Arctic Glacier CEO on hot seat

Hey there, time traveller!
This article was published 18/06/2009 (5956 days ago), so information in it may no longer be current.

I’m going to go out on a limb here and predict there are probably going to be a few grumpy Arctic Glacier Income Fund unitholders at its annual meeting this morning in Winnipeg.

Not counting pestilence, the Winnipeg packaged-ice company has endured just about every misfortune it could over the last 15 months.

It started in March 2008 with the information that the U.S. Department of Justice (DOJ) was investigating Arctic and all the other large packaged-ice companies in North America regarding anti-trust activity.

Since then, lousy weather, high fuel costs, volatile foreign exchange rates and a serious North American recession has melted profit levels from $20 million in 2007 to a loss of $37 million in ’08.

The company recently scored a small victory when a Michigan judge threw out several of the allegations contained in what might have been a nasty civil proceeding against a former company manager.

But the serious uncertainty caused by the DOJ investigation still hangs over the company and there’s not many who believe there will be a happy ending to that story for Arctic.

To its credit, the company is working hard at reducing costs and trying to remain focused, even while the legal bills pile up (the company has already spent $9.1 million on the matter).

Maybe it’s because of their generally disgruntled state, but some shareholders have been taking a closer look at the company’s information circular regarding executive compensation.

There are probably some who believe Arctic CEO Keith McMahon is getting paid too much with a base salary of US$304,378 in 2008, but they would find it is not out of the norm for a company with annual revenues of about $250 million.

What is a little out of the ordinary are provisions for McMahon and chief financial officer Douglas Bailey to receive four times their salary, bonus and benefits in the event of a change of control of the company.

Compensation consultants, a professional service that has become more mainstream over the last decade, seem to agree that is a particularly generous payment.

Ken Hugessen, of the independent Toronto compensation consulting firm Hugessen Consulting, said: "The normal multiple is two times cash compensation — salary plus bonus. That has become the standard, and it is widely held that it is the commonlaw standard."

McMahon is not unfamiliar with those industry norms, but took umbrage at the suggestion that Arctic’s change-of-control benefits for executives are inflated.

"I would suggest you can only really draw the conclusions that termination benefits are high if you do a total compensation review," he said.

On that score, he said he believes Arctic Glacier is within the norm.

Arctic did retain its own compensation consultant in 2006 who, among other things, found Arctic’s executive compensation was below average across comparable issuers.

The current information circular lists McMahon’s total compensation for 2008 at $561,511, including salary, cash bonuses and unit-based incentives.

As the unit price has fallen from $14 in July 2007 to $1.64 (down one cent Wednesday), the real value of those equity awards will be a lot less than the deemed value. Also, it should be noted that McMahon’s performance-based bonus for 2008 was only 40 per cent what it was the previous year.

Arctic’s executives earn option-based awards with a deemed value, but they have been rendered essentially worthless unless and until the company’s units get back up over $11.

McMahon may be completely within the bounds of corporate responsibility in defending the compensation levels and those change-of-control benefits that seem to be outside the norm.

But that was probably a more winning argument before the DOJ investigation.

Regardless of how professionally and conscientiously management has been conducting itself through these challenging times, there is no getting around the fact it is under ever more scrutiny.

 

martin.cash@freepress.mb.ca

 

 

Who makes what?

 Arctic Glacier Income Fund

2008 revenue, $248 million

Keith McMahon, CEO — salary plus cash bonus: $450,719

CEO change-of-control benefits — four times salary plus benefits

 

Boyd Group Income Fund

2008 revenue, $210 million.

Terry Smith, CEO — salary plus cash bonus: $514,020

CEO change-of-control benefits — two times salary plus benefits

 

Reddy Ice Holdings Inc.

2008 revenue, US$329 million

Gilbert Cassagne, CEO — salary plus bonus (including some stocks): US$482,879

CEO change-of-control benefit — no agreements in place