Alcan CEO defends takeover payouts

The head of Alcan Inc. lashed out at critics who have attacked rich compensation packages some Canadian executives receive for agreeing to foreign takeover bids, arguing that the payouts align management and shareholder interests.Montreal-based Alcan agreed last month to a $38-billion (U.S.) takeover bid from London mining giant Rio Tinto PLC. If the deal goes through, Dick Evans, Alcan's president and chief executive officer, will receive more than $50-million in compensation, including roughly $37-million worth of stock options that will automatically vest once the takeover is completed."It is totally within the norm.

You have to consider that less than a year ago, the market capitalization of Alcan was less than $15-billion, today it is about $35-billion. The purpose of stock-based compensation is, in fact, to align the interests of management and shareholders," Mr. Evans said on a conference call to discuss Alcan's second-quarter financial results.The U.S.-born executive's comments amounted to a sharp rebuke to Toronto money manager Thomas Caldwell who has objected to the vesting of executive options as part of takeover deals. Mr. Caldwell, the chairman of Caldwell Securities, has said that such incentives contribute to the so-called "hollowing out" of corporate Canada and motivate managers to sell out instead of taking risks and making acquisitions. Mr. Caldwell specifically targeted boards of directors for what he sees as their tacit acceptance of rich golden parachute agreements for senior management teams of public companies, and called for an end to the exercise of stock options and other bonus payments to executives when a company is sold."You look at the payoffs at some of these companies that are being, or about to be sold out, and they're astronomical. They're off the Richter scale. We're talking monster amounts of money, intergenerational fortunes being established," Mr. Caldwell said in an interview. "In all of this, directors are really the first line of defence."Mr. Evans, however, said it is "naive" to think that corporate managers and boards of directors don't have a duty to act in the best interest of shareholders, including considering takeover offers.Alcan considered merging with or acquiring similar-size rivals such as Norsk Hydro ASA of Norway in order to fend off a $28-billion hostile takeover bid from Alcoa Inc., launched in May. It even pondered turning the tables on the Pittsburgh aluminum producer with a so-called "Pac-Man" bid for the company. But ultimately Alcan decided the best way to create value for shareholders was to hold an auction, which produced a $101-a-share winning bid from Rio Tinto.Mr. Evans noted that his $37-million worth of stock options and other stock-based holdings were acquired over 10 years at the company, where he often converted his cash bonuses into equity-based holdings."I was a strong believer in Alcan and its future at the time as an independent company. I did that with the full belief that it would be an independent company," he said.Mr. Caldwell is not the only prominent Canadian worried about the hollowing out of corporate Canada. Royal Bank of Canada CEO Gordon Nixon and Roger Martin, dean of the Rotman School of Management at the University of Toronto, have also called on the government to develop more progressive tax policies to lure foreign corporations to set up shop here.Although it's very tough to draw the line as to which managers are deserving of change-of-control payments - because they have added value for shareholders - and which are not, it's an issue that requires further discussion, said Claude Lamoureux, co-founder of the Canadian Coalition for Good Governance."Many corporations are sold and the person who happens to be the CEO, or the management team, reap huge rewards when they have not built the company. It's something that everybody should look at and say, 'is this something we want?' "As CEO of the Ontario Teachers' Pension Plan, it's an issue Mr. Lamoureux has likely experienced firsthand when his firm purchases public companies. Most recently, a group led by the pension fund bought BCE Inc. for $34.8-billion (Canadian), a deal which will see CEO Michael Sabia earn $31-million in stock and bonus compensation.

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