Two influential proxy advisory firms are recommending that shareholders of CI Financial Corp. vote against the company’s compensation practices at its annual meeting next week, arguing it has failed to respond to investor concerns about aligning pay with long-term performance for executives. Institutional Shareholder Services Inc. (ISS) and Glass Lewis & Co. – which advise institutional investors on how to vote their shares – both released reports earlier this week highlighting what they said are several continuing issues at the independent wealth manager, such as compensation discrepancies between the chief executive officer and other executives.
It is the second year in a row the two firms have recommended voting “no” in the company’s non-binding annual say-on-pay vote at its annual meeting.
CI failed to get majority approval for compensation program from CI shareholders in 2021, receiving just 38.1 per cent of the votes cast. It was one of just six Toronto Stock Exchange-listed companies in 2021 to fail to get 50-per-cent support.
The average support level in Canadian say-on-pay votes is above 90 per cent, according to research from compensation and governance advisory firms. Both ISS and Glass Lewis expect companies to reach out to shareholders when they fail to get at least 80-per-cent support. In 2020, CI received 72.6-per-cent support.
According to Globe research, CI chief executive Kurt MacAlpine saw one of the largest jumps in total compensation last year for CEOs in the Canadian wealth-management sector.
Mr. MacAlpine made $10.6-million in 2021, up more than 75 per cent from $6.01-million the prior year. His annual cash bonus jumped to $3.88-million from $1-million in the previous year, while his share awards rose to nearly $5.6-million from $4.2-million. His annual salary increased to $1,125,000 – up 40.6 per cent from $800,000 in 2020.
In 2021, the two advisory firms expressed concerns about the lack of performance criteria for much of CI’s variable pay plans. In its current proxy circular, CI said it had received similar feedback from its institutional shareholders, so the company began work in 2020 on a performance scorecard for Mr. MacAlpine. With the help of outside consultants, it introduced it in 2021.
“We are encouraged by the fact that the vast majority of our shareholders who voted their shares prior to the release of the proxy services reports, voted in favour of our revised approach to compensation,” CI spokesperson Murray Oxby said.
However, ISS and Glass Lewis took issue with the scorecard and with other elements of the company’s pay plans for all executives.
The two said CI still lacks performance-based, long-term stock awards as a regular part of pay plans for executives other than Mr. MacAlpine. ISS says the scorecard for incentive payments is based on annual performance, not long-term factors, and Glass Lewis believes there’s too much discretion involved in determining bonuses.
ISS said the decision to give Mr. MacAlpine a special, extra stock award valued at $1.7-million was based on criteria that were already recognized in his regular performance scorecard.
Meanwhile, Glass Lewis expressed concerns about CI’s internal pay inequity, noting that Mr. MacAlpine, who joined the company in 2019, was paid more than four times the average compensation received by the other executives whose compensation is disclosed in the proxy circular.
“A high level of executive pay inequity, as in this case, may be an indicator of serious long-term problems with a company’s compensation practices and more broadly, its board level management and oversight,” the Glass Lewis report said.
Both ISS and Glass Lewis said CI Financial should have done a better job at disclosure, shareholder engagement and improving the pay plans after the failed 2021 vote.
“Given the substantial level of opposition to the company’s pay practices, we believe the governance, human resources and compensation (GHRC) committee should have taken more initiative to engage their shareholders and taken steps to improve the company’s pay practices and programs,” Glass Lewis wrote in its report.
The firm also recommended shareholders withhold votes for director David Miller, the former chief legal and corporate affairs officer of Rogers Communications Inc., who chairs CI’s compensation committee.