.”
“Canadian companies receiving money from the government have a duty to behave responsibly when it comes to regular Canadians, who are now their shareholders as well as their customers,” she added.
Air Canada’s board explained the 2020 compensation decisions by saying 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.
The board also said it realized early in 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.
Mr. Rovinescu and then-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.” Mr. Rovinescu retired in February, and was succeeded by Mr. Rousseau.
Ms. Freeland said “our approach overall has been premised on something I also believe in very strongly, which is that Canadians are smart, and that we really are a country that believes in doing the right thing. We are a country of people who know that we all have to do our fair share and we all have to support each other. And I believe that is true of the overwhelming majority of individual Canadians and the overwhelming majority of Canadian businesses.”
“But I’m very disappointed that there are some businesses that seem not to be behaving in that spirit. That is not the Canadian way, and that is not the way that our country will get through this crisis and punch our way out of the COVID recession,” she added.
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