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At first blush, there seems not to be much to say about executive compensation at Sherritt International Corp. S-T.

A million bucks here and there, positive feedback from proxy-advisory services, solid shareholder support for the compensation approach in its “say on pay” vote.

The problem, though, is that if you’re a long-suffering stockholder of the miner of nickel and cobalt, you may wonder why anyone there is getting paid anything at all.

At the very least, the pay at Sherritt illustrates the problem with trying to match up “long-term” incentive pay to the truly long-term shareholder experience.

Sherritt’s best days, it can be said, are in the past. Incorporated in 1927, it has the historic single-letter “S” ticker on the Toronto Stock Exchange. At one point, it was worth billions and was a member of the S&P/TSX Composite Index.

However, the shares have fallen more than 97 per cent from their all-time high of $18 in October, 2007, giving it a market capitalization of less than $200-million. That return even includes an amazing 557-per-cent gain from its COVID-19 pandemic lows.

You’re doing the math – we’re talking about going from 7 cents per share in March, 2020, to about 46 cents in recent trades. And this period, and price action, is where we’ll turn back to Sherritt’s pay.

To its credit, Sherritt has dispensed with stock options. That’s a response to the criticism that miners and other resource companies can see the value of their shares – and, in turn, their stock options – rise considerably when the commodity they sell jumps in price.

The resulting stock-option windfall for executives would have nothing to do with excellent corporate performance, compared with peers – and would also dilute shareholders as the company issued a lot more stock.

To replace options, Sherritt devised a stock program that includes awards tied to how the company performs. The payouts of these performance-share units (PSUs) are based on two things: Sherritt’s stock returns, versus resource-industry peers; and an operational measure that considers cost savings and cash-flow generation. The company looks at results over a three-year period to calculate the final payout. Solid.

Here’s the thing, though. When a company wants to give an executive stock awards worth a certain dollar amount, it doesn’t take too many shares to achieve that goal if the stock price is high. When your stock sells for less than the sales tax on a Dollarama item, however, an executive’s pay package can include an awful lot of shares of stock – and that sets the stage for an outsized return.

Specifically, in March of 2020, Sherritt wanted to give chief executive officer David Pathe a PSU award valued at $875,000, as part of a $5.2-million pay package. Sherritt stock was trading at 16 cents per share at the time, so he received 5,468,750 PSUs.

Super-cheap shares of legitimate companies can be volatile even in normal times, to say nothing of the early months of COVID-19. And Sherritt’s shares rose significantly from those lows.

Because the plan uses relative shareholder return as a performance factor, and also pays out in shares of common stock, there can be a kind of ratcheting effect when the share price booms. A modest stock grant can explode in value.

Here’s what happened next: Mr. Pathe stepped down from his role as CEO May 30, 2021, after nearly a decade at the helm. As part of the separation, Sherritt allowed him to keep his PSUs.

Mr. Pathe no longer had to disclose stock transactions after his departure. However, filings in the regulatory system for company insiders show the payouts for other Sherritt executives who received awards in March, 2020.

Based on this math, which Sherritt confirmed for me, Mr. Pathe’s 5,468,750 PSUs turned into 8,039,063 shares because of a multiplier effect. And because the stock was worth 51 cents per share on the Feb. 28, 2023, payout date, he received $4,099,922 in cash. Nice growth for a grant valued at $875,000 three years before.

Other executives who received grants valued between $250,000 and $300,000 in 2020, some of whom also left the company, received payouts in February, 2023, of about $1.1-million.

There’s no doubt shareholders who bought Sherritt in March, 2020, are winners: The stock more than tripled over three years, outperforming many mining peers over the period.

However, over the course of Mr. Pathe’s tenure, Sherritt shares underperformed, you might say. From his first day as CEO at the beginning of 2012 to his May, 2021, departure, Sherritt stock lost 89.4 per cent of its value, according to S&P Global Market Intelligence. Of the 43 current diversified metals and mining companies listed on the TSX that also traded over this exact period, Sherritt ranks 36th, according to S&P.

That helps explain why, over the course of this spring, as The Globe and Mail published multiple articles on executive pay, three different Sherritt shareholders e-mailed me to suggest an examination of the company’s compensation, given their miserable experience.

To Sherritt, these shareholders are part of a very small minority. Spokesperson Tom Halton says proxy advisory firms Institutional Shareholder Services and Glass Lewis & Co. both provided a positive recommendation of “For” on Sherritt’s “say on pay” measures for the past six years.

In the past three years, the vote to approve the approach to executive compensation received 83 per cent, 86 per cent and 86 per cent. (That’s close to, but below, the average of roughly 90 per cent ‘Yes’ votes at Canadian companies.)

Mr. Halton also notes Sherritt’s stock price increased by 302 per cent during the three-year vesting period of the 2020 PSUs compared with 174 per cent for the S&P/TSX Global Base Metals Index and 39 per cent for the Composite.

That, he says, is in part from an increase in nickel prices, but “more significantly, a successful non-dilutive debt restructuring transaction conducted by management during this period, which was a critical element of protecting shareholder value.”

That’s another way of saying shareholders were close to getting entirely wiped out. Some who speculated and bought at the lows won’t begrudge executives for getting millions after tripling a 16-cent stock. Those who took a journey down from $18, or $10, or even $3, have every right to be unhappy.

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