Canadian Pacific Railway cuts exec perks, changes compensation after criticism

A Canadian Pacific Railway train passes through a crossing on a rural road in Delta, B.C., on Sunday, Feb. 5, 2017. (Darryl Dyck/THE CANADIAN PRESS)

CALGARY -- Canadian Pacific Railway (TSX:CP) is cutting back on perks for its top executives and changing the way they're paid in response to shareholder frustration over C-suite compensation.

In a regulatory filing, the Calgary-based company says operating ratio, a key measure of efficiency in the railway industry, will have less influence in determining executive compensation. The operating ratio improved for five straight years under Hunter Harrison's watch as CEO.

Instead, CP will place greater emphasis on safety and operating income to incentivize executives, its proxy circular said.

The filing said calls for safety performance measures came from shareholders that CP consulted with last year after its annual meeting, during which a bare majority of them rejected the company's executive pay system in a non-binding vote.

Kevin Thomas, a director for the Shareholder Association for Research & Education, said Thursday CP deserves credit for making the changes. But he added that the company is still taking into account railway performance.

"I like the strong attention to safety ... but I'm a little concerned that there's also a strong attention to train speed and I think that might conflict on the safety side," he said, adding that CP's executive pay remains excessive compared to similar companies.

Peter Kimball, executive director of corporate governance consultancy firm ISS Corporate Solutions of Rockville, Md., said CP's filing shows it has made a "fairly comprehensive suite of changes" to address shareholder concerns about how it links performance goals to executive incentives.

CP's use of managers to run trains as it cut 6,000 jobs since 2012 has been criticized by its unions as unsafe. The practice was also cited by the Transportation Safety Board of Canada as a factor in its investigation of a 2015 incident where a train operated by managers made an unauthorized eight-kilometre trip near Cranbrook, B.C.

CP chairman Andrew Reardon said in a letter to shareholders included in the filing that its reportable train accident rate last year was the best of any of the seven largest North American railways in 10 years as measured by the U.S. Federal Railroad Administration. He said the rate improved by 27 per cent over 2015, while CP's reportable injury rate improved by 11 per cent.

CP also vowed in its filing to rein in perks, including personal use of its corporate jet.

Harrison's compensation in 2016 was $18.8 million, including $719,000 for unlimited personal use of the company jet, according to CP's filing.

New CEO Keith Creel, who earned $8.9 million as president and chief operating officer last year, will have his use of the jet restricted to business commuting and family visits within North America, CP said.

Earlier this month, Florida-based CSX announced it has hired Harrison as its CEO. CSX said it will ask shareholders to vote on aspects of Harrison's compensation package that would include reimbursing him for compensation he forfeited at CP.

CP said Harrison gave up stock options and other compensation worth a total of $122.9 million as part of an agreement that set aside his promise not to work for a competitor.