After former CEO's death, is Shaw's executive pension plan fully funded?

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When Jim Shaw died in January, the tributes focused on his crucial contributions as CEO of Shaw Communications Inc. during a period of growth for the company.

Another legacy of Mr. Shaw's tenure, however, was a massive pension, generated by a compensation plan that racked up hundreds of millions of dollars in obligations to just a handful of executives. Shaw Communications' board chose in 2010, as Mr. Shaw left the chief executive job at the age of 53, to pay him an annual pension of nearly $6-million. At the end of August, 2011 – the most recent pension data available on Mr. Shaw – the obligation to him, alone, was $85.1-million, likely the largest single amount owed to a plan member.

While some of that has been paid to Mr. Shaw in the intervening years, the estimate seems to have assumed Mr. Shaw would live longer than he did. And while it is certainly ghoulish, I allow, to be talking about this matter so soon after his demise, it is a matter of distinct importance to Shaw's shareholders. With Mr. Shaw's death, it's possible that the company's executive pension plan is fully funded, or at least close to it, and the company need not plan on injecting tens of millions of dollars more in cash into the plan, as it has in recent years.

The company's Supplemental Executive Retirement Plan, or SERP, has been a frequent topic for me, because it was a remarkably generous program thanks to big cash bonuses and other elements of the plan's design. (Read more here and here and here.) Started in 2002, it racked up $378-million in benefits for 15 executives in just 10 years, before it was closed in June, 2012, to new participants. While no new Shaw executives have joined the plan, those active employees still in it continue to accrue benefits and Shaw estimated the total obligation to all the plan members at $518-million at the end of its fiscal year in August, 2017.

For the first 10 years of the plan, Shaw failed to set aside any money for the SERP, making it a completely unfunded obligation. It finally, however, became too big to ignore and the company began pumping cash into it in the 2013 fiscal year. By August, 2017, the plan had $419-million in assets, still about $100-million short of full funding.

This, now, brings us back to the issue of Mr. Shaw. It is a failure of the disclosure rules that the company is following that we have so many questions, and Shaw feels it cannot go beyond what it has said in its regulatory filings and answer my queries. (I submitted questions to Shaw on Jan. 15; on Jan. 31, it responded largely by referring to past disclosures. "Shaw's current disclosure provides the key details regarding the SERP," spokesman Chethan Lakshman said in an e-mailed response.)

The requirements are that companies disclose compensation for, to simplify, its five best-paid executives, a list that must include the CEO and chief financial officer. They do not say that a company must update its shareholders on the status of the employees with the largest pension obligations, if any of those are not among the five with the highest annual pay. So, Mr. Shaw disappeared from compensation disclosure after the 2011 fiscal year. "Since August 31, 2011, Jim Shaw was not a [named executive officer]," Mr. Lakshman wrote. "We do not provide benefit information on SERP participants that are not NEOs."

Assuming his pension remained at the level disclosed upon his departure, I figure Shaw paid close to $37.7-million to him from September, 2011, the month after the disclosure of the $85.1-million obligation, through the end of 2017. That could suggest the remaining balance is about $50-million; however, it is not an apples-to-apples comparison, because the $85.1-million amount is the sum of all future payments, discounted to 2011 dollars.

Did the company's pension obligation to Mr. Shaw terminate upon his death? Probably not, because in Shaw's annual filings, the company says that in fiscal 2004, "the plan was amended to limit survivor benefits," a statement that strongly suggests survivor benefits of some sort still exist.

But, what is the remaining pension? Again, Shaw will say no more than what it has already disclosed. A $50-million-plus obligation won't make or break the company, but it's also not insignificant for a company that has been generating annual cash of about $500-million after it covers its capital expenditures – and which continues to accrue benefits and obligations for others in its plan. The best shareholders can do, now, may be to wait nearly a year for the next management information circular and see whether Shaw's SERP is now fully funded, attributable in part to the unfortunate death of Mr. Shaw.