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William Doyle, CEO of Potash Corp.

Insiders of Potash Corp. of Saskatchewan Inc. will earn one of the largest windfalls from any takeover in recent Canadian history if the company is sold, according to a detailed analysis by The Globe and Mail of company documents.

Top executives and board members of the Saskatoon-based company would collectively reap more than $700-million (Canadian) in option profits, stock proceeds, severance and other payments at BHP Billiton PLC's current offer price of $130 (U.S.) per share, or about $134 Canadian. If the company ultimately sells for roughly $150 (U.S.) - as many investors and analysts expect it will - the number would exceed $800-million (Canadian).

Even the lower of those two figures far exceeds the amount that key insiders walked away with in such deals as Rio Tinto's $38-billion acquisition of Alcan Inc. in 2007, or Vale SA's $19-billion purchase of Inco Ltd. the year before.

The amount of money reflects a number of factors, including huge increases in potash prices and the company's stock and the decision of a number of board members to take their directors' fees in shares instead of cash, which governance experts applaud. But it is also sure to stoke the debate over commodity companies' use of stock options, which some believe unfairly rewards executives for market changes they have little control over. Options are the greatest single source of personal wealth for Potash Corp. executives.

The main beneficiary of the BHP bid is chief executive officer Bill Doyle, who stands to walk away with more than $400-million (Canadian) at BHP's $130 (U.S.)-a-share bid. Another top Potash executive - chief financial officer Wayne Brownlee - will make more than $100-million (Canadian) from the sale. A third, senior vice-president Barbara Jane Irwin, will cross that threshold if Potash sells for $146 (U.S.) a share. It has traded near or above that level since BHP unveiled its takeover bid in August and closed Thursday at $.

"I find that [$700-million]absolutely obscene," said Stephen Jarislowsky, whose money management firm, Jarislowsky Fraser Ltd., owns Potash Corp. shares for its clients.

While his clients have benefited from the long-term runup in the stock price, Potash Corp. executives "have nothing to do with that … They're not responsible for the worldwide demand for potash and the lack of supply, other than what they put out of their own mine," Mr. Jarislowsky said. "You don't even have to look for it - all you have to do is make a hole in the ground and bring it up. How much genius does that require?"

To arrive at the figures, the Globe included profits on stock options, gross profits on the sale of stock, severance packages and other incentive-plan payouts, and an estimate of the executives' future pension payments. The actual amount insiders would receive would be reduced by taxes.

Potash spokesman Bill Johnson declined to comment on the Globe's calculations or address matters related to a change in control. He did note, however, the company makes a distinction between compensation and shares held by insiders that were purchased on the open market. "We have guidelines for our directors and our named executives as to the number of shares they are required to hold relative to their annual compensation. Most executives exceed that threshold by many times."

The amounts represent the culmination of many years of work - the top four executives have averaged 17 years at Potash - for a company that has richly rewarded its shareholders. Over the past 20 years, Potash Corp. stock has returned nearly 15,000 per cent. Over the past decade, the time period covered by the executives' outstanding options, the total return is more than 1,700 per cent (in U.S. dollar terms).

At the same time, the executives have benefited from the one-two punch of Potash Corp.'s generous use of stock options and the escalating price of the commodity it sells, potash, a key soil nutrient used in fertilizers.

Annual grants of options that were originally in the tens of thousands have multiplied along with the company's multiple share splits so that Mr. Doyle now holds more than 3 million options and Mr. Brownlee holds more than 1 million.

As a result, option gains produce more than $300-million of Mr. Doyle's potential payout, and more than 80 per cent of the other executives' merger proceeds.

All told, the company had nearly 12.6 million employee stock options outstanding in February from its last five years of issuances - equal to about 4 per cent of Potash Corp.'s outstanding shares. At $130 (U.S.), they'd produce profits of more than $1.1-billion for a wide range of Potash Corp. employees.

"Stock options create, and I suspect always will create, huge debate as to whether they're the most effective way to compensate management," says Ken Hugessen, a Toronto compensation consultant. "Some will point to a situation like this and say this is the way it should work, and others will point to this and say, 'This is the problem.' "

One of the issues with stock options is that large grants, coupled with the gains of a rising stock market, can produce outsized payouts whether a company performed particularly well or not. It is, as compensation consultant Christopher Chen of the Hay Group says, a question of "is your management team performing that well, or is a rising tide lifting all boats?"

For the past half-decade, Potash Corp. has made efforts to ensure its options reflect something other than broad market gains.

Since 2005, the company's options have been granted under a "Performance Option Plan" that requires the company hit certain hurdles in a measure of cash flow return. If the company doesn't hit the marks, some or all of the stock options fail to "vest," or become usable. And since 2005, Potash Corp. has blown away its benchmark, meaning the executives have kept all their options.

However, Potash Corp.'s cash flow, its revenue, its profit - all have been driven by a surge in the price of the commodity it produces. While selling prices vary by market, U.S. government data suggest the typical price a decade ago was about $150 (U.S.) a tonne, leaping to $700 a tonne by 2008, before collapsing. But potash was still more than $340 a tonne as of August, according Scotia Capital, which tracks prices out of Vancouver.

That has pumped up the stock. "You get the same effect in oil and gas," Mr. Hugessen says. "It wasn't too many years ago that everybody in Calgary was rich - and I'm not so sure everybody in Calgary was brilliant. A few years later, they weren't quite as rich, and I don't think they got a case of the dummies."

Special to The Globe and Mail



Here's what key Potash Corp. of Saskatchewan insiders would earn if shareholders were to accept BHP Billiton's current offer of $130 (U.S.) a share

William Doyle

Chief executive officer

Option gains: $304.3-million

Stock held: $62.9-million

Incentive plan shares: $5.9-million

Severance, pension and other: $30.5-million

TOTAL: $403.6-million

Wayne Brownlee

Chief financial officer

Option gains: $99.9-million

Stock held: $7.9-million

Incentive plan shares: $1.7-million

Severance, pension and other: $12.5-million

TOTAL: $122.0-million

David Delaney

Chief operating officer

Option gains: $16.5-million

Stock held: $5.4-million

Incentive plan shares: $0.9-million

Severance, pension and other: $2.9-million

TOTAL: $25.7-million

Barbara Jane Irwin

Senior vice-president, administration

Option gains: $79.0-million

Stock held: $7.2-million

Incentive plan shares: $0.8-million

Severance, pension and other: $1.2-million

TOTAL: $88.2-million


TOTAL: Top four executives: $639.5-million

Total value of shares, options and DSUs held by directors: $66.8-million

*All amounts are in Canadian dollars calculated at exchange rate of C$1=US$0.9674

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