Shareholder Proposal 6: Shareholder Proposal
The Indiana Laborers’ Pension Fund, c/o the Laborers’ International Union of North America Corporate Governance Project, 905 16th Street, NW, Washington DC, 20006, has submitted the following shareholder proposal for consideration at the Meeting. The proposal and the supporting statement represent the views of the shareholder submitting the proposal.
RESOLVED: That the shareholders of Talisman Energy Inc. (‘‘Talisman’’ or ‘‘the Company’’) ask the board of directors to adopt a policy that in the event of a change in control (as defined under any applicable employment contract, equity incentive plan or other plan), there shall be no acceleration of vesting of any equity award granted to any senior executive, provided, however,
that the board’s Human Resources Committee may provide in an applicable grant or purchase agreement that any unvested award will vest on a partial, pro rata basis up to the time of the senior executive’s termination, with such qualifications for an award as the Committee may determine. For purposes of this Policy, ‘‘equity award’’ means an award granted under an equity incentive plan or as otherwise defined by the board’s Human Resources Committee. This resolution shall be implemented so as not to affect any contractual rights in existence on the date this proposal is adopted.
SUPPORTING STATEMENT
Talisman Energy Inc. allows senior executives to receive an accelerated award of unearned equity under certain conditions after a change in control of the Company. We do not question that some form of severance payments may be appropriate in that situation. We are concerned, however, that current practices at Talisman may permit windfall awards that have nothing to
do with a senior executive’s performance.
According to last year’s management proxy circular, a termination following a change in control on December 31, 2012 could have accelerated the vesting of approximately $17 million worth of long-term equity awards to Talisman’s five senior executives, with Mr. Harold Kvisle, the President and CEO, entitled to $4.9 million out of a total personal severance package
worth $17.2 million. We are not persuaded by the argument that executives somehow ‘‘deserve’’ to receive unvested awards. To accelerate the vesting of unearned equity on the theory that an executive was denied the opportunity to earn those shares seems inconsistent
with a ‘‘pay for performance’’ philosophy worthy of the name. We do believe, however, that an affected executive should be eligible to receive an accelerated vesting of equity awards on a pro rata basis as of his or her termination date, with the details of any pro rata award to be determined by the Human Resources Committee. Many major corporations, including Apple, Chevron, Dell, ExxonMobil, IBM, Intel, Microsoft, and Occidental Petroleum, have
limitations on accelerated vesting of unearned equity, such as providing pro rata awards or simply forfeiting unearned awards. We urge you to vote FOR this proposal.
The Board recommends that shareholders vote AGAINST the proposal for the following reasons:
The Board has carefully considered this proposal and firmly believes that approval of the proposal is not in the best interests of the Company or its shareholders. The HRC has undertaken an extensive peer review, which confirmed that accelerated vesting on executive LTIP in the event of a change of control remains the policy at the vast majority of the Company’s industry peers. The proposal would place the Company at a competitive disadvantage with respect to its industry peers, and therefore, would disadvantage the Company in attracting and
retaining the executive talent it needs. The HRC has noted that the companies listed in the proposal are not compelling examples, as they have vastly different risk profiles and are outside the market in which the Company competes for talent. As disclosed in the Letter to Shareholders on page 48 and the Compensation Discussion & Analysis commencing on page 51, the HRC has designed and implemented an executive compensation program geared towards performance-based incentives in order to align the interests of the Company’s executives with the interests of shareholders. The Board believes that the vesting of long-term incentive awards in the event of a change of control transaction is important for aligning the executives’ interests with other shareholders, allowing management to remain engaged, objective and focused on promoting shareholder interests and maximizing shareholder value during a change of control transaction. The Board believes that the performance-based long-term incentive program assists in the retention of the Company’s executives, which in turn provides continuity and stability to the management team. The certainty that awards will be paid out commensurate to the achievement of performance metrics, including share price gains, regardless of whether the Company continues as a separate and independent entity or is acquired through a change of control transaction, align the executives with the shareholders’
interests in achieving the best value, even if that is through a change of control event.
In summary, the Board believes that the current structure of the Company’s executive compensation program, including the provision for accelerated vesting in the event of a change of control, is appropriate and effective, and is consistent with the compensation practices of Talisman’s industry peers and is, therefore, in the best interests of the Company and its shareholders.
The Board recommends that shareholders vote AGAINST the proposal.