U.S. investor activist Bill Ackman says Canadian Pacific Railway Ltd. has provided lavish compensation to its top executive during a six-year period of negative returns for shareholders.
CP's performance has been "dismal" under Fred Green, who became the railway's chief executive officer in 2006, said Mr. Ackman, CEO at New York-based Pershing Square Capital Management LP.
"The board has paid Mr. Green $32-million from 2006-2011, even though total returns to shareholders were negative 18 per cent over the same period," Mr. Ackman said in a letter Thursday to CP shareholders. "From 2006 to 2011, the board increased the cost of management ratio (named executive officer compensation as a percentage of net income) from 1.2 per cent of net income in 2006 to 2.5 per cent in 2011."
Pershing Square also issued its proxy circular, calling on CP shareholders to back the hedge fund's alternative slate of seven director nominees and urging investors to vote against the railway's "say on pay" advisory resolution on executive compensation.
"Given the disparity between management compensation and the company's performance, the board is clearly not setting the right goals to incentivize management, or is measuring management's performance against those goals too leniently," the circular said.
Pershing Square, which wants to install former Canadian National Railway Co. chief Hunter Harrison as CP's CEO, is recommending that CP shareholders cast their votes with a blue-coloured proxy and ignore CP's white version. There are nearly six weeks remaining before the showdown at CP's annual meeting May 17 in Calgary
"Respectfully, we believe Mr. Green is not the right CEO to lead CP's capable employees, and we believe only CEO change, a major board restructuring and a cultural 'reboot' will enable CP to recover from six years of mismanagement," Mr. Ackman said in his letter.
Pershing Square acquired a 14.2-per-cent stake in Calgary-based CP last fall in a bid to revitalize the railway, which lags other major freight carriers' operating ratio, or costs as a percentage of revenue.
CP chairman John Cleghorn dismissed Pershing Square's latest missive. "Pershing Square continues its pattern of making misleading and inaccurate statements about CP and fails to present any plan or even concrete suggestions to achieve its previously stated target of a 65-per-cent operating ratio by 2015," Mr. Cleghorn said in a statement. "Even after over five months, Pershing Square is still unable to articulate any plan that would deliver results comparable to CP's multiyear plan."
Last week, Mr. Green lashed out at Mr. Harrison's "flawed" recovery plans that would interfere with an ongoing strategy to run longer and faster trains.
CP is backing an incumbent team of 15 directors, plus it's recommending Mr. Ackman to be the 16th board member. Pershing Square is recommending that CP shareholders vote for all seven alternative director nominees on the "universal" blue proxy and either withhold votes from the 15 CP directors or vote in favour of no more than nine of the railway's rival slate.
"It's time for a change," Mr. Ackman said. "CP has lost market share to CN over the last six years."
Canadian Pacific (CP)
Close: $75, down 34¢