Cp Rail Executives Saw Big Pay Jump In 2019 As Cn Heads Had More Muted Gains

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G THE GLOBE AND M AIL

RE P O RT O N BUS I N ES S

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FR IDAY , MARC H 27, 2020

CP Rail executives saw big pay jump in 2019 as CN heads had more muted gains DAVID MILSTEAD INSTITUTIONAL INVESTMENT REPORTER

Executive compensation spiked at Canadian Pacific Railway Ltd. last year, but pay gains were more muted at Canadian National Railway Ltd., which paid zero bonuses to its leaders. At CP, chief executive Keith Creel made $15.15-million, up from $12.49-million the previous year. CP gave Mr. Creel share and options awards worth $9.5-million last year, up from $6.8-million in 2018. His bonus of slightly less than $3-million was about $150,000 lower than a year earlier. In a letter to shareholders, board chair Isabelle Courville said CP had record revenue and its best-ever operating cost numbers. It increased capital expenditures while also raising its dividend by 27.5 per cent and buying back shares. CP has been honing its pay approach for several years, after it lost a shareholder say-on-pay advisory vote in 2016, when former CEO Hunter Harrison was at the helm. CP got nearly 96-per-cent approval at its shareholders’ meeting in 2019. Most CP executives saw an increase in total compensation in 2019 because the company boosted their stock awards. CP sets a target amount for stock awards that’s a percentage of executive salaries. In 2019, it raised those target percentages, and its six top-paid executives, including

Mr. Creel, received $18-million in share and option awards, versus $13-million in 2018. At CN, CEO Jean-Jacques Ruest made $8.94-million, compared with $8.49-million in 2018, when he became the company’s top executive mid-year. His bonus fell to zero from slightly less than $1.6million in 2018. CN said it failed to meet all five of its financial goals, tied to revenue, profit, cash flow and return on capital, and it also failed to meet its two safety-related goals (based on the rate of accidents and injuries). Since the company missed its corporatewide financial targets, it also didn’t pay any executive bonuses based on individual performance. CN’s workers went on strike for a week in November, cutting into CN’s sales and profits. The two other CN executives among the top-paid who served in their roles in both 2018 and 2019 saw their total pay decline; each had received bonuses of more than $900,000 in 2018. CP shares rose 38 per cent in 2019, while CN gained just 7 per cent. The compensation figures, released in proxy circulars to shareholders in recent days, include millions of dollars in stock awards that have now fallen in value in the current economic crisis.

A poster calling for a rent protest is displayed in Toronto on Tuesday. As of March 17, Ontario has placed a moratorium on eviction hearings and enforcement to protect renters from homelessness during the pandemic. FRED LUM/THE GLOBE AND MAIL

Residential tenants worry about future after pandemic Some advocates, landlords fear how governments will respond to ‘chaos’ that could follow once eviction bans are lifted

CANADIAN PACIFIC RAILWAY (CP) CLOSE: $308.95, UP $10.38 CN RAILWAY (CNR) CLOSE: $109.35, UP $3.35

SHANE DINGMAN REAL ESTATE REPORTER TORONTO

Markets: Insider buying ramping up again, strategist says FROM B1

She added, more ominously, that the path of the S&P 500 resembles late 2008 – when stocks recovered some lost ground in September and October, only to plunge further over the next several months as the financial crisis intensified. The S&P 500 is still down 22 per cent from its February highs, and the TSX is off 25 per cent. The backdrop to this week’s gains certainly remains grim. Cases of COVID-19 are rising, the death toll is surging and large parts of the North American economy remain shuttered. In the United States, nearly 3.3 million people filed for unemployment claims last week alone – a record. And Ottawa expects that 4 million people will apply for financial relief under its new Canada Emergency Response Benefit. But investors tend to place more emphasis on the future, and they may be speculating that the current economic crisis will abate because of central bank monetary stimulus, government relief packages and hope that widespread lockdowns will beat the novel coronavirus pandemic relatively soon. Optimists can point to a pickup in insider buying by key corporate executives as a potentially bullish indicator. “Insider buying and selling are far from perfect signals that a company’s stock will rise or fall. But sometimes, large purchases by corporate leaders at key times have profited investors who followed suit,” said Ed Yardeni, chief investment strategist at Yardeni Research. Mr. Yardeni added that insider buying is now ramping up again. Among S&P 500 companies, 18 executives have made purchases of 10,000 shares or more so far in March, up from just seven insider buys in February and two in January. These savvy insiders – who know their businesses better than anyone – may believe that panic driving the recent sell-off is overestimating the real risks their companies face. They have some support. Goldman Sachs analyst Noah Poponak argued in a note released on Sunday that investors should buy shares of Boeing Co. The beleaguered aerospace giant’s share price has fallen as far as 70 per cent during the downturn, and it has become a centrepiece of the bear market. But Mr. Poponak argued that the company will thrive after travel returns to normal – a view that is not reflected in its beaten-up stock. “Sentiment is near an all-time low, expectations are near an alltime low, and a lot of bad news is priced in,” Mr. Poponak said in his note. Boeing shares have nearly doubled in price this week. As for Canadian banks, a recent note from Fitch Ratings underscores both

threats and the staying power of Canada’s largest lenders. Yes, financial stress on Canadian households is bad for banks and interest rate cuts will erode their profitability. Fitch revised its credit rating outlook on Canada’s banks to negative from stable. But some perspective also helps. “Fitch notes that Canadian bank ratings are among the highest in Fitch’s bank universe and continue to benefit from a system concentrated in a relatively small group of banks with a national presence, characterized by diversified business models and high market share,” the rating agency said. Analysts at National Bank Financial looked at battered Canadian real estate investment trusts (REITs). Their unit prices have been hit especially hard during the downturn because of concerns that their liquidity – or ability to tap financial markets for new loans – would likely dry up in a sustained downturn. But the bank’s analysts conclude that the REIT sector’s ability to tap funding is holding up. “With the significant liquidity measures employed by central banks and CMHC [Canada Mortgage and Housing Corporation], we have heard from most management teams that lenders have been supportive when it comes to extending/refinancing debt.” Despite the encouraging market rebound and some optimistic analyses, there is no clear signal that North American stocks are on the mend. “As bear markets go, the February/March swoon in the S&P 500 has been brutally quick but remarkably average in terms of its scale,” Shaun Osborne and Juan Manuel Herrera, foreign exchange strategists at Bank of Nova Scotia, said in a note. The S&P 500 plummeted 35 per cent in just 25 days in this crisis. But the magnitude of the decline merely matches the average bearmarket since 1980, and pales next to the 52-per-cent decline during the 2008-09 financial crisis. Ms. Calvasina of RBC Dominion Securities is cautious for a couple of key reasons. She believes that investor sentiment is still fragile and most market bottoms take time to form. “We are growing increasingly skeptical about the Vshaped recovery thesis in stocks ,” Ms. Calvasina said. Christopher Wood, a strategist at Jefferies Group, is similarly skeptical of a sustained rebound, given how overvalued U.S. stocks were at the outset of the downturn. “The price-to-sales ratio had never been so expensive, while U.S. earnings were being distorted by financial engineering in recent years,” Mr. Wood said in a phone interview, pointing to massive share buybacks by many leading companies. “My base case is that this is a three-to-four month affair,” he said.

Two of the provinces hit hardest by the coronavirus pandemic have banned residential tenant evictions until the crisis ends, but with no promises about what will come afterward, tenants, landlords and activists face bureaucratic chaos, gridlock and potential mass evictions. “The reality is there is going to be a lot of people who aren’t able to pay their rent on April 1,” said Kenneth Hale, director of legal services for the Advocacy Centre for Tenants Ontario, which provides legal advice to renters. “When the crisis is over, how is this going to be straightened out?” Mr. Hale asked. “What has happened so far, putting human need first, is a good place to start.” As of March 17, Ontario placed a moratorium on eviction hearings and enforcement in order to keep renters from being made homeless during the pandemic. On Wednesday night, British Columbia also banned evictions until the crisis has passed and went further: offering $500 a month in rental support to be paid directly to landlords starting on April 1. In Ontario, landlords and government officials are telling tenants that the eviction ban is not the same thing as a moratorium on rent. “It’s important to be clear that tenants must still pay rent as they normally would, to the best of their abilities,” said Ministry of Municipal Affairs and Housing spokeswoman Rachel Widakdo. “We encourage tenants that are having challenges paying rent due to COVID-19 to speak with their landlords about possible deferral of rent payment or agreeing to other payment arrangements.” “I’m an out-of-work carpenter right now, I will not be able or willing to pay my rent,” said Bryan Doherty, a member of Parkdale Organize and a Toronto spokesman for the “Keep Your Rent” movement that has gathered force across Canada and the United States. Tenant advocates have zeroed in on an ambiguity in the government’s statements: What if “the best of your ability” isn’t enough? “There’s no indication from the province, the feds or the city that anyone is safe from evictions” once the moratorium is lifted, Mr. Doherty said. “We are not advising [anybody] to not pay their rent; that would be irresponsible,” said Alejandra Ruiz-Vargas, a member of ACORN Canada (Association of Community Organizations for Reform Now), an activist organization for low- and moderate-income families. “We are asking the government to do as they did in France and Italy, [which have suspended some rent, mortgage and utility payments].” “People need a break; this is life and death,” Ms. Ruiz-Vargas said. ACORN has 130,000 members across the country. “I’m talking to a lot of tenants going between getting a loan to pay rent and getting a loan to pay for food,” said Geordie Dent, executive director of the Federation of Metro Ten-

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ants’ Associations in Toronto. His group wants to see all residential rent payments cancelled on April 1, and has gathered more than 18,000 signatures on a petition since last weekend. “That kind of stimulus is the best kind of stimulus: a consumer-spending stimulus,” Mr. Dent said. “And if you don’t do this, what do you think the courts are going to look like in six months? It’s going to be chaos.” Harry Fine, a paralegal and former adjudicator with Ontario’s Landlord Tenant Board (LTB), thinks a government-funded rent bank, where landlords could claim some assistance for skipped payments, would provide vital help. Otherwise, tribunals that rule on renter issues will be overwhelmed by eviction applications after the pandemic, he said. “Let’s say rent applications [the first step in obtaining an eviction order] are 80 per cent of the LTB’s bread and butter,” Mr. Fine said. “That’s about 75,000 applications per year.” “Imagine this movement gets 150,000 people to withhold rent. That triples the number of … rent applications to the LTB,” he said. “The current LTB delay is averaging about four months from the time you file for a hearing [to] the hearing itself. If the LTB shutdown is two months, that brings the average time to six months.” “It could easily take two years to have my rent application heard, maybe more,” Mr. Fine added. “There is no way in the world – without tripling the number of adjudicators – that the LTB could handle this.” Those kind of delays could also be crushing for smaller landlords. Many of them are still required to make mortgage payments. Renters and landlords agree that provincial and federal officials need to be clearer about how impending clashes will be resolved. “I just want to know what my rights are. What I can say to my tenants that’s going to be honest and legal,” Jacqui Snyder, who rents out a triplex in Toronto and lives in Collingwood, Ont., where she operates Adventourus, a travel agency focused on active lifestyles. Ms. Snyder says one of her three tenants, a costume designer who has seen her work disappear, has warned she cannot pay her rent on April 1. She suggested Ms. Snyder apply for a mortgage deferral. Their last conversation about the matter turned into a shouting match, Ms. Snyder said, and her tenant accused her of being greedy. “I don’t intend to evict anybody,” Ms. Snyder said. “She’s a victim of the circumstances.” “But the point of [a] mortgage moratorium is not to give tenants free rent,” Ms. Snyder added. “When she hears that from me … she thinks I’m being dishonest to her. I would like somebody to state the truth of what the matter is.” Even B.C.’s plan, the most generous in the country, is silent on what landlords can do to recoup losses after the pandemic. “Some landlords are going to have to accept they are not going to get 100 cents on the dollar,” Mr. Hale said. Even some of the biggest commercial tenants in North America are negotiating rent cuts. Whatever happens next, Mr. Hale thinks renters need to be heard and not simply told to pay up. “The tenant voice and consumer voice needs to be part of those conversations – so it isn’t just government and business making decisions for everybody,” he said.