Proxy advisory firms give Magna first thumbs-up
Longtime pariah for governance habits, firm now wins top marks
TORONTO For the first time since Magna International Inc.’s controversial $1-billion US buyout of its founder’s controlling stake in 2010, the company is receiving a thumbsup from both major proxy advisory firms for its executive pay plan.
“We’ve been focused on executive compensation and (implementing) the feedback we’ve received from shareholders,” chief financial officer Vince Galifi said Monday in an interview with the Financial Post.
“I’m anticipating as a result that we’re going to get some good improvement on our say-on-pay vote this time around.”
Both Institutional Shareholder Services Inc. and Glass, Lewis & Co. LLC are urging Magna’s shareholders to vote in favour of the company’s executive compensation plan at its annual meeting on May 7.
For Glass, Lewis, this is the first time it has supported the pay packages for Magna’s top brass since at least 2004.
The proxy advisory service said last year marked the “end of an era” at Magna, as founder Frank Stronach received his final paycheque from the company on Dec. 31.
After the contentious buyout of Stronach’s controlling shares in 2010, Magna agreed to continue to pay him a declining percentage of pre-tax profits for consultant work.
That arrangement was “not renewed, extended or replaced with any other form of compensation” when it expired at the end of 2014.
Glass, Lewis also pointed out that Magna has made several changes to its executive compensation structure based on shareholder feedback, including tying stock options more closely to performance.
The company has also cut total possible incentive bonuses in half, to three per cent of pre-tax profits.
The advisory firm still has some criticisms for Magna, saying the company is too focused on shortterm performance and “does not utilize a sufficiently objective, formula-based approach to setting long-term executive compensation levels,” but concluded this isn’t enough to warrant a vote against the resolution.
In 2014, approximately 18 per cent of shares were cast in opposition to Magna’s say-on-pay proposal, down from roughly 25 per cent in 2013.
It’s an important victory for Magna, which has managed to turn itself from a corporate governance pariah into a leader, thanks to some major internal changes.
In recognition of this, Forbes recently named Magna the most trustworthy large-cap company in America.
(Although Magna is based in Aurora, Ont., it qualified for the rankings as a North American company that trades on the New York Stock Exchange.)
“Once we went through the share reorganization, there was a tremendous focus on improving our corporate governance practices,” Galifi said.
“We’ve made some great strides and I think we’re now at the very top of corporate governance practices in Canada.”
This sets Magna apart from some of its peers.
Last week, CIBC shareholders voted down the bank’s compensation plan because of massive retirement payouts to two former executives.
And several major shareholders rejected Barrick Gold Corp.’s pay packages at the company’s AGM on Tuesday.
Galifi pointed to several initiatives at Magna that helped it to the top of Forbes’ ranking this year, including better shareholder engagement, financial discipline, the introduction of say-on-pay and a revamped board of directors.
This has led to a “broader acceptance of Magna by investors,” he said.
“There are investors who wouldn’t have even accepted a visit by myself and our investor relations person in the past, who now welcome us,” Galifi said.
“We’ve seen our U.S. shareholder base as well as our European shareholder base increase over the last several years as the result of what we’ve been doing at Magna.”