People walk past Tilray’s headquarters at its European location in Portugal in 2018. The Canadian medical cannabis maker filed an amended proxy circular on Oct. 10 after its Oct. 3 filing underestimated the level of salaries for its CEO Irwin Simon PATRICIA DE MELO MOREIRA/ AFP/Getty Images
There seemed to be great news at cannabis company Tilray Brands Inc. — it said its CEO, Irwin Simon, makes just 52 times the company’s average worker, a modest figure in the current era of inflated executive pay.
Unfortunately, Tilray TLRY-Q used a sleight of hand in filing its Oct. 3 proxy circular — it omitted the stock awards, which make up 90 percent of Mr. Simon’s $19.46 million compensation. Factoring in those awards, the chief executive officer earns 526 times the average Tilray worker salary of $36,989 — more in line with the sky-high ratios we see at most companies today.
Tilray’s math appeared to run afoul of the US Securities and Exchange Commission’s disclosure rules, and the company seems to have recognized the issue now. On Monday it filed an amended proxy circular to correct its disclosure and provide the larger figure.
Tilray’s original proposal was an odd attempt to downplay the level of pay for Mr. Simon, the cannabis sector’s famed CEO.
Mr. Simon founded and spent a quarter of a century at health food company Hain Celestial Group Inc., years that included many appearances on market expert Jim Cramer’s television show and which ended months before the SEC indicted the company for failures in its internal financial reporting. (The SEC did not identify Mr. Simon personally.)
His “second act,” as it’s called, was to serve as chairman of Aphria Inc., serving as chairman of the board and then as CEO as the company fought charges from a short seller who grossly overpaid it for international cannabis assets . Since then, he’s grown to become one of the highest-paid executives in the industry, especially following Aphria’s merger with Tilray Inc. in 2021.
Mr. Simon’s compensation of $19.46 million for the fiscal year ended May 31 follows a $13.68 million pay package the prior year. This included a cash bonus of more than $13 million in July 2021, $10 million of which was a “Tilray transformation bonus” paid for agreeing to remain with the combined company as CEO.
Mr. Simon earned $18.63 million at Aphria for the year ended May 31, 2020.
For comparison, Canadian marijuana company Aurora Cannabis Inc. paid CEO Miguel Martin $4.86 million last year, up from $4.47 million the year before. Canopy Growth Corp., a Tilray colleague, paid CEO David Klein $4.54 million for the fiscal year ended March 31 (but paid him a staggering $33.77 million two years earlier when he joined the company U.S. dollar).
Why is Mr. Simon such an outlier? In part, Tilray sees itself as more than just a cannabis company, as it’s active in the snack food, beverage alcohol, distribution, and pharmaceutical industries. It selected a group of 18 “high-revenue growth companies” as the basis for benchmarking salaries, including much larger Constellation Brands Inc., Monster Beverage Corp. and drug and dietary supplement maker Catalent Inc.
Additionally, Tilray would like to note that Mr. Simon’s most recent salary package includes $17.6 million in stock awards at the time of grant in July 2021, when the company’s stock was trading around $13. Shares of the company closed at $2.90 on Tuesday, down more than 75 percent from those levels. Tilray will ultimately only pay out a portion of those stock rewards if its shares benefit from 2021’s much higher levels.
Little did Tilray’s board of directors expect the company’s stock to fall into the gutter, so they intended to give Mr. Simon a package that would make him one of Canada’s highest-paid CEOs. Which brings us back to their now-kiboshed attempt to hide how gargantuan it is compared to a typical Tilray employee.
Under SEC regulations, U.S. companies (which is Tilray by the SEC’s standards) are required to calculate and disclose the total annual compensation paid to their middle employee, as well as the ratio of the total compensation paid to the middle employee compared to the CEO’s total compensation .
Tilray says that when presenting its original number, we “did not include stock-based incentive awards in this calculation because the middle employee generally does not receive stock-based incentive awards.” So Tilray used the $1,901,783 in salaries and benefits for Mr. Simon , not the $19.46 million in total compensation to achieve the 52-to-1 ratio.
“The salary ratio above represents the company’s estimate, which the company believes is consistent with SEC rules and applicable guidance,” Tilray concluded in the Oct. 3 filing.
I came to the conclusion that it is not consistent. Article 402(u) of Regulation SK states that the numerator of the ratio “total remuneration … is determined in accordance with” a paragraph that defines total remuneration as “the sum of all amounts” specified in the columns of the summary remuneration table – columns that contain the estimated values of stock and option premiums.
In an email last week, I told Tilray that I don’t think it complies with SEC rules. On Tuesday, following the revised filing, Tilray’s global general counsel Mitchell Gendel said in an email statement that the company “believes our proxy filings are fully compliant with the SEC’s disclosure requirements.”
The CEO to median worker ratio is not yet an issue in Canada, but will be in the future. While securities regulators have so far opted not to require it, Vancouver’s Vancity Investment Management Ltd. the big banks to disclose it.
The Bank of Nova Scotia agreed to begin publishing its ratios in 2023, but at their annual meetings that year, the Royal Bank of Canada, the Toronto-Dominion Bank and the Canadian Imperial Bank of Commerce all beat the proposals Vancity shareholders declined to provide disclosure. (The Investment Manager has no holdings in other major banks.)
While critics of wage quotas complain about their usefulness and whether they provide meaningful data, it’s one of the best ways to track how public companies, whose shares are held by individual investors or the institutions that serve them, are contributing to growing income inequality .
“It’s not just about getting the ratio and we’re done — it’s about publishing that data so we can compare it year over year,” said Kelly Hirsch, director of environmental, social and governance at Vancity. The ratio of CEO salaries to their employees “is just different… and those kinds of splits are just fundamentally unsustainable.”
As Canada slowly moves towards greater disclosure of CEO pay structures, Tilray’s failed attempt to find a course to reduce wealth inequality offers Canadian regulators a lesson on what companies could do to avoid scrutiny.
Source: www.theglobeandmail.com