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Streetwise GMP Capital head Harris Fricker entitled to $7.5-million change-of-control payment after company’s sale closes

GMP Capital Inc.’s departing chief executive officer, Harris Fricker, is set to receive a hefty payment after the company’s sale of its capital markets business.

On Monday, Toronto-based GMP announced a deal to sell its investment banking arm to Stifel Financial Corp. for about $70-million. When the deal closes, Mr. Fricker appears to be in line to collect a roughly $7.5-million change-of-control payment – more than 10 per cent of the value the independent brokerage is receiving for the sale of its key business unit.

According to GMP’s proxy circular filed in April, Mr. Fricker is entitled to roughly two times his average annual compensation over the past three years in the event of a change of control. Last year, Mr. Fricker earned $4.3-million, consisting of a salary of $750,000, a $1-million bonus and $2.5-million from the investment banking fee pool.

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“There are contractual obligations that will kick in, when the sale closes, and they’re what you typically see in these situations,” Mr. Fricker said in an interview with The Globe and Mail on Monday.

On Tuesday, Mr. Fricker declined an interview request to confirm the specifics of his change-in-control payout. In an e-mail, GMP spokesperson Rocco Colella wrote that details of employee contractual arrangements will be made public in the coming weeks.

Change-of-control provisions were originally conceived to compensate executives in the event the company is acquired, and the CEO loses his job, said Richard Leblanc, professor of governance at York University, in an interview.

Companies with best-in-class corporate governance practices go one step further, making change-of-control payments subject to the CEO meeting certain performance metrics.

“You’re going to think twice before you sell and bail out, if you’re not performing,” Prof. Leblanc said.

Mr. Fricker’s contract with GMP is known as “single trigger,” meaning the only criterion for it to take effect is a change in control. Performance of the company over the long term and whether Mr. Fricker stays employed are not factors.

When the deal with Stifel closes, Mr. Fricker will leave GMP and take up a new unspecified role at Stifel.

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Shares in GMP are down 90 per cent from their peak in 2006 and about 75 per cent since Mr. Fricker was made CEO in late 2010.

Prof. Leblanc said he is critical of any company that has “single trigger” change-of-control provisions.

“If it’s single trigger, and the company’s not performing, it provides a perverse incentive for the CEO to use it as an exit payment,” Prof. Leblanc said.

The pending payment to Mr. Fricker in the aftermath of poor performance at GMP comes not long after a similar scenario played out at Canadian gold company Goldcorp Inc. A few months ago, a large contingent of Goldcorp’s shareholders opposed a US$12-million cash bonus awarded to departing chairman Ian Telfer, as well as an $11-million change-of-control payment made to departing CEO David Garofalo after Goldcorp was sold to Newmont Mining Corp. (now Newmont Goldcorp Corp.). Goldcorp shares were near a historic low at the time.

Apart from Mr. Fricker, fellow GMP executives Robert Weir and Chris Bond may be given early vesting rights to share awards under change-of-control agreements but that will be at the discretion of GMP’s board.

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