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$24.1-million: Telus pays the price for swapping CEOs

Telus Corp. paid its two chief executive officers a total of $24.1-million in 2015, a year that saw the return of Darren Entwistle to the post and the exit of Joe Natale.

The company paid Mr. Natale $11.6-million in total compensation, an amount that included a $6.2-million "transition payment" as he ceded the CEO role to Mr. Entwistle in August but remained with the company until the end of the year. Telus paid Mr. Entwistle $12.5-million in 2015, including a $2.7-million "contract renegotiation grant" for reassuming the CEO's job. The figures were disclosed in Telus's annual information circular, which was filed with securities regulators at close of business on Friday.

The Vancouver-based telecommunications company also paid the two men a total of $18.7-million in 2014. It was in May of that year that Mr. Natale was appointed CEO and Mr. Entwistle became executive chairman.

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The arrangement – which bucked Canadian corporate governance trends that favour a separation of board and management roles – saw long-time CEO Mr. Entwistle take the helm of the company's board and maintain an active role in Telus's day-to-day operations, effectively working as co-CEO with Mr. Natale.

Mr. Natale joined Telus in 2003. When he was promoted to CEO from chief commercial officer, the company said he would remain based in its Toronto offices. But when Telus announced the CEO swap last summer, it said the change was owing to Mr. Natale's reluctance to relocate to the Vancouver headquarters or another city in Western Canada.

Josh Blair, chief corporate officer, said in an interview Monday that the contract renegotiation payment to Mr. Entwistle was a grant of share units with "a retention aspect to it" and recognized his acceptance of a three-month severance period (down from 24 months in his previous CEO contract) and a non-compete clause of two years (up from one year in his earlier agreement).

"Given how critical Darren's leadership is to the continuity of Telus's strategy, the company felt that given these concessions, and his leadership, it was a very good move to make," Mr. Blair said.

Mr. Blair said the transition payment honoured the company's commitments to Mr. Natale under his employment agreement and also recognized his willingness to extend his non-compete clause to two years, up from 12 months.

Mr. Blair said he does not expect shareholder opposition to the company's payments to its two CEOs. Telus has a "say-on-pay" policy and holds advisory votes on executive compensation at its annual meetings.

"I think the No. 1 thing shareholders want to see is continuity through effective succession planning, and that's what the Telus board has ensured through this process," Mr. Blair said, adding that the company has reported consistent results over many years and total shareholder returns (which includes reinvested dividends) of 292 per cent from 2000 to 2015.

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Yet, some corporate governance experts have been critical of the company's succession planning as it resulted in the departure of a valued executive, Mr. Natale, who had been groomed to assume the CEO role.

Richard Leblanc, an associate professor of law, governance and ethics at York University, said Monday that the transition payment was "anomalously large on its face." He added that Telus's circular used technical language to explain the payment and did not link it to some form of performance or provide disclosure around the type of assistance Mr. Natale offered during the transition or the market value of that assistance.

"The problem that they run into is that [this situation] is so idiosyncratic that you're not going to get a whole bunch of peer companies that have had these concessions," he said, also referring to the concessions Mr. Entwistle made in exchange for his contract renegotiation payment.

"Good succession planning generally is better for shareholders because it's less expensive," said Mr. Leblanc, who previously advised U.S. hedge fund Mason Capital Management LLC on a proxy fight with Telus in 2012. "Telus has won awards for governance, but they got CEO succession wrong on the face of it."

Telus's say-on-pay votes have passed with support in the range of 95 per cent in the past. "We will see if the percentage goes down this year," Mr. Leblanc said.

"In consideration of Joe's availability to ensure an effective transition and lengthened competitive employment restrictions, the company entered into an agreement with Joe that provided him with a transition payment of $6,243,650," Telus said in its circular.

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It said that amount included a $1.65-million payment in lieu of Mr. Natale's annual performance bonus and executive performance stock units, "as well as payments based on a transition period of 24 months, in alignment with his executive employment agreement."

He also received a $3.2-million pension payment that "reflects Joe's entitlement to accrued service under the applicable pension plans until Dec. 31, 2017," the circular said.

Mr. Entwistle was paid a base salary of $1.375-million in 2015, while Mr. Natale's salary for the year was $1.324-million. Mr. Blair noted Monday that Mr. Entwistle has taken his base salary in Telus shares for the past six years.

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