Bombardier execs arested

[peekay4]

Total compensation for the Montreal-based company's top five executives and board chairman Pierre Beaudoin was US$32.6 million in 2016

That means over 10% of the recent CAD $372 million Federal government loan was just to cover 5 Bombardier exec salaries last year.

In fact if we freeze compensation for these 5 people at last year's levels, over the loan period of 15 years the total compensation amount will be (15*32.6) = $489 million (NPV) -- exceeding the loan amount.

So now you know where your tax money is going...

[Willie Everlearn]

I don't presume every dollar in Bombardier's wallet are necessarily tax dollars' but that aside, these compensation adjustments for the executives are definitely in poor taste, poorly timed, and seriously lacking in better judgement. Yesterday, the union's at Bombardier started to voice their objections. Today, M. Beaudoin rolled his compensation back to 2015 levels.
Will others in the Bombardier executive offices come to their senses?

Willie

[Sam Asama]

Willie, Willie, Willie....

Re your comment to me that I

think it's only in Quebec

.

That's NOT what I said. What I said is

the culture and business ethics are vastly different than the rest of Canada

If you don't believe that, or perhaps don't want to believe it, fine. In that case debate and discuss the issue of cultural differences and business practices throughout Canada, rather than take the all too common internet action of a quick insult and a mocking imoji.

[Willie Everlearn]

pk

I'm neither an economist nor financial analyst. So, bear with me.

If I we're a corporate executive by profession, headhunted by a company like Bombardier, having negotiated an agreed to salary plus performance bonuses for steering it out of the ditch, that when both parties shook hands and signed on the dotted line in agreement, I'd expect them to come good on that agreement and pay me my salary plus the bonuses as agreed. Which is exactly what Bombardier has done. These executives are on a salary (be it larger, much larger than I'll ever get) and that salary is paid each year over the term of their contracts and likely includes an annual pay rise.
Bellemare's salary has been reported as something like $1.04m plus stock options and performance bonuses to get that $9m, which he hasn't apparently hit yet, resulting in zero dollars earned from those options and performance goals.
You'd think that alone would be incentive enough to get this imperilled company turned around. Which he is doing, whether you believe it or not.
Aren't you simply spitting out numbers that haven't been paid? Numbers published by the press. Who, by the way, have nothing to gain by publishing the complete story because it wouldn't generate much interest. You aren't completing the picture by not accounting for Bombardier's income predictions after 2020. Which repeatedly is the year Bellemare thinks it will truly begin to show more positive results from the turnaround. Like completely pay off the Caisse de depot loan and start showing a ROI for the Qc government.
So, to recap. He gets $9m, if he does.
He got $1.04m, because he didn't.
Big difference.

As for Mr. Beaudoin, he's another issue entirely. He shouldn't be paid a salary, full stop. Bombardier is still owned by 'the family', whether we like it or not. What can we do about it? Call out the politicians? Like the CAQ leader, Legault? How much was he paid as Air Transat CEO?

By the way, what's your salary?

Willie

[peekay4]

It doesn't work as you describe, Willie.

First, of Mr. Bellemare's $9.4M compensation, only $2.6M was in the form of stock options. The rest are mainly cash and stock grants (not options). And they would have been fully paid this year, if not for the recent public outcry.

Second (and more fundamentally), executive compensations at larger corporations are industry "benchmarked" to form a baseline. All the other numbers (base pay, short term incentives, long term incentives, etc.) are derived from the benchmark.

But as we will see the benchmark Bombardier has selected highly skews executive pay.

For 2016, Bombardier's board has decided to benchmark compensation primarily against large US aerospace-related companies including Boeing, Honeywell, GE, Lockheed Martin, Northrop, Raytheon, UTC and some others. Bombardier sets compensation at the average (50%) rate compared to the benchmark group.

Yet with almost no exceptions, the benchmark companies are much larger than Bombardier. Bombardier's current market cap is $4.7 Billion. Compare to Boeing: $108 B. Honeywell: $95 B. GE: $260 B. Lockheed Martin: $78 B. Northrop: $41 B. Raytheon: $41 B. UTC: $91 B.

Should Bombardier execs really be paid similar compensation to execs at these much larger companies?

Let's look at it another way. For 2016, Bombardier's total compensation for Chairman + CEO is ($5.2 M + $9.5 M) = USD $ 14.7M. Boeing's total compensation for Chairman + CEO = USD $ 15M. How can that be? Boeing's market cap is 22 times (!) greater than Bombardier and Boeing delivered some record breaking numbers in 2016.

Should compensation at Bombardier during lean years of mass layoffs, restructuring and government handouts really equal to Boeing's compensation during their record breaking times? No.

We can see that Bombardier's compensation policies are completely out of line compared to the company's size and financial position. Maybe the Bombardier family was accustomed to paying themselves large compensation amounts in the past, I don't know. This is where corporate governance should have stepped in, but as we all know the family controls the board.

The rise in Bombardier's exec compensation far exceeds market value

Here's a graph from Bombardier, plotting executive compensation vs. shareholder value:



We can see that compared to 2011 baseline, exec compensation is now up about 25% while market cap remains down ~ 45%.

From 2014 to 2015, when the performance of the Class B stock tanked, Bombardier executive pay actually increased!

And even looking at the last year (2015 to 2016), the slope in exec compensation increase is far higher than the slope of market cap increase, which only largely tracks S&P/TSX.

[Willie Everlearn]

PK
You're awesome. Thanks for that.

I don't think getting rid of the family is on the table, as long as they are majority owners, like it or not, they own the company and can do as they wish. Despite the questionable business ethics. Like it or not those class A and class B shares are here to stay.

Looking back over the tenures of Beaudoin, Tellier, and Brown, this company has succeeded despite their respective incompetencies and individual abilities as witnessed by the present state of the company. I believe the present management team is doing what is necessary to turn things around. At the very least, things are starting to turn but may have yet to achieve the desired heading and speed. It remains to be seen. For what they've achieved, so far, they may or may not deserve whatever compensation that was agreed to. But, it is what was agreed to. We can argue and/or debate as long as we want the amounts that were agreed to but it's still after the fact.

I invest in this company. So does the Caisse de depot. As far as I know, as investors, we don't have a say how our investment dollars are spent by the company. Even if it's used to pay salaries. We both expect a return. I'm an investor as is the caisse yet, the caisse investment is constantly referred to as corporate welfare for Bombardier. Can you explain where this notion comes from?

Willie

[peekay4]

I invest in this company. So does the Caisse de depot. As far as I know, as investors, we don't have a say how our investment dollars are spent by the company. Even if it's used to pay salaries.

Investors normally do have a say in executive compensation. Most large public companies these days have executive compensation as an agenda at the Annual General Meeting (AGM). A board committee will propose a compensation structure, and investors get to vote on it. Depending on the company, this vote can be binding or (more typically) non-binding (advisory). But even an advisory "no" vote will send a powerful message to the board, since after all the board has a fiduciary duty to the shareholders.

However, in Bombardier's case, the family's Class A shares get 10 times the voting rights as regular Class B shares. Hence even though the Bombardier / Beaudoin families may actually own a minority of the total shares, they still control a clear majority of the voting power.

The next Bombardier AGM will be in mid-May. As a Bombardier investor, you should have received a proxy voting form from either Bombardier or from your investment bank. You can register your displeasure on Mr. Beaudoin's proposed executive compensation by voting no on the relevant question, if you wish.

I'm an investor as is the caisse yet, the caisse investment is constantly referred to as corporate welfare for Bombardier. Can you explain where this notion comes from?

I don't know if the Caisse investment specifically is an example of "corporate welfare". I suspect many people confuse the Caisse investment with the separate investment made by the Quebec government.

Recall that the Caisse did not invest in Bombardier, Inc. and they specifically declined to invest in the CSeries. Instead, the Caisse only invested in Bombardier's rail business (Bombardier Transportation.)

As a crown corporation, a Caisse investment could be considered "corporate welfare" if the terms & conditions of that investment were "out of line" compared to an arms-length commercial investment, e.g., if they gave Bombardier a sweetheart deal due to some non-commercial concern (politics, relationships, etc.)

However, as far as I know, the Caisse investment was broadly in line with commercial terms. The same cannot be said of the Quebec government's investment in the CSeries program.

[flash8]

Contract kickbacks are a disease that has to be eliminated and it is absolutely correct that the more enlightened western countries are taking a zero-tolerance policy towards this cancer.

You mean like the BAE scandal where nobody was prosecuted despite HUGE kickbacks and significant incontrovertible evidence?

Makes one proud to be British!