There is an idyll of the public company founder-CEO, working for little compensation, building his net worth largely through the appreciation in the value of shares owned since the venture’s inception.
That’s not how it works for a new generation of chief executive officers, who have found that they can hang on to the shares they held in the company’s prepublic days, yet get tens of millions more in compensation through huge stock awards that are said, by the companies’ pliant boards, to help motivate and retain them.
There’s Ceridian HCM Holding Inc. , which gave its CEO, Canadian tech entrepreneur David Ossip, a US$22.4-million option grant in 2020 as a retention and incentive award – despite the fact he was already holding US$365-million in shares and options at the time. At Canadian tech darling Shopify Inc. , billionaire CEO Tobias Lutke has been receiving multimillion-dollar option grants since 2017.
GFL, founded in 2007, is a serial acquirer of waste-management companies whose 2020 IPO was one of the largest in Canadian history. CEO Patrick Dovigi, the company’s founder, holds more than 12 million multiple-voting shares, worth more than $300-million at the time of the IPO.
Three days after the IPO, the company awarded Mr. Dovigi a massive grant of nearly 17.7 million stock options that it valued at $26.57-million, contributing to his placement at the top of The Globe and Mail’s best-paid CEO list for 2020. The five blocks of options had increasingly higher exercise prices, which would seem to suggest they were designed to be a multiyear incentive.
However, in June of this year, GFL awarded Mr. Dovigi another 6.77 million options, bringing the total grants to more than 24 million, or 7.4 per cent of the company’s currently outstanding shares, in just over 15 months. According to GFL, the newest options can’t be used until 2024, and only if GFL stock hits the US$50 and US$60 levels for 20 trading days – gains of 50 per cent to 80 per cent from the US$33 exercise price. (GFL, which also trades on the New York Stock Exchange, closed at US$41.59 on Monday.)
Some of the numbers associated with the grants are truly astounding. Because a tranche of nearly four million of the 2020 options vested, or became usable immediately, Mr. Dovigi has already started using them: His exercise of options and open-market sale of the underlying shares earned him US$31.5-million in the first week of June. At recent trading prices, Mr. Dovigi’s remaining options are worth around $300-million – on top of the value of his multiple-voting shares, which are worth more than $670-million now that GFL stock has more than doubled since its IPO.
Legal-software seller Dye & Durham recently said it needed to incentivize CEO Matthew Proud, who built the company up from a tiny concern, after his attempt to take the company private failed. So on Oct. 8 it awarded him 6,851,100 options on top of the 2,336,793 it gave him in November, 2020. The combined total is equal to 11.8 per cent of the company’s outstanding shares.
In its securities filings, Dye & Durham said 70 per cent of the options vest only if the company attains price thresholds 50 per cent to 200 per cent above current levels, and the remaining 30 per cent vest based on unspecified corporate performance metrics. What the company did not say in its press release – but can be seen in SEDI, the System for Electronic Disclosure by Insiders maintained by provincial regulators – is that it also awarded Mr. Proud 5,823,435 stock-appreciation rights (SARs) on Oct. 8., which also have the potential to deliver Mr. Proud millions of dollars in profits. (Stock-appreciation rights have the same earning power as options, but are typically settled in cash, rather than shares.)
In response to questions, company spokesman Ross Marshall explained that 5,823,435 of the new options exceed what was authorized in the company’s existing incentive plan, so they will require approval of the TSX and the company’s shareholders. If the shareholders reject the options award, they’ll be cancelled, and Mr. Proud will keep the SARs. If the options are approved, the SARs will be terminated. So shareholders vexed by the large award can’t do much at all to stop it.
Mr. Proud already owned a significant amount of Dye & Durham – but thanks to poor disclosure, it’s not clear exactly how much. A December, 2012, news release describing Mr. Proud’s acquisition of Dye & Durham’s predecessor company described Mr. Proud as the “sole shareholder” of Plantro Ltd. Plantro is an entity that once owned more than 10 million shares of Dye & Durham and has grossed $116-million since July, 2020, by selling nearly 40 per cent of its stake in the company. But footnotes in Dye & Durham’s prospectuses, dating back to its IPO, have said only that Mr. Proud “currently owns class-A non-voting shares of Plantro.”
Mr. Marshall declined to answer questions about how Mr. Proud’s ownership of Plantro has evolved over time, based on these differing disclosures; why Mr. Proud doesn’t claim beneficial ownership of Plantro’s remaining Dye & Durham stock – nearly 9 per cent of the company, worth about $234-million – in his own individual filings with SEDI; and why Dye & Durham’s past prospectuses have contained the line “Matthew Proud does not, as of the date hereof, own any common shares.”
Both Dye & Durham and GFL see the structure of their options, with built-in price-appreciation or performance criteria, as shareholder-friendly. Mr. Marshall defends the Dye & Durham options by saying Mr. Proud “will earn these awards as shareholders make increasingly stronger returns.”
GFL shareholders this spring defied the two major proxy advisers who advised a “no” vote in GFL’s say-on-pay election this year, by instead voting 90 per cent in favour of the measure. (Ontario Teachers’ Pension Plan, a holder of 11 per cent of GFL, believes the compensation “is aligned with the long-term interest of shareholders,” according to Teachers spokesman Dan Madge.)
Mr. Dovigi and Mr. Proud, however, were already aligned with shareholders before their 2020 option grants. They certainly were before their recent awards that piled on the profits. Isn’t more than doubling a $100-million or $200-million stake enough motivation? Or is there never enough money to be handed out to keep these CEOs happy?
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