Rankings that reveal top executive compensation are expected to change. New rules adopted Thursday by the Securities and Exchange Commission (SEC) will allow companies to present this information in a more nuanced way to better reflect reality.
Posted at 6:00 am
Starting in December, the US stock market regulator will require companies to file a new table each year showing “real” executive compensation excluding certain items, in particular the allocation of securities not yet vested (stocks and options). ).
“It will give a much more realistic approach to compensation,” says François Dauphin, director general of the Institute on Governance.
“We wanted to associate a real relationship between compensation actually paid and company performance, which was impossible to do with the way disclosure is currently planned. A chart will now give us this much more relevant information for investors. »
Securities and Exchange Commission chief Gary Gensler says the organization he heads has long recognized the value of disclosure around executive compensation.
He says the new rules “will make it easier” for investors to assess decision-making around compensation policies.
“It will enable investors to obtain the consistent, useful and comparable information they need to assess policies,” it said in a statement.
The company’s performance measures must appear in the new SEC-required table, such as total shareholder return, as well as that of a group of comparable companies.
Under the new rules, the SEC also requires companies to provide a clear description of the relationship between financial performance and executive compensation.
Soon in Canada?
If such rules are adopted in the United States, François Dauphin says Canada can be expected to follow suit in the coming months, as investor expectations are the same on both sides of the border.
He obviously welcomes the changes to come.
Sometimes we are shocked to see quantities, when in reality, these quantities will never materialize.
François Dauphin, executive director of the Institute of Governance
In 2015, the Laval-based pharmaceutical company Valeant (now known as Bausch Health) announced compensation of US$123 million for its five top executives, an increase of US$100 million year-on-year mainly due to the allocation of values. “But the stock had collapsed that year and the titles were worth zero at the end,” says François Dauphin.
It also highlights the case of Nuvei, where executive compensation looked “staggering” during the Montreal-based electronic payment solutions provider’s first year on the stock market. Comprised primarily of bonuses and stock options, the reported value of Nuvei founder and CEO Philip Fayer’s compensation exceeded $140 million last year.
The Coveo case
The case of the Quebec company Coveo is another example where disclosure of executive compensation has recently caught the eye at first glance.
“In a situation like ours, compensation works out roughly,” says Coveo’s director of legal and corporate affairs, Jérémie Ste-Marie.
It refers to the total compensation of 12.9 million for the 2022 financial year of the great boss of Coveo unveiled this month in the management circular of the Quebec company specialized in artificial intelligence applied to electronic commerce.
Of the $12.9 million in total compensation awarded to Louis Têtu, $12 million comes from calculating the value of his stock options, which he cannot begin exercising before Coveo’s title triples its current value.
Jérémie Ste-Marie says that it is rare to see options like those granted to Louis Têtu, that is, “performance options”.
There is an exercise price and a term to respect before exercising them. The difference with a traditional option is that a commercial performance criterion is added.
“Essentially it is related to shareholder returns relative to the price of the initial public offering,” says Jérémie Ste-Marie. Louis Têtu won’t get a dime on his options until shareholders have realized at least a 30% return on the initial share price when it went public.
And even then, says Mr. Ste-Marie, he will receive a fifth of the value presented in the documents because the options are divided into five equal tranches.
For Louis Têtu to pocket his last million through options, shareholders who bought shares at the initial price of $15, set at the time of the initial public offering, would have had to earn a 300% return on their investment.
So the stock should have gone to $45, whereas today it’s worth about $6. And if the stock ever hits $45, Louis Têtu’s options will have netted him $41.8 million.
Listed on the Toronto Stock Exchange at an initial price of $15 last November, Coveo’s shares have fallen sharply since then, fueled by the widespread devaluation of stocks in the tech sector in recent months.
This drop came despite the publication of quarterly performances welcomed by analysts since the IPO nine months ago.
For the first quarter of its fiscal year 2023, which ended June 30, the company saw its revenue jump 45% compared to the same period last year, to $26.5 million. It expects to post revenue of approximately $110 million in fiscal 2023, compared to $86.4 million in 2022, an increase of more than 27%.
The operating deficit of US57 million in Coveo at the end of fiscal year 2022, compared to US18 million in the previous year, is mainly explained by the expansion of its activities, particularly in marketing and research and development. The company now has more than 725 employees, 40% of whom are active in research and development.
It also includes an amount of approximately $11 million related to the company’s commitment to support foundations with the goal of giving back to the community. In particular, Coveo bets on the Pledge 1% program.
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