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Investors push De Zen for refund
Royal Group CEO's bonus rose 153% as shares slid 43%
Derek DeCloet and Scott Adams
Financial Post
Tuesday, January 21, 2003
CREDIT: Peter Redman, National Post
Vic De Zen sets his own bonus.
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Shareholders of Royal Group Technologies Ltd., angry about the company's poor performance, are trying to pressure chairman and chief executive Vic De Zen to return the $5.6-million bonus he received last year.
Burgundy Asset Management Ltd. asked Mr. De Zen to give back the money in a letter sent to company directors. Royal Group, which makes doors, siding and other building products, increased his bonus 153% despite a 43% decline in its share price in fiscal 2002.
"They had a tough year. Sales growth didn't meet expectations. It's totally out of sync with his compensation," said David Vanderwood, vice-president at Burgundy. "His bonus last year was inappropriate, and we think he should renounce it."
The Toronto-based investment firm also asked Royal Group to set up a compensation committee to decide the pay of Mr. De Zen and other senior executives.
Right now, Mr. De Zen determines the size of his own bonus "in his sole discretion, without any reference or weighting to specific factors or criteria," though it must be approved by the board, according to Royal Group's proxy circular.
Five of Royal Group's nine directors are management insiders.
Shareholders cannot force the company to do anything because Mr. De Zen has 81% of the votes. He owns all of the company's multiple-voting shares, which are worth 20 votes each.
"We appreciate that he controls this company with multiple-voting shares, and we just wanted them to get into the 21st century here," said Mr. Vanderwood.
Mr. De Zen also received $500,000 in salary and 320,000 options, which can be exercised at any time.
Mark Badger, a spokesman for Royal Group, said Mr. De Zen's compensation is in line with what other CEOs in the building products industry were paid.
"The board obviously felt that Vic's compensation is reasonable, as they approved it," said Mr. Badger. "Vic is not insensitive to shareholders' concern that share prices are down, as he, too, is a significant shareholder."
Royal Group intends to change its board by the end of fiscal 2003 so that a majority of its directors are independent, a move Mr. Badger described as "an important first step towards enhanced governance." He would not comment on whether it will also adopt an independent compensation committee.
Other shareholders said they back Burgundy's letter of protest.
A U.S. portfolio manager, speaking on condition of anonymity, said Mr. De Zen's large payout has hurt the company's attempts to convince investors it's cleaning up its governance.
"They've been talking about becoming less of a founder-run, entrepreneurial-type private company with public shareholders, and becoming more of a conventional company, with more outside directors," said the manager, whose firm is one of Royal Group's largest shareholders. "It looks like they snuck in one last hurrah, and it doesn't do a lot for credibility."
Royal Group shares fell to $15.80 yesterday, about 11 times its 2002 earnings.
"The valuation reflects more than poor performance. It reflects severe and sincere concerns about corporate governance," said the manager. "There's no question Vic has done a great job on the product development side. But there's some disconnect between the top line and the bottom line of the company, and usually that's due to management."
Burgundy, which is a member of the newly-formed Canadian Coalition for Good Governance, plans to make its views known to other institutional shareholders in the coalition, including the Ontario Teachers' Pension Plan Board, the province's largest pension fund.
Mr. Vanderwood also criticized the pay given to president Douglas Dunsmuir, whose bonus rose 140% to $3.2-million, and Mr. De Zen's package of options.
"What does he need options for? Is it a retention bonus? Is he going somewhere?" he asked.
© Copyright 2003 National Post
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