TransAlta shareholders give thumbs-down to CEO pay plan
Hiking Farrell’s package to $7.4 million opposed by 53 per cent who cast votes
TransAlta Corp.’s shareholders issued a stinging rebuke against the Calgary company’s senior management after CEO Dawn Farrell’s total compensation spiked by more than 60 per cent to $7.4 million last year.
Nearly 53 per cent of shareholders who cast ballots in a nonbinding resolution rejected the board’s decision to reward senior executives with nearly $5 million in bonuses and other additional compensation after a transformative year for the power company.
“While that was a reasonably close vote, it is a message that the board will pay attention to,” TransAlta chairman Gordon Giffin told shareholders at the company’s annual meeting on Thursday.
“While we believe our action was consistent with our commitment to pay for performance, the board will certainly listen to, and take into account going forward, the advice received from shareholders in this process.”
Protest votes in which shareholders reject non-binding motions on executive pay occur regularly in annual meetings of publicly traded companies in Canada, but in small numbers.
Last year, for instance, four Canadian companies lost these votes, including Calgary-based Crescent Point Energy Corp., which saw 70 per cent of participating shareholders vote against its executive compensation package.
The protest vote at TransAlta’s shareholder meeting this week was in stark contrast to the vote a year earlier, when nearly 95 per cent of shareholders approved a resolution after Farrell’s compensation declined slightly, by $4,000 to $4.5 million.
This year, after Farrell’s total pay rose to $7.4 million, an advisory group recommended against the executive pay resolution, arguing bonuses are too high and that compensation levels are out of step with the company’s stock performance.
TransAlta said in a report outlining its reasons for executive bonuses that 2016 was the “most significant and impactful” year for the company and its shareholders in many years.
The company’s outlook was uncertain after the Alberta government announced it was phasing out coal-fired electricity by 2030, which meant several TransAlta plants would be shut down early.
The report on executive pay noted the company secured $37.4 million in annual payments from the government over 14 years to compensate for the shuttered plants.
It also signed an agreement with the province on transitioning coal plants to generate power from natural gas and developing a new power market under terms that are favourable to the company.
Among other accomplishments, TransAlta said it met financial targets at a time of historically low power prices.
In his remarks to shareholders, Giffin said the performance of TransAlta’s senior management was “extraordinary” last year and was deserving of one-time bonuses. He said successful negotiations with the province over coal power were “conclusively vital to the future of our company.”
Institutional Shareholder Services, an advisory group that had recommended against the nonbinding pay resolution, said in its report that ATCO Ltd. and Capital Power Corp. had each reached “comparable” agreements with the province to phase out their coalfired plants.
The advisory firm, which focused its analysis on Farrell’s compensation, said the chief executive’s total pay last year far outstripped what many other comparable CEOs received, and she was awarded more than double what several of her peers collected.
Capital Power CEO Brian Vaasjo, for instance, earned $2.9 million in total compensation last year, roughly $177,000 or six per cent more than he did in 2015.
Vaasjo’s company, which is valued at nearly $2.4 billion on the stock market, saw its share price rise by about 28 per cent last year. TransAlta, with a nearly $2-billion valuation, had its share price spike by more than 50 per cent.
The advisory firm’s report said TransAlta’s share price was buoyed by the coal compensation deal, and a favourable arbitration decision on a power outage, but the gains were not enough to offset losses in shareholder returns from previous years.
And, the report noted, the company slashed its dividend — a key driver of shareholder returns — from 72 cents per share a year to 16 cents, and has not reinstated it to the previous level.
The move meant TransAlta paid $46 million on its dividend last year, down significantly from $205 million in 2015.
Farrell said at TransAlta’s annual meeting this week there are no short-term plans to raise the dividend as the company focuses its spending on its transition to becoming a greener source of power, such as converting plants to gas generation and preparing for a hydro project in central Alberta.
“The work that they did with the government of Alberta on transi- tioning their plants is positive,” said Kevin Thomas, of the Torontobased Shareholder Association for Research and Education.
“But the question (of whether) that’s just part of the CEO’s job or whether they should be getting a bump for doing well on, that is always a concern.”
Thomas said investors likely questioned the lower dividends while the CEO earned more.
He said his group is concerned TransAlta’s long-term compensation plan leans too heavily on stock options and other perks that “don’t have real performance measures attached to them.”
The company slashed its dividend — a key driver of shareholder returns — from 72 cents per share a year to 16 cents …