UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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Canadian Pacific Railway Limited
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Notice of Annual Meeting of Shareholders
When | Wednesday, May 10, 2017 9:00 a.m. (Mountain Daylight Time) | 7550 Ogden Dale Road S.E. Calgary, Alberta T2C 4X9 | ||
Where | Royal Canadian Pacific | |||
CP Head Office 7550 Ogden Dale Road S.E. Calgary, Alberta T2C 4X9 |
Page | ||||
1. Financial Statements | ||||
2. Appointment of Auditor | ||||
3. Advisory Vote to Approve Compensation of Named Executive Officers | ||||
4. Advisory Vote on Frequency of Say-on-Pay Vote | ||||
5. Election of Directors | ||||
6. Approval of Section 162(m) Incentive Plan | ||||
You are invited to the annual meeting of shareholders (the “Meeting”) of Canadian Pacific Railway Limited (“Canadian Pacific”).
Items of Business
1. receipt of the audited consolidated financial statements for the year ended December 31, |
2016; 2. appointment of auditor; |
3. a non-binding advisory vote to approve the compensation of Canadian Pacific’s named executive officers; |
4. election of directors; and 5. consideration of other business as may properly come before the Meeting or any adjournment or postponement thereof. |
Shareholders of recordwho hold our common shares at the close of business on March 16, 2016 will be15, 2017 (record date) are entitled to vote their shares at the Meeting, and are encouraged to participate eitheror at a reconvened meeting if the Meeting is postponed or adjourned.
Shareholders can vote their shares by proxy or in person or by proxy.
/s/ Jeffrey J. Ellis
Jeffrey J. Ellis
Corporate Secretary
March 15, 2017
Calgary, Alberta
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS | 2017 MANAGEMENT PROXY STATEMENT | 1 |
What’s Inside
1 | Notice of Annual Meeting of Shareholders | |||||||||
3 | Message from the Chairman of the Board | |||||||||
5 | Message from the Chair of the MRCC | |||||||||
10 | Proxy Statement | |||||||||
13 | Meeting Information | |||||||||
14 | Voting Information | |||||||||
17 | General Information | |||||||||
18 | Business of the Meeting | |||||||||
18 | 1. Financial Statements | |||||||||
18 | 2. Appointment of Auditor | |||||||||
19 | 3. Advisory | |||||||||
19 | 4. Election of Directors | |||||||||
21 | Nominees for Election to the Board | |||||||||
21 | Introduction | |||||||||
21 | Board Size and Tenure | |||||||||
21 | Director Overboarding | |||||||||
22 | Director Attendance | |||||||||
23 | Director Nominee Profiles | |||||||||
29 | Statement of Corporate Governance | |||||||||
29 | Board of Directors | |||||||||
30 | Committees of the Board | |||||||||
31 | Board Mandate | |||||||||
33 | Risk Oversight | |||||||||
34 | Communication and Shareholder Engagement | |||||||||
35 | Ethical Business Conduct | |||||||||
36 | Nomination of Directors | |||||||||
37 | Director Skills Matrix | |||||||||
38 | Orientation and Continuing Education | |||||||||
39 | Board Assessment | |||||||||
40 | Directors’ Compensation | |||||||||
40 | Philosophy | |||||||||
40 | Directors’ 2016 Compensation | |||||||||
41 | Director Share Ownership Requirements |
43 | Indebtedness of Directors and Executive Officers | |||||||
43 | Directors’ and Officers’ Insurance | |||||||
43 | Committee Reports | |||||||
44 | Report of the Audit Committee | |||||||
46 | Report of the Corporate Governance and Nominating Committee | |||||||
47 | Report of the Finance Committee | |||||||
48 | Report of the Management Resources and Compensation Committee | |||||||
49 | Executive Compensation Summary | |||||||
51 | Compensation Discussion and Analysis | |||||||
51 | Our Approach to Executive Compensation | |||||||
56 | 2016 Compensation and Performance | |||||||
60 | Performance Graphs | |||||||
63 | Named Executive Officer Compensation | |||||||
68 | Compensation Governance | |||||||
72 | Compensation Details | |||||||
72 | Summary Compensation Table | |||||||
76 | Incentive Plan Awards | |||||||
82 | Pension Plan Benefits | |||||||
83 | Nonqualified Deferred Compensation Table | |||||||
84 | Change in Control and Termination Benefits | |||||||
86 | Security Ownership of Certain Beneficial Owners and Management | |||||||
87 | Section 16(a) Beneficial Ownership Reporting Compliance | |||||||
87 | Shareholder Proposals | |||||||
87 | Directors’ Approval | |||||||
88 | Schedule A – Audit Committee Terms of Reference |
2 | CANADIAN PACIFIC | TABLE OF CONTENTS |
Message from the Chairman of the Board
Fellow shareholders: On behalf of the Board of Directors, I am pleased to invite you to CP’s 2017 annual meeting of shareholders at 9:00 a.m. MDT on Wednesday, May 10, 2017. The meeting will be held at the Royal Canadian Pacific Pavilion located at CP’s head office, 7550 Ogden Dale Road S.E., Calgary, Alberta. At the meeting, we will discuss our 2016 performance and you will vote on A clear message from shareholders CP has achieved another excellent year in 2016. However, before I discuss our successes, I wish to address our failed say-on-pay vote at last year’s annual meeting. That vote made it clear that we had work to do to establish the proper course on executive compensation. To that end, over the last six months, I, together with Ms. Isabelle Courville, Chair of our Management Resources and Compensation Committee and members of CP senior management have met with shareholders across North America to hear their concerns face-to-face. As a result of those meetings, CP has made significant changes to executive compensation which are addressed in depth in |
Ms. Courville’s letter beginning on page 5. The Management Resources and Compensation Committee and the full Board are confident that these changes will effectively address your concerns. Further, we believe that the changes are appropriate for CP at this stage of its evolution and that executive compensation is now more closely aligned with the long-term interests of CP shareholders.
Your Board is committed to engaging with shareholders face-to-face on a continual basis. This is your Company. As stewards of your investment, we want your input. In addition to participating in meetings with members of our Board, you may also contact me at any time through the Office of the Corporate Secretary at CP.
A company transformed
CP’s turnaround under Hunter Harrison’s leadership has been remarkable: the Company has seen dramatic improvements across all financial and operating metrics, and achieved its initial four-year targets two years ahead of plan. Thus, 2016 was a pivotal year for CP. It continued the Company’s five-year transformation from the railroad industry’s laggard in 2012 to one of North America’s pre-eminent railroad companies.
On its own, 2016 was a record-breaking year: the annual operating ratio, which is the primary measure of operational efficiency, was CP’s best on record, at 58.6%, despite a challenging economic environment. 2016 was the fifth consecutive year of improvement in this ratio. Diluted earnings per share were $10.63, an increase of 27% over 2015 and adjusted diluted earnings per share rose 2% over 2015 to $10.29(1). In the area of safety, CP’s performance in 2016 was also stellar. The Company ended 2016 with an industry leading Federal Railroad Administration (FRA) reportable train accident rate of 0.97. This result is not only a 27% improvement over 2015, but also represents the best train accident performance of any Class 1 railway over the last decade. CP’s FRA reportable personal injury rate was 1.64, an 11% improvement over 2015.
CP also delivered value to shareholders: annual total shareholder return in 2016 was 9.5% and the five-year return has been 192%. In the second quarter of 2016 we raised our quarterly dividend to $0.50 from $0.35 per common share, the first increase since 2012. Since June of 2012 CP’s market capitalization has grown by more than $15 billion.
3 |
The turnaround under Hunter Harrison’s leadership confirms the strength of CP’s operating model in delivering sustained business growth and value for shareholders. A railroad turnaround specialist with over 50 years of railroad experience, Hunter embraced a new vision for CP – and he delivered.
Seamless leadership transition
The Board feels extremely fortunate to have had Hunter as Chief Executive Officer for the past five years. His retirement from CP effective January 31, 2017 took place five months ahead of schedule. Hunter had approached the Board to discuss his retirement from CP and potential related modifications to his employment arrangements that would allow him to pursue opportunities involving certain other Class 1 railroads. A special committee of the Board discussed the matter with Hunter. Following negotiations, receipt of independent legal advice and careful deliberation, the special committee recommended to the Board that CP enter into a separation agreement with him. As more fully described in Ms. Courville’s letter in this report, under the terms of that agreement, Hunter Harrison returned to the Company, by forfeiture, approximately $122.9 million worth of compensation in exchange for his separation.
In what may be described as a textbook succession planning scenario, Keith Creel, our President and Chief Operating Officer, succeeded Hunter as CEO on January 31, 2017. Keith, also a highly regarded railroader and leader, had worked beneath Hunter for over two decades and alongside Hunter through CP’s turnaround. Keith’s appointment as President and CEO was an integral part of our succession plan and the two have worked closely to ensure the resulting, seamless transition. Keith joined our Board last May as part of the transition plan; we look forward to working more closely with him and his leadership team moving forward.
Strong and committed Board
The Board has also experienced significant change over the past few years. This turnover has been a result of personal circumstances affecting directors, the professional commitments of CP’s directors outside of CP and an unwavering commitment on the part of the Board to excellence in corporate governance. I can say with confidence that we are committed, engaged and actively involved in overseeing CP’s business and future direction and the strength of its leadership team.
This Board is continually evaluating itself to ensure that it continues to exceed the standards of good governance and that its members are able to function efficiently and effectively with each other and with management. Where additional directors have been added in the past years, those appointments have been made in order to enhance the skills and experiences of the Board, but never at the cost of CP’s high corporate governance standards. In 2016 and 2017 CP welcomed Matthew Paull, Jill Denham, William Fatt, Jane Peverett and Gordon T. Trafton II to the Board. Each of these individuals brings extensive and unique business experience to the Board of CP that will be invaluable going forward, including railroading, finance, energy, financial services, corporate leadership and other board experience. You can read about this year’s director nominees beginning on page 21.
On behalf of the Board, I would like to acknowledge the valuable contributions of two directors who stepped down since our last Annual Shareholders Meeting. Dr. Anthony Melman joined the Board in 2012, was chair of the Finance Committee and a member of the Audit Committee, and brought extensive financial and business leadership to the Board. Bill Ackman joined the Board in 2012 and was a member of the Finance and Corporate Governance and Nominating Committees. Bill was instrumental in CP’s turnaround and his experience, energy, commitment and knowledge served the Board well.
This Board is highly confident in CP’s prospects for future growth and success and in the strength of our very capable management team to lead us there.
We thank you for your continued confidence in CP and look forward to seeing you at the meeting on May 10, 2017. Please remember to vote your shares.
Sincerely, |
/s/ Andrew F. Reardon Andrew F. Reardon Chairman of the Board |
(1) | Adjusted diluted earnings per share, Adjusted Operating Ratio and Free Cash Flow are non-GAAP measures. For a full description and reconciliation of Non-GAAP measures see CP’s Form 10-K at www.cpr.ca. |
4 | CANADIAN PACIFIC | MESSAGE FROM THE CHAIRMAN OF THE BOARD |
Message from the Chair of the Management Resources and Compensation Committee
Dear fellow shareholders,
Last year 50.1% of shareholders votedagainst our say-on-pay advisory vote. This was very concerning for the Management Resources and Compensation Committee (the “Compensation Committee”) and the Board.
We spent a good part of the past year meeting with shareholders to hear their concerns first-hand, provide more information about our executive compensation program, and answer their questions. Our engagement program included in-person meetings with 16 of our largest shareholders who represent approximately 30% of our public float as well as shareholder advocacy groups and two proxy advisory firms. Andrew Reardon, Chairman of the Board, led these meetings. I participated in every meeting, along with representatives from management. The table below is a summary of the feedback we received, and what we’re doing to address it:
What we heard | How we responded | Where to learn more | ||
Ø Shareholders would like to see our compensation plans evolve as we transition to growth | ✓ Amended short-term and long-term incentive plan measures for 2017 | page 57 | ||
✓ Designed the compensation package for incoming CEO, Keith Creel, to be in-line with the market and our peers | page 63 | |||
✓ Modified CEO perquisites; tax equalization eliminated, corporate jet use restricted | page 63 | |||
✓ Shortened option terms from 10 years to 7 years starting in 2017 | page 59 | |||
Ø Shareholders want better correlation with long-term corporate performance | ✓ Removed operating ratio as a long-term incentive plan measure; weightings of ROIC and TSR increased | page 59 | ||
✓ Increased the proportion of performance-based awards in the long-term incentive plan from 50% to 60% for 2017 | page 59 | |||
✓ Introduced performance options into Keith Creel’s compensation package as incoming CEO | page 63 | |||
Ø Shareholders want greater transparency and disclosure on changes to performance measures | ✓ Improved disclosures; a description of changes to 2017 short-term and long-term incentive plan measures (including rationale behind them) are provided in the 2017 Proxy Statement | page 56 | ||
Ø Shareholders would like to see safety and other operational measures formally incorporated into executive compensation | ✓ Added a safety measure to the short-term incentive plan for 2017 | page 57 | ||
✓ Added operating measures to the short-term incentive program for 2017 | page 57 | |||
Ø Shareholders raised concerns with respect to transition awards and disclosures for departing executives | ✓ Departing CFO, Mark Erceg, forfeited bonus and repaid signing bonus to CP on resignation | page 67 | ||
✓ Details of Hunter Harrison’s early retirement as CEO and associated forfeitures are fully disclosed in the following pages | page 8 | |||
Ø Shareholders felt that the individual component of the CEO’s bonus should not exceed the corporate performance | ✓ Capped the individual performance rating for the CEO at the corporate performance factor | page 57 |
MESSAGE FROM THE CHAIR OF THE MRCC | 2017 MANAGEMENT PROXY STATEMENT | 5 |
Compensation has mirrored strategy
In 2012, shareholders voted overwhelmingly for change, and CP’s executive compensation program was designed at that time to recruit unique talent that could lead an operational and cultural transformation and turn the Company around. It was also designed to give management an intense focus on specific high impact levers.
In 2016, we can see the results of that strategy: we’ve gone from the clear industry laggard to an industry leader, and are now transitioning towards a period focused on revenue growth.
We’re changing our incentive plans to support this new stage in the Company’s evolution and are working to align the plans more closely with the long-term interests of our shareholders. This year we also signed a new employment agreement with our incoming CEO, Keith Creel. The terms of his new agreement are in-line with the market and our peers.
The tables below show you the changes we are making to the incentive plans. Some are in place now. The others will be introduced for compensation decisions in 2017.
We will continue to review our executive compensation program against the market and best practices and to respond to CP’s changing needs as it grows and evolves its strategy. We are confident that these changes will clarify our practices, address your concerns and earn back your confidence.
Short-Term Incentive Plan (“STIP”)
Our short-term incentive plan rewards executives for achieving pre-determined corporate and individual performance objectives that are tied directly to CP’s strategy and operational requirements. In response to concerns highlighted by shareholders, we’ve also capped the individual performance rating for the CEO such that it cannot exceed the corporate performance factor.
Starting in 2017, the corporate performance factor is based on improving revenue growth in a cost-effective manner. We are using both financial and non-financial measures, which creates a balanced approach to performance assessment. Payouts range from 0% to 200% of target for each performance measure, with pre-defined levels for threshold, target and exceptional performance. A summary of the changes to the performance measures under our STIP is provided in the table below:
Measure | 2016 STIP | New in 2017 STIP | Why we’re making the change | |||||||
Ø Operating ratio Operating expenses divided by total revenues | 50% | g | 40% | ◆ Successfully focused on driving down costs during the turnaround, resulting in an 1,840 basis point improvement since 2012 ◆ Shifting the focus to growth by reducing the weighting slightly | ||||||
Ø Operating income Total revenues less operating expenses | 25% | g | 40% | ◆ Significantly increasing the weighting to reflect the importance of revenue growth | ||||||
Ø Free cash flow Cash from operating activities less cash used in investing activities | 25% | g | 0% | ◆ Successfully focused executives on increasing cash flow during the turnaround, drove a 219% improvement since 2012 ◆ Being replaced by safety and operating measures | ||||||
Ø Safety FRA frequency of train accidents | 0% | g | 10% | ◆ Adding a safety metric to create a more balanced scorecard ◆ Safety measure pays out at maximum only if the Company achieves the stretch target and remains best in the industry | ||||||
Ø Operating performance Train Speed | 0% | g | 10% | ◆ Adding an operating metric to create a more balanced scorecard ◆ Train Speed is a key measure for improved asset utilization and delivery times leading to enhanced customer experience |
Long-Term Incentive Plan (“LTIP”)
Our long-term incentive plan includes:
We are increasing the weighting of PSUs under the LTIP to 60% (from 50%), to tie more compensation directly to our performance, and reducing the term for options to seven years instead of ten. Option grants will continue to vest 25% each year over four years on the anniversary date of the grant.
The performance measures for 2017 PSU awards focus executives on medium-term growth, and performance will be assessed as an average over the three-year performance period. Payouts range from 0% to 200% of target for each performance measure, with pre-defined levels for threshold, target and exceptional performance. A summary of the changes to the performance measures applicable to PSUs granted under our LTIP is provided in the table below:
6 | CANADIAN PACIFIC | MESSAGE FROM THE CHAIR OF THE MRCC |
Measure | 2016 LTIP | New in 2017 LTIP | Why we’re making the change | |||||||
Ø Final year operating ratio Operating expenses divided by total revenues | 60 | % | g | 0% | ◆ Using operating ratio as a singular focus successfully focused executives on driving down costs during the turnaround: resulting in an 1,840 basis point improvement since 2012 ◆ As CP transitions towards a growth strategy, ROIC is a more appropriate long-term measure ◆ Eliminates overlap with the short-term incentive plan | |||||
Ø Three-year average return on invested capital (ROIC) Net operating profit after tax divided by average invested capital | 20 | % | g | 60% | ◆ Increasing the weighting significantly to focus executives on the effective use of capital as we grow | |||||
Ø Total shareholder return Compound average growth rate compared to the S&P/TSX Capped Industrial Index rather than the S&P/TSX60 as was done in 2016 | 10 | % | g | 20% | ◆ Increasing the weighting to align with shareholder interests ◆ Comparing to the S&P/TSX Capped Industrial Index which represents a broad range of Canadian investment alternatives | |||||
Ø Total shareholder return Compound average growth rate compared to the S&P 1500 Road and Rail Index rather than Class 1 peers as was done in 2016. | 10 | % | g | 20% | ◆ Increasing the weighting to align with shareholder interests ◆ Comparing to the S&P1500 Road and Rail Index which represents a broad range of transportation peers (previously CP more narrowly compared performance to its publicly traded Class 1 peers) |
2016 Performance and Compensation
Despite a challenging economic and operating environment in 2016, CP delivered strong results. The CP team adapted resources and costs quickly and efficiently in response to the softer-than-expected volume environment, enabling the Company to produce a Company record-low operating ratio of 58.6%.
From an operating and safety perspective, key metrics such as network speed, terminal dwell and fuel efficiency all saw solid year-over-year improvement, and Federal Railway Administration (FRA) train accident frequency improved 27% to the lowest level in the Company’s history.
CP’s share price grew by 8.4% on the Toronto Stock Exchange and 11.9% on the New York Stock Exchange, underperforming the S&P/TSX Composite Index and modestly outperforming the S&P 500 Index.
2016 Short-Term Incentive Plan payout
Corporate performance in 2016 was assessed against three measures: operating ratio, operating income and free cash flow. The resulting overall corporate performance factor based on the weighting of the components was 165%; however the Board, on the recommendation of management and the Compensation Committee, elected to exercise negative discretion to bring the corporate performance factor down to 150%. Please refer to the Compensation Discussion and Analysis section on page 56 for more information.
Keith Creel, our new President and CEO
We signed a new employment agreement with Keith effective January 31, 2017, which sets out the terms of his compensation as CEO. This new agreement puts his total compensation in-line with the market, does not include tax equalization and limits his use of the corporate aircraft.
With respect to Keith’s long-term incentives, we have carefully designed them to maximize retention and be performance focused while staying within the market median level. Specifically, rather than use the market median annual target of 500% of salary, we are reducing the annual target to 400% of salary for five years which frees up 500% (five years x 100%) for an upfront grant of performance-vested stock options. This upfront grant has an expected grant date value of $5,625,000 (500% of salary). These performance Options will vest five years from the grant date based on our five-year total shareholder return relative to two equally weighted measures: the S&P/TSX Capped Industrial Index and the S&P 1500 Road and Rail Index. Granting the award upon Mr. Creel becoming CEO maximizes the retentive effect of the reward. We do not consider this grant to be additional compensation as his LTIP annual target has been reduced to 400%, which is below market median, to account for it.
Keith is regarded as one of the top railroaders in North America having worked with Hunter for over 20 years. The rail industry is entering a period of significant change at the executive level, as other railroads look to recruit key operating talent, the Board wanted to ensure that Keith had a compensation package that would reward his performance and retain him during this key period.
You can read more about his 2016 compensation on page 63.
MESSAGE FROM THE CHAIR OF THE MRCC | 2017 MANAGEMENT PROXY STATEMENT | 7 |
Hunter Harrison, the end of an era
Hunter resigned from CP effective January 31, 2017, five months ahead of schedule. Under Hunter’s leadership, CP succeeded in hitting initial four-year targets in two years. As quoted by CNBC, what he accomplished has been called the greatest corporate turnaround in history. Over his five year tenure, which began in 2012, CP has generated more than $15 billion in shareholder value, a significant return on CP’s investment in Hunter of $55.8 million (0.35% of shareholder value created) over this period. No matter how you look at his compensation over his tenure, Hunter Harrison’s time at CP was incredibly positive for shareholders.
Forfeiture on leaving
Hunter asked to modify his employment agreement to allow him to pursue opportunities involving other Class 1 railroads. A special committee of the Board oversaw discussions with Hunter, and, after careful deliberation and independent legal advice, the special committee recommended to the Board that CP enter into a separation agreement with Hunter.
Under the terms of this separation agreement, when he left CP, Hunter forfeited approximately $122.9 million of compensation, reflecting the value of his CN pension that we replaced and the value of in-the-money equity incentive awards. In addition, Hunter did not receive a long-term incentive award for 2017, and his $3.9 million (US$3 million) post-retirement consulting agreement with CP that was to start at the end of June 2017 is null and void. The following table summarizes these amounts based on CP’s share price and closing exchange rate on January 30, 2017:
Value forfeited by Mr. Harrison: | ||||
In the money value of vested equity award: | $ | 72,174,453 | ||
In the money value of unvested equity award: | $ | 11,070,100 | ||
Commuted value of Pension: | $ | 27,050,642 | ||
Expected value of foregone 2017 LTIP Grant: | $ | 8,659,200 | ||
Value of foregone consulting contract: | $ | 3,936,000 | ||
Total value: | $ | 122,890,395 |
To illustrate the value forfeited from what was disclosed in the Summary Compensation Table (“SCT”) when granted, the following table shows SCT values for each year and restates those values to exclude the items forfeited.
Year | Total Compensation as disclosed in SCT | Total Compensation as disclosed in restated SCT after forfeitures | Difference | |||||||||
2016 | $ | 18,829,794 | $ | 13,830,037 | $ | 4,999,757 | ||||||
2015 | $ | 20,195,323 | $ | 9,993,340 | $ | 10,201,983 | ||||||
2014 | $ | 18,735,941 | $ | 14,723,918 | $ | 4,012,023 | ||||||
2013 | $ | 7,206,365 | $ | 2,776,765 | $ | 4,429,600 | ||||||
2012 | $ | 49,441,613 | $ | 14,439,716 | $ | 35,001,897 | ||||||
Total: | $ | 114,409,036 | $ | 55,763,776 | $ | 58,645,260 |
A complete revised SCT is provided on page 75.
From the shareholder perspective, as a result of these forfeitures, CP will recognize a recovery of $51 million in Compensation and Benefits in the first quarter of 2017 (as disclosed in Note 27 of Form 10-K).
Ensuring appropriate compensation for Hunter throughout his tenure was a unique challenge for the Committee. When considering Mr. Harrison’s compensation, the Committee encourages shareholders to consider his total compensation over five years and also consider his actual compensation paid, taking into consideration the forfeitures discussed above.
8 | CANADIAN PACIFIC | MESSAGE FROM THE CHAIR OF THE MRCC |
The following chart illustrates the relative degree of alignment of Mr. Harrison’s pay, taking into consideration the forfeitures, and total shareholder return over his tenure to that of his peers in the S&P 1500 Road and Rail Index. The dark shaded area indicates an alignment between pay and performance based on the ISS thresholds for Relative Degree of Alignment (RDA).
5-year Total CEO Pay vs. TSR
S&P 1500 Road and Rail Index (“Peers”) – ArcBest Corp. (ARC), Avis Budget Group, Inc. (CAR), Celadon Group Inc. (CGI), CSX Corporation (CSX), Genesee & Wyoming Inc. (GWR), Heartland Express Inc. (HTL), J.B. Hunt Transport Services, Inc. (JBH), Kansas City Southern (KSU), Knight Transportation Inc. (KNX), Landstar System, Inc. (LST), Marten Transport Ltd. (MRT), Norfolk Southern Corp. (NSC), Old Dominion Freight Line, Inc. (ODF), Roadrunner Transportation Systems Inc. (RRT), Ryder System, Inc. (R), Saia Inc. (SAI), Union Pacific Corp. (UNP) and Werner Enterprises Inc. (WER).
Annual ‘say-on-pay’ vote
On behalf of the Management Resources and Compensation Committee, I encourage you to take some time to read the compensation discussion and analysis, which starts on page 51, and invite you to vote on our approach to executive compensation at this year’s annual meeting.
We will continue to actively engage with shareholders, and plan to hold a say-on-pay vote every year. If you have any questions about the changes to our compensation program for 2017, or the compensation decisions we have made for 2016, you can contact me through the office of the Corporate Secretary at CP, or by sending an email to shareholder@cpr.ca.
I look forward to seeing you at the annual meeting on May 10, 2017.
Sincerely,
/s/ Isabelle Courville
Isabelle Courville
Chair, Management Resources and Compensation Committee
MESSAGE FROM THE CHAIR OF THE MRCC | 2017 MANAGEMENT PROXY STATEMENT | 9 |
PROXY STATEMENT
SUMMARY
About the meeting | What the meeting will cover | For more information | ||||||
When May 10, 2017 9:00 a.m. MDT Where Royal Canadian Pacific Pavilion, CP Head Office 7550 Ogden Dale Road S.E., Calgary, Alberta Record date March 15, 2017 Meeting materials are being mailed to shareholders on or about April 3, 2017 | 1. Receive the audited consolidated financial statements for the year ended December 31, 2016 | page 18 | ||||||
2. Appoint Deloitte LLP as auditor | The Board recommends you vote for this resolution | page 18 | ||||||
3. Have a say on executive pay | The Board recommends you vote for this resolution | page 19 | ||||||
4. Elect the directors | The Board recommends you vote for each nominee | page 19 |
NOMINATED DIRECTORS
You will be electing aelect 10 directors to the Board of 9 members.this year. Each director is elected annually and individually andnominee must meetreceive more for than withheld votes according to our majority voting guidelines. Detailed information about each director’s background, qualification experience and areas of expertise can be found in the section entitled “Director Nominee Profiles”.
Name | Age | Director since | Position | Indep- endent | Committee memberships | Board and committee attendance 2015 | Other current public boards |
W.A. Ackman | 49 | May 17, 2012 | CEO, Pershing Square Capital Management, L.P. | YES | Governance Finance | 97% | 1 |
J. Baird | 46 | May 14, 2015 | Senior Advisor, Bennett Jones LLP, Former Federal Minister of Transport Canada | YES | Governance Compensation HSSE | 93% | – |
I. Courville | 53 | May 1, 2013 | Chair of the Board of the Laurentian Bank of Canada | YES | Audit Compensation (Chair) HSSE | 100% | 3 |
K.E. Creel | 47 | May 14, 2015 | President and COO | NO | HSSE | 100% | – |
E.H. Harrison | 71 | July 6, 2012 | CEO | NO | HSSE | 67% | – |
R. MacDonald | 62 | May 17, 2012 | Executive Chair, Just Energy Group Inc. | YES | Governance (Chair) Compensation | 96% | 1 |
A.R. Melman | 68 | May 17, 2012 | President and CEO, Acasta Capital Inc., CEO Acasta Enterprises Inc. | YES | Audit Finance (Chair) | 97% | 1 |
M.H. Paull | 64 | January 26, 2016 | Former Senior Executive Vice President and CFO of McDonald’s Corporation | YES | Audit (Chair) | N/A | 2 |
A.F. Reardon | 70 | May 1, 2013 | Retired Chairman and CEO, TTX | YES | Audit Finance | 100% | – |
Name | Age | Director since | Position | Independent | Committee memberships | 2016 meeting attendance | 2016 voting result | Other public company boards | ||||||||||||||||||
J.R. Baird | 47 | May 14, 2015 | Senior Advisor, Bennett Jones LLP, Former Federal Minister of Transport Canada | YES | Compensation, Governance | 100% | 96.5% | 2 | ||||||||||||||||||
I. Courville | 54 | May 1, 2013 | Chair of the Board of the Laurentian Bank of Canada, Corporate Director | YES | Compensation (Chair), Governance | 100% | 94.4% | 3 | ||||||||||||||||||
K.E. Creel | 48 | May 14, 2015 | President and CEO of CP | NO | 100% | 98.0% | 0 | |||||||||||||||||||
G.H. Denham | 56 | September 6, 2016 | Corporate Director | YES | Audit, Finance | 100% | N/A | 3 | ||||||||||||||||||
W.R. Fatt | 66 | September 6, 2016 | Corporate Director | YES | Audit, Finance (Chair) | 100% | N/A | 1 | ||||||||||||||||||
R. MacDonald | 63 | May 17, 2012 | Executive Chair, Just Energy Group Inc. | YES | Compensation, Governance (Chair) | 96% | 96.4% | 1 | ||||||||||||||||||
M.H. Paull | 65 | January 26, 2016 | Corporate Director | YES | Audit (Chair), Finance | 95% | 99.7% | 3 | ||||||||||||||||||
J.L. Peverett | 58 | December 13, 2016 | Corporate Director | YES | Audit, Finance | 100% | N/A | 4 | ||||||||||||||||||
A.F. Reardon | 71 | May 1, 2013 | Retired Chairman and CEO, TTX | YES | Audit, Compensation, Finance, Governance | 100% | 99.7% | 0 | ||||||||||||||||||
G.T. Trafton II | 63 | January 1, 2017 | Retired Special Advisor and Senior Vice President, Canadian National Railway Company | YES | Compensation, Governance | N/A | N/A | 0 |
10 | CANADIAN PACIFIC | PROXY SUMMARY |
CORPORATE GOVERNANCE
CP is committed to maintaining high standards of corporate governance. Severalgovernance and nurturing a culture of good business ethics. Good governance is essential to the effective management of CP and protects the interests of our keyinvestors, employees and other stakeholders. The table below is a summary of our governance strengths and actions are noted in the table below.
For more information | ||||
Have separate Chair and CEO positions | page 29 | |||
Have a majority of | page 31 | |||
Have gender diversity on the Board (40% of | page 32 | |||
Elect directors annually | page 19 | |||
Elect directors individually (not by slate) | page 19 | |||
Have a majority voting policy for | page 36 | |||
Have an advance notice by-law in place | page 20 | |||
✓ | Have formal position descriptions for the independent Chair of the Board, | page 30 | ||
Have guidelines on board interlocks | page 29 | |||
Require directors to own equity in CP | page 41 | |||
Require executives to own equity in | page 69 | |||
Maintain an orientation and | page 38 | |||
Have a code of business conduct and ethics | page 35 | |||
Hold an advisory vote on executive compensation annually | page 19 | |||
Have a formal Board assessment process | page 39 | |||
✓ | Have a shareholder engagement program | page 34 | ||
What we don’t do | ||||
× | Have dual class Shares | page 14 | ||
Permit hedging of equity holdings in CP | page 71 | |||
× | Permit pledging of equity holdings in CP | page 71 |
2017 MANAGEMENT PROXY STATEMENT |
EXECUTIVE COMPENSATION HIGHLIGHTS
Executive compensation at CP includes base salary and a mix of optionsshort-term and Performance Share Units ("PSUs") awarded under the long-term incentive plan drives multiple objectives. incentives and is based on three core principles:
• | At risk: the majority of executive compensation is at risk and linked to performance |
• | Linked to strategy: performance is measured using metrics that are directly tied to our annual business plan, long-term strategy and the creation of shareholder value |
• | Long-term focus:executives are motivated to focus on CP’s long-term success through the strong link between compensation and corporate performance, long-term strategy and equity accumulation |
The vesting of performance share units depends on the achievement of targets and the realizationtable below is a summary of our compensation practices. You can read more about executive compensation at CP beginning on page 49.
The message from Isabelle Courville, Chair of the Management Resources and Compensation Committee (the “Compensation Committee”) beginning on page 5 discusses our 2016 engagement program and changes to executive compensation in 2016 and 2017.
Best Practices in Executive Compensation
The Compensation Committee ensures that our compensation programs are aligned with CP’s strategic plan, while stock options alignemphasizing the interests of management with the interests of shareholders in the creationimportance of long-term shareholder value.
For More Information | ||||
Pay for performance – a majority of executive compensation is at-risk or variable pay and is contingent on performance and not guaranteed | page 53 | |||
✓ | Performance-based vesting – align vesting criteria for performance share units with our long-term strategic plan and shareholder value | page 53 | ||
✓ | Share ownership – have share ownership requirements for | |||
Independent advice – the Compensation Committee receives compensation advice from an independent advisor | page 30 | |||
Caps on incentive payouts – our STIP and PSU plans cap payouts at a maximum of 200% of target. With regards to STIP the CEO cannot achieve more on his individual performance component than the corporate achievement component | page 53 | |||
✓ | Clawbacks – maintain a clawback policy for senior executive incentive compensation | page 71 | ||
Guarantee bonuses | page 53 | |||
× | Have single-trigger change of control benefits | page 84 | ||
× | Reprice or backdate options | page 79 |
12 | CANADIAN PACIFIC | PROXY SUMMARY |
MEETING INFORMATION
We are sending you this Proxy Statement (the “Proxy Statement”) to solicit proxies by the management of Canadian Pacific to be used at the annual meeting (the “Meeting”) of shareholders of Canadian Pacific to be held on April 20, 2016.
In this document “you” and “your” refer to the shareholders of Canadian Pacific; and “CP”, “Canadian Pacific”, the “Corporation”, the “Company” or “we”, “us” and “our” refer to Canadian Pacific Railway Limited and, where applicable, its subsidiaries; the “Board of Directors” or the “Board” refer to the board of directors of Canadian Pacific; and "Shares"“Shares” refers to Common Shares in the Capital of Canadian Pacific Railway Limited. Unless otherwise noted, the information contained in this Proxy Statement is given as of February 29, 2016March 15, 2017 and all dollar amounts used in this document are shown in Canadian dollars. PaymentsUnless otherwise noted, payments made in 20152016 in United States dollars (“US$”) were converted into Canadian dollars using the Bank of Canada averageyear-end exchange rate for 20152016 of 1.27871.3427 Canadian dollars per United States dollar.
Location of the Meeting
The Meeting will be held at:
Royal Canadian Pacific Pavilion
Canadian Pacific Head Office
7550 Ogden Dale Road S.E.
Calgary, Alberta, T2C 4X9,
at the Four Seasons Hotel Toronto, Vinci Ballroom,
on Wednesday, April 20, 2016
Business of the US Securities & Exchange Commission (the "SEC") applicableMeeting
At the Meeting, you will be asked to US domestic issuers, as well as in accordance with Canadian disclosure requirements. As a result, the disclosure in this proxy statement differs from the disclosure included in our management proxy circulars in prior years.
Voting Recommendations
The Board recommends that you vote
FOR the appointment of Deloitte LLP as the Corporation’s auditor,FOR the advisory resolution to approve CP’s compensation of its NEOs, andFOR each of the Nominees.Information Regarding Outstanding Shares and Principal Shareholders
As of proxyMarch 15, 2017, there were 146,648,385 Shares issued and the voting instruction form intend tooutstanding. Each Share carries one vote
For purposes of clarity, the following summary also describes certain provisions of our Sub-Plans; however, our Sub-Plans are not being submitted for shareholder approval.
MEETING AND VOTING INFORMATION | 2017 MANAGEMENT PROXY STATEMENT | 13 |
Name and Position | Options (#) | PSU Units (#) | ||
Laird Pitz (Named Executive Officer) | 7,235 | 1,942 | ||
All Other Executive Officers | 35,754 | 9,577 | ||
All Other Employees | 15,680 | 4,633 |
VOTING AND PROXIES
Please carefully read this section, as it contains important information regarding how to vote your common sharesShares of the Corporation (“Shares”). Canadian Pacific has sent or caused to be sent forms of proxy to the Corporation’s registered shareholders, and voting instruction forms and, in some cases, forms of proxy, to the Corporation’s non-registered shareholders.
Who is entitled to vote at the Meeting?
The Board has fixed March 16, 201615, 2017 as the Record Daterecord date (the “Record Date”) for the purpose of determining shareholders entitled to receive the Notice of Annual Meeting of Shareholders (the “Notice”) and to vote at the Meeting or any adjournment or postponement thereof, either in person or by proxy. Only shareholders of record at the close of business5:00 p.m. (Eastern Daylight Time) on the Record Date are entitled to vote at the Meeting. Each shareholder is entitled to one vote for each Share held.
Solicitation of Proxies
Management of Canadian Pacific is soliciting your proxies in connection with this Proxy Statement and the Meeting. The cost of this solicitation will be borne by the Corporation. Proxies will be solicited by mail, in person, by telephone or by electronic communications. Canadian Pacific has retained Kingsdale Shareholder Services, (“Kingsdale”)Advisors as strategic shareholder advisor and proxy solicitation agent located at the Exchange Tower, 130 King Street West, Suite 2950, Toronto, Ontario, M5X 1E2 to assist with our communications with shareholders and solicitation of proxies. In connection with these services, Kingsdale Advisors will receive an initial fee of $60,000.$66,000. In addition, Kingsdale Advisors will be reimbursed for disbursements and out-of-pocket expenses, as well as an additional $8 fee for each telephone call to or from Canadian Pacific shareholders and additional fees as determined by Canadian Pacific and Kingsdale.
Shareholders wishing to be represented by proxy at the Meeting must deposit a properly executed proxy with the Corporation or its agent, Computershare Investor Services Inc. (“Computershare”), or Kingsdale Advisors, not less than 24 hours prior to the time fixed for holding the Meeting (or any adjournment thereof). The time limit for the deposit of proxies may be waived or extended by the Chair of the Meeting at his or her discretion without notice. All Shares represented by a properly executed proxy will be voted or withheld from voting in accordance with the instructions of the shareholder on any ballot that may be called for and if the shareholder specifies a choice with respect to any matter to be acted upon, the Shares will be voted accordingly.
Exercise of Discretion and Voting by Management Proxyholder
Shareholders who have appointed a named appointee of management to act and vote on their behalf, as provided in the enclosed form of proxy or voting instruction form, and who do not provide instructions concerning any matter identified in the Notice, will have the Shares represented by such form of proxy or voting instruction form voted
FOR the appointment of Deloitte LLP as the Corporation’s auditor,FOR the advisory resolution to approveThe enclosed form of proxy or voting instruction form to be used in connection with the Meeting also confers discretionary authority on the person or persons named to vote on any amendment or variation to the matters identified in the Notice and on any other matter properly coming before the Meeting. As of February 29, 2016,March 15, 2017, management is not aware of any such amendment, variation or other matter. If, however, any such amendment, variation or other matter properly comes before the Meeting, proxies will be voted at the discretion of the person or persons named on the enclosed form of proxy or voting instruction form.
Registered Shareholder Voting Information
You are a registered shareholder if your name appears on your Share certificate. If this is the case, this Proxy Statement will be accompanied by a form of proxy. If you are a registered shareholder, there are two ways, listed below, that you can vote your Shares:
1) Voting by Proxy
You may appoint the management appointee or someone else that need not be a shareholder to vote for you as your proxyholder by using the enclosed form of proxy. A shareholder has the right to appoint a person or company other than the named appointee of management to represent such shareholder at the Meeting. To appoint a person or company other than the named appointee, write the name of the person or company you would like to appoint in the space provided.
You may vote using any of the methods outlined on the form of proxy.
2) Voting in Person
As a registered shareholder, you may exercise your right to vote by attending and voting your Shares in person at the Meeting. Upon arriving at the Meeting, report to the desk of our registrar and transfer agent, Computershare, to sign in and revoke any proxy previously given. You do not need to complete or return your form of proxy if you intend to vote at the Meeting.
14 | CANADIAN PACIFIC | MEETING AND VOTING INFORMATION |
To be valid, a proxy must be signed by the shareholder or his or her attorney authorized in writing. There are several ways to submit your form of proxy whichthat are indicated on the form of proxy. Carefully review your form of proxy for these instructions.
Beneficial Shareholder Voting Information
If your Shares are not registered in your name and are held in the name of a nominee such as a trustee, financial institution or securities broker, you are a non-registered shareholder. If your Shares are listed in an
Such Shares will more likely be registered under the name of your broker or an agent of that broker. Without specific instructions, Canadian brokers and their agents or nominees are prohibited from voting Shares for the broker’s client. Without specific instructions, U.S. brokers and their agents or nominees are prohibited from voting Shares for the broker’s client with respect to the non-binding advisory vote on the Corporation’s compensation of its NEOs, the approval of the Section 162(m) Incentive Plan Resolution and the election of directors, but may vote such Shares with respect to the appointment of Deloitte LLP.
If you are a non-registered shareholder, there are two ways, listed below, that you can vote your Shares:
1) Giving Your Voting Instructions
Your nominee is required to seek voting instructions from you in advance of the Meeting. Accordingly, you will receive, or have already received, from your nominee either (i) a voting instruction form for completion and execution by you, or (ii) a form of proxy for completion by you, executed by the nominee and restricted to the number of Shares owned by you. These procedures are to permit non-registered shareholders to direct the voting of the Shares that they beneficially own.
Each nominee has its own procedures which should be carefully followed by non-registered shareholders to ensure that their Shares are voted at the Meeting. Please contact your nominee for instructions in this regard. You may vote using any of the methods outlined on the voting instruction form or form of proxy.
Additionally, Canadian Pacific may use the Broadridge QuickVote™ service to assist non-registered shareholders with voting their shares. Non-registered shareholders may be contacted by Kingsdale Advisors to conveniently obtain a vote directly over the telephone. Broadridge then tabulates the results of all instructions received and provides the appropriate instructions respecting the voting shares to be represented at the Meeting.
2) Voting in Person
If you wish to vote in person at the Meeting, insert your own name in the space provided on the voting instruction form or form of proxy to appoint yourself as proxyholder and follow the instructions of your nominee.
Non-registered shareholders who instruct their nominee to appoint themselves as proxyholders should, at the Meeting, present themselves to a representative of Computershare. Do not otherwise complete the voting instruction form or form of proxy sent to you as your vote will be taken and counted at the Meeting.
Employee Share Purchase Plan Voting Information
Employees of the Corporation are eligible to participate in an employee share purchase plan (“ESPP”) under which they purchase Shares. Shares held by participants under the ESPP (“ESPP Participants”) are held in a custodial account until such time as the Shares held by ESPP Participants are withdrawn from the ESPP pursuant to its terms and conditions.
Voting rights attached to Shares held by ESPP Participants may be exercised through the use of a voting instruction form, which provides instructions regarding the voting of Shares held by ESPP Participants. ESPP Participants will have received this Proxy Statement together with the voting instruction form, or advice as to the availability of these documents electronically, from the Corporation’s registrar and transfer agent, Computershare.
Shares held by ESPP Participants will be voted in accordance with the instructions received from the employee.
Revocability of Proxy
A shareholder may revoke a proxy by depositing an instrument in writing executed by such shareholder or by such shareholder’s attorney authorized in writing (or, in the case of a corporation, by a duly authorized officer or attorney), either at the Office of the Corporate Secretary, Canadian Pacific, 7550 Ogden Dale Road S.E., Calgary, Alberta, T2C 4X9, or with the Chairman of the Meeting on the day of the Meeting, or by an adjournment or postponement of the Meeting, or in any other manner permitted by law.
In addition to any other manner permitted by law, a shareholder may change a previously submitted proxy or voting instruction by submitting a new proxy or conveying new voting instructions by any of the means described under “How do I vote if I am a
REGISTERED shareholder?” or “How do I vote if I am aNON-REGISTERED shareholder?”, as applicable. Non-registered shareholders must ensure that any change in voting instructions is communicated to the applicable nominee sufficiently in advance of the time of voting at the Meeting. Non-registered shareholders who have voted and who wish to change their voting instructions should contact their nominee promptly if assistance is required.MEETING AND VOTING INFORMATION | 2017 MANAGEMENT PROXY STATEMENT | 15 |
Voting Deadline
To be effective, your proxy must be received not less than 24 hours prior to the time fixed for holding the Meeting (or any adjournment thereof). The time limit for the deposit of proxies may be waived or extended by the Chair of the Meeting at his or her discretion without notice.
The Corporation reminds shareholders that only the most recently dated voting instructions will be counted and any prior dated instructions will be disregarded.
Vote Tabulation
Proxies will be counted and tabulated by the Corporation’s registrar and transfer agent, Computershare. Computershare maintains the confidentiality of individual shareholder votes. However, proxies will be submitted to management where they contain comments clearly intended for management or to meet legal requirements.
Additional Information
If you have any questions about the information contained in this document or require assistance in completing your form of proxy or voting instruction form, please contact our strategic shareholder advisor and proxy solicitation agent Kingsdale Advisors, located at The Exchange Tower, 130 King Street West, Suite 2950, P.O. Box 361, Toronto, Ontario, M5X 1E2, or by telephone at North American Toll Free: 1-866-879-7649, Outside North America, Banks and Brokers Call Collect: 416-867-2272 or by email at contactus@kingsdaleshareholder.com.
Registrar and transfer agent?
You may contact Computershare, Canadian Pacific’s registrar and transfer agent, by telephone, Internet or mail, as follows: by telephone 1-877-4-CP-RAIL / 1-877-427-7245 (within Canada and the United States) between the hours of 8:30 a.m. and 8:00 p.m. Eastern, or1-514-982-7555 (international direct dial); by internetInternet at www.investorcentre.com/cp, by mail addressed to Computershare, 100 University Ave., 8th Floor, Toronto, Ontario, M5J 2Y1.
16 | CANADIAN PACIFIC | MEETING AND VOTING INFORMATION |
GENERAL INFORMATION
Note Regarding Presentation
CP is not currently considered a foreign private issuer pursuant to applicable U.S. securities laws. Accordingly, this proxy statement has been prepared in compliance with the disclosure requirements under the rules of the U.S. Securities & Exchange Commission (the “SEC”) applicable to U.S. domestic issuers, as well as in accordance with Canadian disclosure requirements.
Non-GAAP Measures
This Proxy Statement contains certain earnings measures that have no standardized meanings prescribed by generally accepted accounting principles in the United States of America and, therefore, may not be comparable to similar measures presented by other companies, including adjusted operating ratio, adjusted diluted earnings per share and free cash flow, included in the messages from the Chairman of the Board and the Chair of the Compensation Committee and under the heading “Compensation Discussion and Analysis”. These measures are defined and reconciled under the heading “Non-GAAP Measures” in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Corporation’s Annual Report on Form 10-K filed with the SEC and on SEDAR on February 16, 2017.
Forward-Looking Information
This Proxy Statement contains certain forward-looking information and forward-looking statements (collectively, “forward-looking information”) within the meaning of applicable securities laws relating, but not limited, to our compensation programs, operations, anticipated financial performance, business prospects, planned capital expenditures and strategies. This forward-looking information also includes, but is not limited to, statements concerning expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, and results of operations or performance. Forward-looking information may contain statements with words such as “anticipate”, “believe”, “expect”, “plan” or similar words suggesting future outcomes.
Undue reliance should not be placed on forward-looking information as actual results may differ materially from the forward-looking information. Forward-looking information is not a guarantee of future performance. By its nature, CP’s forward-looking information involves numerous assumptions, inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking information, including but not limited to the following factors: changes in business strategies; general North American and global economic, credit and business conditions; the availability and price of commodities; the effects of competition; industry capacity; shifts in demand; changes in laws and regulations, cost increases; claims and litigation; labour disputes; liabilities arising from derailments. The foregoing list of factors is not exhaustive.
These and other factors are detailed from time to time in reports filed by CP with securities regulators in Canada and with the SEC in the United States. Reference should be made to “Item 1A – Risk Factors” and “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward-Looking Information” in CP’s annual and interim reports on Form 10-K and 10-Q.
Forward-looking information is based on current expectations, estimates and projections and it is possible that predictions, forecasts, projections, and other forms of forward-looking information will not be achieved by CP. Except as required by law, CP undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise.
Availability of Documents
Copies of the following documents are available free of charge on written request to the Office of the Corporate Secretary, Canadian Pacific, 7550 Ogden Dale Road S.E., Calgary, Alberta, T2C 4X9 or online at www.cpr.ca, www.sedar.com and www.sec.gov: the Articles and by-laws of the Company, Terms of Reference of the Board and each of the committees of the Board, the 2016 MANAGEMENT PROXY STATEMENT 18
The Corporation’s financial information is provided in the Corporation’s comparative annual financial statements and MD&A for the year ended December 31, 2016.
GENERAL INFORMATION | 2017 MANAGEMENT PROXY STATEMENT | 17 |
BUSINESS OF THE MEETING
1. FINANCIAL STATEMENTS
The audited consolidated financial statements of Canadian Pacific for the year ended December 31, 2016, and the report of the auditor, will be placed before the shareholders at the Meeting. These audited consolidated financial statements form part of the Annual Report of Canadian Pacific, which was mailed to registered shareholders and to all non-registered shareholders who requested it. Additional copies of the Annual Report may be obtained from the Corporate Secretary of Canadian Pacific upon request. The Annual Report is also available online at www.cpr.ca or www.sedar.com.
2. APPOINTMENT OF AUDITOR
Deloitte LLP was last appointed as Canadian Pacific’s auditor at the Company’s last annual meeting of shareholders, held on April 20, 2016. Deloitte was first appointed on May 12, 2011.
The Board recommends that Deloitte LLP be appointed as Canadian Pacific’s auditor until the close of the next annual meeting of shareholders. Unless otherwise instructed, the persons designated in the form of proxy or the voting instruction form, intend to voteFOR the appointment of Deloitte LLP as auditor of Canadian Pacific to hold office until the next annual meeting of shareholders at remuneration to be fixed by the Audit Committee. Representatives of Deloitte LLP are expected to be present at the Meeting, will have an opportunity to make a statement if they desire to do so, and will be available to respond to questions.
Vote Required for Approval
The appointment of Deloitte LLP as the Corporation’s auditor requires an affirmative vote of the Shareholders at the Meeting.
Audit and Non-Audit Fees and Services – 2016 & 2015
In accordance with applicable laws and the requirements of stock exchanges and securities regulatory authorities, the Audit Committee must pre-approve all audit and non-audit services to be provided by the independent auditor.
Fees payable to Deloitte LLP for the years ended December 31, 2016, and December 31, 2015, totaled $2,861,400 and $3,589,300, respectively, as detailed in the following table:
For the year ended December 31 | Total 2016 ($) | Total 2015 ($) | ||||||
Audit Fees | 2,398,500 | 2,741,100 | ||||||
Audit-Related Fees | 289,800 | 525,500 | ||||||
Tax Fees | 147,000 | 322,700 | ||||||
All Other Fees | 26,100 | — | ||||||
TOTAL | 2,861,400 | 3,589,300 |
The nature of the services provided under each of the categories indicated in the table is described below.
Audit Fees
Audit fees were for professional services rendered for the audit and interim reviews of CP’s annual financial statements and services provided in connection with statutory and regulatory filings or engagements, including the attestation engagement for the report from the independent registered public accounting firm on the effectiveness of internal controls over financial reporting, the audit or interim reviews of financial statements of certain subsidiaries and of various pension and benefits plans of CP; special attestation services as may be required by various government entities; and general advice and assistance related to accounting and/or disclosure matters with respect to new and proposed U.S. accounting standards, securities regulations, and/or laws.
Audit-Related Fees
Audit-related fees were for assurance and related services reasonably related to the performance of the audit or review of the annual financial statements, but which are not reported under “Audit Fees” above. These services consisted of audit work related to securities filings; compliance review of third-party agreement; refinancing of subsidiary companies; and accounting training.
Tax Fees
Tax fees were for professional services related to tax compliance, tax planning and tax advice. These services consisted of: tax compliance including the review of tax returns; assistance with questions regarding corporate tax audits; tax planning and advisory services relating to common forms of domestic and international taxation (i.e. income tax, capital tax, goods and services tax, and value added tax); and access fees for taxation database resources.
18 | CANADIAN PACIFIC | BUSINESS OF THE MEETING |
All Other Fees
Fees disclosed under this category would be for products and services other than those described under “Audit Fees”, “Audit-Related Fees” and “Tax Fees” above. These services relate to assistance with an insurance loss claim in 2016. There were no such services in 2015.
3. ADVISORY VOTE TO APPROVE COMPENSATION OF NAMED EXECUTIVE OFFICERS
In accordance with the Exchange Act of 1934 (the “Exchange Act”) and a related U.S. Securities and Exchange Commission (“SEC”) rule, we are providing shareholders with the opportunity to vote for or against, on a non-binding advisory basis, the compensation of our Named Executive Officers (“NEOs”) as disclosed in this proxy statement, commonly known as “say-on-pay”. As this is an advisory vote, the results will not be binding on the Board. However, when considering the Corporation’s approach to compensation for our NEOs, the Board will take into account the results of this vote, together with other shareholder feedback and best practices in compensation and governance. In 2016 the shareholders of the Corporation approved the holding of this vote on an annual basis.
Canadian Pacific is committed to providing shareholders with clear, comprehensive and transparent disclosure on executive compensation. For information on Canadian Pacific’s approach to executive compensation and what the Board has done since the last annual meeting, refer to the message from the Chair of the Management Resources and Compensation Committee beginning on page 5 and information under the heading “ Executive Compensation Summary” and “Compensation Discussion and Analysis” beginning on page 49.
The Compensation Committee has spent considerable time and effort recruiting top-level talent and developing our executive compensation program to fit extraordinary circumstances. The Board believes that the executive compensation program that has been implemented achieves the goal of maximizing long-term shareholder value while attracting, motivating and retaining world-class talent. We recognize that the proper structure of executive compensation is critical to both managing risk and appropriately incentivizing our NEOs. We have been successful in recruiting individuals with unique and demonstrated abilities to improve railway performance, and shareholders have enjoyed extraordinary results. We believe that our approach to executive compensation is fair and balanced, and creates incentives for our NEOs that are well-aligned with shareholders’ interests over the long-term.
The Board recommends that shareholders vote FOR the resolution set out below and, unless otherwise instructed, the persons designated in the form of proxy or the voting instruction form intend to vote FOR the following resolution:
“RESOLVED, on an advisory basis and not to diminish the role and responsibilities of the Board of Directors, that the shareholders approve the compensation of the Named Executive Officers of Canadian Pacific as disclosed in the Corporation’s proxy statement (which disclosure includes the Compensation Discussion and Analysis, the compensation tables, and the narrative disclosures that accompany the compensation tables) delivered in advance of the 2017 annual meeting of shareholders in accordance with the compensation disclosure rules of the SEC and Canadian securities regulatory authorities.”
Vote Required for Approval
In order to be approved, the advisory resolution on the compensation of our NEOs requires an affirmative vote of the majority of the votes duly cast at the Meeting.
4. ELECTION OF DIRECTORS
Directors are elected annually by shareholders, each to hold office until the close of the next annual meeting of shareholders or until such person’s successor is elected or appointed. Between shareholder meetings, the Board may appoint additional directors.
Our governing documents provide that the Board shall consist of a minimum of five and a maximum of 20 directors. The Corporate Governance and Nominating Committee (the “Governance Committee”), with the assistance of an external search consultant if necessary, identifies and recommends to the Board the proposed nominees for appointment or election at each annual meeting of shareholders consistent with criteria approved by the Board. For additional information refer to “Statement of Corporate Governance – Nomination of Directors” on page 36.
CP is committed to Board diversity. In determining qualified nominees for election as directors of CP, the Governance Committee takes into account diversity considerations such as gender, age, cultural heritage and regional representation of candidates in order to ensure that the Board reflects the gender, age, cultural and geographic representation of the regions in which CP operates.
Pursuant to a resolution of the Board, 10 persons are to be elected as directors at the Meeting, each to hold office until the close of the next annual meeting of shareholders unless he or she resigns or is otherwise removed from office earlier. The persons named in the section “Nominees for Election to the Board” (the “Nominees”) beginning on page 21 will be presented for election at the Meeting.
The Board recommends that you voteFOR each of the Nominees. Unless otherwise instructed, the persons designated in the form of proxy and the voting instruction form intend to voteFOR the election of the Nominees. If, prior to the Meeting, any of the Nominees becomes unable or unwilling to serve, the persons designated in the form of proxy or voting instruction form will have the right to use their discretion in voting for such other properly qualified nominees.
Vote Required for Approval
The 10 Nominees receiving the highest number of FOR votes cast in person or by proxy at the Meeting will be elected to the Board.
BUSINESS OF THE MEETING | 2017 MANAGEMENT PROXY STATEMENT | 19 |
Majority Voting Policy
CP has in place a Majority Voting Policy. Pursuant to the Majority Voting Policy, if a Nominee receives more “withheld” votes than “for” votes at the Meeting, he or she will be required to immediately tender his or her resignation. The Board would then determine, within 90 days of the Meeting, whether to accept or reject the resignation. Other than in extraordinary circumstances, the Board would accept a resignation under the Majority Voting Policy. For additional information refer to “Statement of Corporate Governance – Nomination of Directors” on page 36.
Advance Notice of Director Nominations
At the annual meeting of shareholders held on May 14, 2015, CP’s shareholders approved and adopted By-Law No. 2 of the Company (the “Advance Notice By-Law”), which establishes a framework for advance notice of nominations of directors by the shareholders of CP. Pursuant to the Advance Notice By-Law, if a shareholder intends to nominate a person for election as a director of CP at the Meeting, other than pursuant to a shareholder proposal, as described above, such nominations must comply with the procedures set out the Advance Notice By-Law, including providing written notice to the Corporation setting forth information about each proposed nominee not later than April 10, 2017. A copy of the Advance Notice By-Law was filed on SEDAR and EDGAR on Form 6-K on March 13, 2015.
20 | CANADIAN PACIFIC | BUSINESS OF THE MEETING |
NOMINEES FOR ELECTION TO THE BOARD
INTRODUCTION
The Board is elected by shareholders to oversee the management of the Company and to ensure that the long-term interests of the shareholders are served. The Board is the ultimate decision-making authority within the Company except with respect to matters, such as the election of the directors, that are reserved for the Company’s shareholders.
Since the last annual meeting of shareholders there have been numerous changes to the Board. Since the last annual shareholders meeting, Dr. Anthony Melman and Mr. William Ackman resigned from the Board in order to allow them to focus on other interests and Mr. E. Hunter Harrison resigned from the Board concurrently with his retirement as CP’s Chief Executive Officer. Additionally, the Board, through the Governance Committee, engaged in a Board renewal project, in order to continue the transition of CP that began in 2012. This renewal resulted in the appointment of four new directors to the Board; Ms. Jill Denham and Mr. William R. Fatt on September 6, 2016, Ms. Jane Peverett on December 13, 2016 and Mr. Gordon T. Trafton II on January 1, 2017. Each of these individuals brings extensive and unique business experience to the Board.
To ensure the proper stewardship of CP, the Board needs to operate independently and needs to have the correct mix of relevant skills and experience, including industry knowledge, financial and accounting expertise, strategic planning, human resources and executive compensation experience and expertise in risk management, to understand and address the business challenges facing the Company. An effective Board also needs to include sufficiently diverse opinions and viewpoints, which is encouraged by having diversity of gender, age, cultural heritage and geographical representation. We believe that the Nominees meet all of the requirements. For additional information on the Nominees’ skills and experience considered by the Company, see “Director Skills Matrix” on page 37. For additional information of diversity at CP, see “Statement of Corporate Governance – Diversity at CP” on page 32.
BOARD SIZE AND TENURE
CP’s governing documents provide for the Board to consist of a minimum of five and a maximum of 20 directors. The Governance Committee assesses the optimal size annually, and believes the current size is appropriate for the Board to fulfill its responsibilities.
As of March 15, 2017 the average tenure of CP’s Board is two years, with three directors having tenure of greater than three years and seven directors having tenure of less than or equal to three years.
Gender | Age | Tenure | ||
DIRECTOR OVERBOARDING
Director overboarding refers to the situation where a director sits on an excessive number of boards, which could result in excessive time commitments and an inability to fulfill their duties. The Board of CP addresses the matter of overboarding on a case-by-case basis. Prior to the recommendation of a director candidate, the Governance Committee reviews the number of public company boards that the candidate sits on and considers whether those commitments would create additional risk that the candidate would be unable to fulfill the significant commitment required to sit on the Company’s Board. Additionally, prior to any director of CP joining another Board, they are required to advise the Chairman of the Board and the Chair of the Governance Committee in order to ensure that the director will continue to provide the expected level of commitment to CP.
CP takes the policy guidelines of proxy advisory firms in both Canada and the United States into account when considering director candidates, during the Board’s annual review process and in the event that a current director is considering an additional outside board position. None of the Director Nominees are overboarded pursuant to these policies.
NOMINEES FOR ELECTION TO THE BOARD | 2017 MANAGEMENT PROXY STATEMENT | 21 |
The Corporation considers an outside board to be any board of directors of a public company other than Canadian Pacific Railway Limited or its wholly owned subsidiary, Canadian Pacific Railway Company (“CPRC”). CPRC is the principal operating entity of CP in Canada and directly or indirectly owns all of the voting shares of all of CP’s other subsidiaries. All of the directors of the Corporation are also directors of CPRC and the two Boards meet concurrently. CPRC is a reporting issuer in Canada due to its outstanding debt securities.
No Director Nominee has attended less than 95% of the Board and Committee meetings held and, while CP maintains vigorous standards with respect to each directors’ engagement, there have not been any concerns raised by the Board or management with respect to the Director Nominees’ ability to fulfill their duties to CP.
DIRECTOR ATTENDANCE
Regularly scheduled Board and committee meeting dates are established approximately two years in advance. Special meetings are also scheduled as needed and these meetings can be called on short notice. In 2016, the Board called twelve unscheduled meetings, the Finance Committee called one unscheduled meeting, the Compensation Committee called two unscheduled meetings and the Governance Committee called two unscheduled meetings.
Directors are expected to attend all regularly scheduled Board meetings and meetings of committees on which they serve and to exercise best efforts to attend all special meetings. All directors are also invited to attend all of the regularly scheduled meetings of the committees. In 2016, the incumbent Nominees attended 99% of all Board and Committee meetings, as set forth below. Additionally, the independent directors met in executive sessions without management present at each of the regular meetings of the Board in 2016.
Board and committee meeting materials are typically provided to the directors in advance of meetings. If a director is unable to attend a meeting, the director provides his or her comments to the Chair, Chair of the committee or the Corporate Secretary in advance of the meeting, and the recipient will ensure those comments and views are considered at the meeting.
The following table is a summary of each incumbent Nominee’s attendance at Board and committee meetings in 2016:
Director | Board Meetings Attended | Committee Meetings Attended | Total Meetings Attended | |||||
J.R. Baird | 17 of 17 | 12 of 12 | 29 of 29 | 100% | ||||
I. Courville | 17 of 17 | 12 of 12 | 29 of 29 | 100% | ||||
K.E. Creel | 17 of 17 | N/A | 17 of 17 | 100% | ||||
G.H. Denham(1) | 5 of 5 | 4 of 4 | 9 of 9 | 100% | ||||
W.R. Fatt(1) | 5 of 5 | 4 of 4 | 9 of 9 | 100% | ||||
R. MacDonald | 16 of 17 | 12 of 12 | 28 of 29 | 97% | ||||
M.H. Paull(2) | 13 of 14 | 8 of 8 | 21 of 22 | 95% | ||||
J.L. Peverett(3) | 1 of 1 | N/A | 1 of 1 | 100% | ||||
A.F. Reardon (Chair) | 17 of 17 | 19 of 19 | 36 of 36 | 100% | ||||
G.T. Trafton II(4) | N/A | N/A | N/A | N/A | ||||
Totals | 108 of 110 | 71 of 71 | 179 of 181 | 99% |
(1) | Ms. Denham and Mr. Fatt were appointed to the Board on September 6, 2016. |
(2) | Mr. Paull was unable to attend one unscheduled meeting of the Board as adequate notice of at least 24 hours was not provided. Mr. Paull was updated on the nature and business of the meeting and waived notice to allow the meeting to proceed. |
(3) | Ms. Peverett was appointed to the Board on December 13, 2016. |
(4) | Mr. Trafton was appointed to the Board on January 1, 2017. |
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DIRECTOR NOMINEE PROFILES
The following tables provide information on the Nominees. Included in these tables is information relating to the Nominees’ current membership on committees of the Board and other public company directorships held in the past five years. The profiles also show the present principal occupation and principal occupations held in the past five years, if different. In addition, the profiles show securities of CP held as of March 15, 2017 by each of the Nominees, and whether they meet or exceed minimum shareholding requirements. Certain other personal information is also included.
Toronto, Ontario Canada
Director since May 14, 2015
2016 annual meeting votes in favour:96.5% | The Hon. John Baird, P.C. Age: 47 Independent | |||||||||||
The Honourable John Baird served as Canadian Foreign Minister, Minister of Transport and Infrastructure, Minister of the Environment, and President of the Treasury Board during his three terms as a Member of the Canadian Parliament. Previously, he served three terms in the Ontario Provincial Legislature as Minister of Community and Social Services and Minister of Energy.
Mr. Baird has been a Senior Advisor at the law firm of Bennett Jones LLP since 2015. He also serves on the Board of Directors of Canfor Corporation, Canfor Pulp Products Inc., PineBridge Investments and the FWD Group and is a member of the International Advisory Board of Barrick Gold.
Mr. Baird holds an Honours Bachelor of Arts degree in Political Studies from Queen’s University at Kingston. He was appointed to the Privy Council in 2006.
Mr. Baird also volunteers his time with Community Living Ontario, an organization that supports individuals with developmental disabilities, the Prince’s Charities, the charitable office of His Royal Highness The Prince of Wales, and is a board member of the Friends of Israel Initiative.
Mr. Baird brings senior level executive experience in public policy and regulatory affairs to the Board, especially in the areas of transport, environment, and Canada – U.S. relations. | ||||||||||||
Overall attendance in 2016: 100% | ||||||||||||
Public company directorships in the past five years | Current board committee memberships | |||||||||||
CPRC | 2015 – present | |||||||||||
Canfor Corporation | 2016 – present | EH&S and Capital Expenditure Committees | ||||||||||
Canfor Pulp Products Inc. | 2016 – present | EH&S and Capital Expenditure Committees | ||||||||||
Securities held as at March 15, 2017(a) | ||||||||||||
Shares | DDSUs | Options | Meets or exceeds minimum shareholding requirements | |||||||||
0 | 2,121 | 0 | To be fully met by May 2020 |
NOMINEES FOR ELECTION TO THE BOARD | 2017 MANAGEMENT PROXY STATEMENT | 23 |
Rosemère, Québec Canada
Director since May 1, 2013
2016 annual meeting votes in favour:94.4% | Isabelle Courville Age: 54 Independent | |||||||||||||
Ms. Courville is a corporate director. She is Chair of the Board of Directors of the Laurentian Bank of Canada, and a director of Veolia Environment and Gecina SA. From 2007 to 2013, she was President of Hydro-Québec Distribution and Hydro-Québec TransÉnergie. Ms. Courville was active for 20 years in the Canadian telecommunications industry. She served as President of Bell Canada’s Enterprise Group and as President and Chief Executive Officer of Bell Nordiq Group.
Ms. Courville holds a Bachelor’s degree in Engineering Physics from Polytechnique Montréal and a Bachelor’s degree in Civil Law from McGill University.
Ms. Courville sits on the Board of Directors of the Institute of Corporate Directors (ICD) and the Board of Directors of the Institute for Governance of Private and Public Organizations (IGOPP).
Ms. Courville brings to the Board significant executive level management experience including financial and legal expertise. | ||||||||||||||
Overall attendance in 2016: 100% | ||||||||||||||
Public company directorships in the past five years(c) | Current board committee memberships | |||||||||||||
CPRC | 2013 – present | |||||||||||||
Laurentian Bank of Canada | 2007 – present | Board Chair, Human Resources and Governance Committee | ||||||||||||
Veolia Environment | 2015 – present | |||||||||||||
Gecina S.A. | 2016 – present | Audit Committee | ||||||||||||
Miranda Technologies Inc. | 2006 – 2012 | |||||||||||||
TVA Group | 2013 – 2016 | |||||||||||||
Securities held as at March 15, 2017(a) | ||||||||||||||
Shares | DDSUs | Options | Meets or exceeds minimum shareholding requirements | |||||||||||
900 | 5,672 | 0 | Yes |
Chicago, Illinois U.S.A.
Director since May 14, 2015
2016 annual meeting votes in favour:98.0% | Keith E. Creel Age: 48 Not Independent | |||||||||||||
Mr. Creel was appointed CP’s President and Chief Executive Officer on January 31, 2017, becoming the 17th person to lead the Company since 1881. Mr. Creel was appointed President and Chief Operating Officer of the Company in February 2013.
Prior to joining CP, Mr. Creel was Executive Vice-President and Chief Operating Officer at Canadian National Railway Company. He held various positions at CN including Executive Vice-President, Operations, Senior Vice-President Eastern Region, Senior Vice-President Western Region, and Vice-President of CN’s prairie division.
Mr. Creel began his railroad career at Burlington Northern Railway in 1992 as an intermodal ramp manager in Birmingham, Alabama. He also spent part of his career at Grand Trunk Western Railroad as a superintendent and general manager and at Illinois Central Railroad as a trainmaster and director of corridor operations, prior to its merger with CN in 1999.
Mr. Creel obtained a Bachelor of Science in Marketing from Jacksonville State University. He also completed the Advanced Management Program at the Harvard Business School. Mr. Creel has a military background as a commissioned officer in the U.S. Army, during which time he served in the Persian Gulf War in Saudi Arabia. Recognized for his leadership at CP, Mr. Creel was named by Progressive Railroading as “Railroad Innovator” for 2014.
Mr. Creel brings to the Board extensive railroad operating experience, combined with significant expertise in executive management and marketing and sales. | ||||||||||||||
Overall attendance in 2016: 100% | ||||||||||||||
Public company directorships in the past five years |
| Current board committee memberships | ||||||||||||
CPRC | 2013 – present | |||||||||||||
Securities held as at March 15, 2017(a)(b) | ||||||||||||||
Shares | DSUs | Options | Meets or exceeds minimum shareholding requirements | |||||||||||
1,995 | 30,935 | 579,546 | Yes |
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Toronto, Ontario Canada
Director since September 6, 2016
2016 annual meeting votes in favour:N/A | Gillian (Jill) H. Denham Age: 56 Independent | |||||||||||||
Ms. Denham is a corporate director. She is Chair of the board of directors of Morneau Shepell Inc., a company that provides human resource consulting and outsourcing services. She is also the chair of Munich Reinsurance Company of Canada and Temple Insurance Company. Ms. Denham also currently serves on the board of directors of Kinaxis Inc. and National Bank.
Ms. Denham spent her career at Wood Gundy and CIBC. She has held senior positions in investment banking, was President of Merchant Banking/ Private Equity and had responsibility for the bank’s European Operations. She was also head of the Retail Bank for CIBC.
Ms. Denham holds an Honours Business Administration (HBA) degree from the Ivey Business School, Western University, and an MBA from Harvard Business School.
Ms. Denham is a member of the board of governors and chair of the Finance & Audit Sub-Committee of Upper Canada College and a board member and chair of the Investment Committee of CAMH (Centre for Addiction and Mental Health).
Ms. Denham brings to the Board significant experience in the areas of finance, corporate governance, human resources and executive management. | ||||||||||||||
Overall attendance in 2016: 100% | ||||||||||||||
Public company directorships in the past five years | Current board committee memberships | |||||||||||||
CPRC | 2016 – present | |||||||||||||
Kinaxis Inc. | 2016 – present | Nominating and Governance and Audit Committees | ||||||||||||
National Bank of Canada | 2010 – present | HR Committee | ||||||||||||
Morneau Shepell Inc. | 2010 – present | Board Chair and Audit Committee | ||||||||||||
Markit Ltd. | 2014 – 2016 | |||||||||||||
Penn West Petroleum | 2012 – 2016 | |||||||||||||
Calloway Real Estate Investment Trust | 2011 – 2012 | |||||||||||||
Securities held as at March 15, 2017(a) | ||||||||||||||
Shares | DDSUs | Options | Meets or exceeds minimum shareholding requirements | |||||||||||
0 | 386 | 0 | To be fully met by September 2021 |
Toronto, Ontario Canada
Director since September 6, 2016
2016 annual meeting votes in favour:N/A | William R. Fatt Age: 66 Independent | |||||||||||
Mr. Fatt is a corporate director. He is the former Chairman and Chief Executive Officer of FRHI Hotels & Resorts. He is currently a member of the board of directors of The Jim Pattison Group Inc. and the Bank of Nova Scotia. Previously, Mr. Fatt was Chairman of the Board of Cadillac Fairview Corporation and a director of Encana Corporation, Sun Life Financial Inc. and Enbridge Inc.
Mr. Fatt holds a B.A. (Economics) from York University.
Mr. Fatt brings to the Board over 30 years of finance, investment, capital markets and international experience. | ||||||||||||
Overall attendance in 2016: 100% | ||||||||||||
Public company directorships in the past five years | Current board committee memberships | |||||||||||
CPRC | 2016 – present | |||||||||||
Bank of Nova Scotia | 2015 – present | Audit and Human Resources Committees | ||||||||||
Securities held as at March 15, 2017(a) | ||||||||||||
Shares | DDSUs | Options | Meets or exceeds minimum shareholding requirements | |||||||||
0 | 435 | 0 | To be fully met by September 2021 | |||||||||
NOMINEES FOR ELECTION TO THE BOARD | 2017 MANAGEMENT PROXY STATEMENT | 25 |
North York, Ontario Canada
Director since May 17, 2012
2016 annual meeting votes in favour:96.4% | Rebecca MacDonald Age: 63 Independent | |||||||||||
Ms. MacDonald is a founder and current Executive Chair of Just Energy Group Inc., a Toronto-based independent marketer of deregulated gas and electricity. Ms. MacDonald has been a director of Just Energy since 2001 and has held the position of Executive Chair since 2007. She served as President and Chief Executive Officer of Just Energy prior to becoming Executive Chair in 2007. In 1989, Ms. MacDonald founded Energy Marketing Inc., and in 1995 founded another company which aggregated customers within the U.K. natural gas deregulation.
Ms. MacDonald serves as a member of the Board of the Horatio Alger Association in both Canada and the United States. She founded the Rebecca MacDonald Centre for Arthritis and Autoimmune Disease at Mount Sinai Hospital in Toronto.
Ms. MacDonald holds an honorary LLD degree from the University of Victoria.
Ms. MacDonald brings to the Board extensive executive management, marketing and sales and corporate governance experience. | ||||||||||||
Overall attendance in 2016: 97% | ||||||||||||
Public company directorships in the past five years | Current board committee memberships | |||||||||||
CPRC | 2012 – present | |||||||||||
Just Energy Group Inc. | 2001 – present | |||||||||||
Securities held as at March 15, 2017(a) | ||||||||||||
Shares | DDSUs | Options | Meets or exceeds minimum shareholding requirements | |||||||||
0 | 7,939 | 0 | Yes |
Wilmette, Illinois U.S.A
Director since January 26, 2016
2016 annual meeting votes in favour:99.7% | Matthew H. Paull Age: 65 Independent | |||||||||||||
Mr. Paull is a corporate director. He currently serves as a director of Chipotle Mexican Grill Inc., Air Products & Chemicals Corporation, and KapStone Paper and Packaging Corporation, and was previously the lead independent director of Best Buy Co. and chair of its finance committee and a director of WMS Industries Inc. He is also a member of the Advisory Board of Pershing Square Capital Management, L.P.
Mr. Paull was Senior Executive Vice President and Chief Financial Officer of McDonald’s Corporation from 2001 until he retired from that position in 2008. Prior to joining McDonald’s in 1993, he was a partner at Ernst & Young where he managed a variety of financial practices during his 18-year career and consulted with many leading multinational corporations.
He holds a Master’s degree in Accounting and a Bachelor’s degree from the University of Illinois.
Mr. Paull brings to the Board significant financial expertise with a deep understanding of financial markets, corporate finance, accounting and controls, and investor relations. As a former chief financial officer of a multinational corporation, he also has extensive experience in international operations and marketing. | ||||||||||||||
Overall attendance in 2016: 95% | ||||||||||||||
Public company directorships in the past five years | Current board committee memberships | |||||||||||||
CPRC | 2016 – present | |||||||||||||
Chipotle Mexican Grill Inc. | 2016 – present | |||||||||||||
Air Products & Chemicals Corporation | 2013 – present | Audit (Chair), Corporate Governance and Nominating and Executive Committees | ||||||||||||
KapStone Paper and Packaging Corporation | 2010 – present | Audit (Chair) and Compensation Committee | ||||||||||||
Best Buy Co. | 2003 – 2013 | |||||||||||||
WMS Industries Inc. | 2012 – 2013 | |||||||||||||
Securities held as at March 15, 2017(a) | ||||||||||||||
Shares | DDSUs | Options | Meets or exceeds minimum shareholding requirements | |||||||||||
1,000 | 1,812 | 0 | To be fully met by January 2021 |
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Vancouver, British Columbia Canada
Director since December 13, 2016
2016 annual meeting votes in favour:N/A | Jane Peverett Age: 58 Independent | |||||||||||||
Ms. Peverett is a Corporate Director. She is a director of Hydro One Limited (a public utility company), Northwest Natural Gas Company (a public natural gas distribution company), Canadian Imperial Bank of Commerce (one of Canada’s largest banks), Associated Electric & Gas Insurance Services Limited (a private mutual insurance company), and Encana Corp.
Ms. Peverett was President & Chief Executive Officer of BC Transmission Corporation (electrical transmission) from April 2005 to January 2009 and was previously Vice-President, Corporate Services and Chief Financial Officer (from June 2003 to April 2005). She was the President of Union Gas Limited (a natural gas storage, transmission and distribution company) from April 2002 to May 2003, President & Chief Executive Officer from April 2001 to April 2002, Senior Vice-President Sales & Marketing from June 2000 to April 2001 and Chief Financial Officer from March 1999 to June 2000.
Ms. Peverett holds a Bachelor of Commerce degree from McMaster University and a Master of Business Administration degree from Queen’s University. She is a Certified Management Accountant and a Fellow of the Society of Management Accountants.
Ms. Peverett brings to the Board significant board and senior management experience, as well as extensive knowledge of and training in the areas of finance, accounting and corporate governance. | ||||||||||||||
Overall attendance in 2016: 100% | ||||||||||||||
Public company directorships in the past five years | Current board committee memberships | |||||||||||||
CPRC | 2016 – present | |||||||||||||
CIBC | 2009 – present | Audit Committee (Chair) | ||||||||||||
Hydro One Inc. | 2015 – present | HR and Nominating Public Policy & Regulatory (Chair) Committees | ||||||||||||
Northwest Natural Gas Company | 2007 – present | Organization and Executive Compensation, Public Affairs and Environmental Policy | ||||||||||||
Encana Corp.(d) | 2003 – present | Audit (Chair), Nominating and Corporate Governance, Reserves Committees | ||||||||||||
Postmedia Network Canada Corp. | 2013 – 2016 | |||||||||||||
Securities held as at March 15, 2017(a) | ||||||||||||||
Shares | DDSUs | Options | Meets or exceeds minimum shareholding requirements | |||||||||||
0 | 62 | 0 | To be fully met by December 2021 |
Marco Island, Florida U.S.A.
Director since May 1, 2013
2016 annual meeting votes in favour:99.7% | Andrew F. Reardon Age: 71 Independent | |||||||||||
Mr. Reardon has been the Chairman of the Board of CP since July 20, 2015. He was an attorney at the law firm of Reardon & Chasar, LPA, which he co-founded in 2009 until he retired in December 2011. Prior to that, Mr. Reardon served as Chairman and Chief Executive Officer, and President and Chief Executive Officer from 2001 to 2008, and Vice-President, Law and Human Resources from 1992 to 2000 of TTX Company, the leading railcar leasing company in North America. Previously, he was a Presidential Appointee to the Railroad Retirement Board and was the Senior Vice-President, Law and Administration for Illinois Central Railroad. From 2007 to 2015, Mr. Reardon served as a director of Appvion Inc. where he served on the Compensation Committee and as Chair of the Governance Committee.
Mr. Reardon was a Presidential Appointee confirmed by the U.S. Senate from 1990-1992. He has also served on various railroad industry boards including TTX, Terminal Railroad Association of St. Louis, and the Peoria and Pekin Union Railway.
Mr. Reardon holds a Bachelor’s Degree from the University of Notre Dame, a Juris Doctor Degree from the University of Cincinnati and a Master’s Degree in Taxation from Washington University Law School. He served as an officer in the United States Navy from 1967 to 1971.
Mr. Reardon brings to the Board extensive experience relating to executive management, law, corporate governance and the rail industry. | ||||||||||||
Overall Attendance in 2016: 100% | ||||||||||||
Public company directorships in the past five years | Current board committee memberships | |||||||||||
CPRC | 2013 – present | |||||||||||
Appvion Inc. | 2007 – 2015 | |||||||||||
Securities held as at March 15, 2017(a) | ||||||||||||
Shares | DDSUs | Options | Meets or exceeds minimum shareholding requirements | |||||||||
4,031 | 8,042 | 0 | Yes |
NOMINEES FOR ELECTION TO THE BOARD | 2017 MANAGEMENT PROXY STATEMENT | 27 |
Naperville, Illinois U.S.A.
Director since January 1, 2017
2016 annual meeting votes in favour:N/A | Gordon T. Trafton II Age: 63 Independent | |||||||||||||
In 2010, Mr. Trafton retired from his position of Special Advisor to the CN leadership team. From 2003 to 2009, he successively served as CN’s Senior Vice President Southern Region and Senior Vice President Strategic Acquisitions and Integration. Before joining CN, he held a number of leadership positions with Illinois Central Railroad and Burlington Northern Railroad.
Mr. Trafton holds a Bachelor of Science, Transportation Management from the Leeds School of Business at the University of Colorado Boulder and now serves as Chairman of the Leeds School of Business Board of Alumni and Friends, and as a board member for the nonprofit City Year in Denver. Over the past six years, he has served on three additional nonprofit education boards.
Mr. Trafton brings to the Board extensive experience in the rail industry at the executive level, including with respect to rail operations, sales and marketing and risk management. | ||||||||||||||
Overall Attendance in 2016: N/A | ||||||||||||||
Public company directorships in the past five years |
| Current board committee memberships | ||||||||||||
CPRC | 2017 – present | |||||||||||||
Securities held as at March 15, 2017(a) | ||||||||||||||
Shares | DDSUs | Options | Meets or exceeds minimum shareholding requirements | |||||||||||
0 | 0 | 0 | To be fully met by January 2022 |
Notes:
a. | Securities held include Shares beneficially owned or controlled or held directly or indirectly by each director. |
b. | Deferred share units were granted to Mr. Creel pursuant to the Executive Deferred Share Unit Plan. Options granted to Mr. Creel were granted pursuant to a stand-alone option agreement and pursuant to the Management Stock Option Incentive Plan. |
c. | Ms. Courville has advised that she will stand for election on the board of directors of SNC-Lavalin in May 2017 and if elected to that board of directors, that she will not stand for re-election to the board of directors of one of her other current boards at that company’s 2018 annual meeting of shareholders. |
d. | Ms. Peverett has advised that she will not be standing for re-election to the board of directors of Encana at that company’s 2017 annual meeting of shareholders. |
e. | Other than as disclosed herein, none of the Nominees is, or has been in the last 10 years: (a) a director, chief executive officer or chief financial officer of any company that: (i) was subject to a cease trade order or similar order or an order that denied the issuer access to any exemptions under securities legislation, for a period of more than 30 consecutive days, that was issued while the proposed director was acting in that capacity; or (ii) was subject to a cease trade or similar order or an order that denied the issuer access to any exemption under securities legislation, for a period of more than 30 consecutive days, that was issued after the proposed director ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer; (b) a director or executive officer of any company that, while that proposed director was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or (c) become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold their assets. |
Ms. Denham, served as a director of Penn West Petroleum between June 2012 and June 2016. Penn West Petroleum was subject to cease trade orders on its securities subsequent to the announcement in July 2014 of the review of its accounting practices and restatement of its financial statements. Those cease trade orders ceased effect as of September 23, 2014.
Ms. Peverett was a director of Postmedia Network Canada Corp. (“Postmedia”) between April 2013 and January 2016. On October 5, 2016, Postmedia completed a recapitalization transaction pursuant to a court-approved plan of arrangement under the Canada Business Corporations Act under which approximately US$268.6 million of debt was exchanged for shares that represented approximately 98% of the outstanding shares at that time; and Postmedia repaid, extended and amended the terms of its outstanding debt obligations.
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STATEMENT OF CORPORATE GOVERNANCE
BOARD OF DIRECTORS
•CP’s Board is dedicated to maintaining the highest standards of corporate governance and to nurturing a culture of good business ethics and corporate governance throughout the organization | |
•CP’s philosophy is that effective governance involves more than policies, procedures and protocols; it must be ingrained in the everyday business practices of all those who work for CP | |
•CP’s Board of Directors represents Company, shareholder and other stakeholder interests | |
•The Board is responsible for CP’s long-term strategic direction, succession plans for senior officers and risk management oversight |
The Board and management believe that good corporate governance practices are essential to the effective management of CP and to the protection of its investors, employees and other stakeholders. The Board has developed Corporate Governance Principles and Guidelines (“Governance Guidelines”), available on our website at www.cpr.ca, which set out the Corporation’s governance standards and requirements. CP’s corporate governance practices fully comply with or exceed the requirements of the Canadian Securities Administrators (“CSA”) National Policy 58-201 Effective Corporate Governance, item 407 of Regulation S-K of the SEC and the corporation governance guidelines of the New York Stock Exchange.
The Board has adopted standards for director independence, which are provided in Schedule “C” of this Proxy Statement. The Board annually conducts a comprehensive assessment of each of its members as against these standards and has determined that a majority of the directors of CP have no material relationship with CP and are independent.
Independent Directors
•All current directors are independent, with the exception of the President and CEO |
•The roles of Chairman and CEO are separate |
•There are no interlocking directorships at other public companies |
The Board has adopted standards for director independence based on criteria of the NYSE, SEC and CSA. The Board annually conducts, through a combination of questionnaires, biographical reviews and discussions, a comprehensive assessment of all business and other relationships and interests of each director vis-à-vis the Corporation and its subsidiaries and has determined that each director, except for Mr. Keith Creel, is independent of the Corporation in accordance with the standards for independence established by the NYSE, and NI 58-101 Disclosure of Governance Practices and that each member of the Audit Committee meets the additional independence standards established for audit committee members under Section 10A(m)(3) and Rule 10A-3(b)(1) of the Exchange Act, and NI 52-110 Audit Committees. Mr. Creel is not independent by virtue of the fact that he is the President and Chief Executive Officer of the Corporation.
Other Board Memberships and Interlocks
Several of the directors of CP are also directors of other public companies. Information regarding the other public company directorships of the Director Nominees can be found under each of their biographies under the heading “Nominees for Election to the Board – Director Nominee Profiles” beginning on page 23. The Governance Committee considers it to be good governance to avoid interlocking relationships if possible. No CP Board Members sit on the same board of directors of any outside public company.
Independent Chair
The Chairman of the Board, Mr. Reardon, is an independent director. He has served as Chairman of the Board since July 20, 2015. The Chairman of the Board presides at meetings of shareholders and directors. He also serves as an advisor to the CEO and other members of senior management. His mandate provides, among other things, that he is responsible for establishing and ensuring:
STATEMENT OF CORPORATE GOVERNANCE | 2017 MANAGEMENT PROXY STATEMENT | 29 |
Executive Sessions
The Board holds two in-camera executive sessions at each regularly scheduled meeting, the first includes the President and CEO, and then a second that includes only independent directors. Additionally, the Audit Committee and the Compensation Committee include at least one executive session of independent directors at the beginning and/or end of each meeting. Other standing committees determine at each regularly scheduled and ad-hoc meeting whether an executive session is necessary. At each executive session, the Chairman of the Board or the independent Chair of the applicable committee presides over the executive session.
Access to Independent Advisors
The Board and its committees have the authority to retain independent financial, legal, compensation and other advisors.
Director Attendance
Each director is expected to attend each meeting of the Board and the Board committees of which he or she is a member. The attendance record of each incumbent Nominee for all Board and committee meetings held in 2016 is set out under “Nominees for Election to the Board – Director Attendance” on page 22. In addition, regularly scheduled Board and committee meetings are held sequentially and all directors are invited to attend each of the committee meetings.
COMMITTEES OF THE BOARD
•Committees of the Board assist CP’s Board in fulfilling its responsibilities and duties |
•Fully independent Audit, Compensation, Finance and Governance committees |
The Board fulfills its responsibility for the overall oversight of the Company, in part, through the activities of its four Committees. The responsibilities of the Committees are summarized below.
CP’s Board has approved and annually reviews and revises where necessary the terms of reference for each of the Committees as well as written position descriptions for the independent Chairman of the Board, Committee Chairs, and CEO. These documents are available at http://www.cpr.ca.
The Board’s four Committees are comprised solely of directors who are independent and directors who are not independent do not participate in selecting members.
30 | CANADIAN PACIFIC | STATEMENT OF CORPORATE GOVERNANCE |
The following table sets out committee members as at March 15, 2017:
Director | Independent | Audit Committee | Governance Committee | Finance Committee | Compensation Committee | |||||||||||||||
J.R. Baird | ✓ | |||||||||||||||||||
I. Courville | ✓ | |||||||||||||||||||
K.E. Creel | ||||||||||||||||||||
G.H. Denham | ✓ | |||||||||||||||||||
W.R. Fatt | ✓ | |||||||||||||||||||
R. MacDonald | ✓ | |||||||||||||||||||
M.H. Paull | ✓ | |||||||||||||||||||
J.L. Peverett | ✓ | |||||||||||||||||||
A.F. Reardon | ✓ | |||||||||||||||||||
G.T. Trafton II | ✓ |
= Committee Chair = Committee Member
All directors are invited to attend every committee meeting and committee meetings are scheduled sequentially in order to allow attendance.
BOARD MANDATE
Strategic Planning
The Board oversees the development, execution and fulfillment of CP’s strategic goals. This responsibility includes a strategic planning process whereby, prior to approval by the Board of CP’s multi-year strategic plan (the “Strategic Plan”): (i) the Finance Committee reviews and makes recommendations on the financial aspects of, and strategic options and opportunities associated with, the Strategic Plan; and (ii) the Board as a whole reviews management'smanagement’s proposed strategy, plans and objectives within the Strategic Plan that support continuous improvement in operating performance. As part of these reviews, the Finance Committee and Board consider and discuss the key issues, assumptions, risks, opportunities and strategies that relate to the development and implementation of the Strategic Plan.
One Board meeting per year is specifically set aside for a substantial strategic planning session in which the Board reviews and discusses the Strategic Plan developed by management, following which the Board provides its approval. As part of this, the Board considers CP’s major opportunities, priorities and the risk impact of the Strategic Plan, and reviews and approves CP’s financial objectives, including significant capital allocations. Subsequently, it oversees the implementation of the Strategic Plan and monitors CP’s performance against the plan.
Succession Planning
The Board and the Compensation Committee are actively engaged in the succession planning processes. A detailed and documented process exists which includes reviewing the depth and diversity of succession pools for the CEO, COO, CFO, senior operations executives and other key leadership roles. The Compensation Committee and Board review at least annually the Corporation’s leadership and development strategies, succession plans for key leadership roles, as well as plans and programs for the assessment and development of senior talent.
The Board provides opportunities for directors to get to know employees who have been identified as succession candidates. These individuals make presentations to the Board and are invited to functions where they can interact with directors more informally.
The Compensation Committee reviews, reports on and, where appropriate, provides recommendations to the Board on the structure and reporting relationships of senior management, the appointment of persons to the rank of Vice-President and above, and the leadership development of senior management.
STATEMENT OF CORPORATE GOVERNANCE | 2017 MANAGEMENT PROXY STATEMENT | 31 |
DIVERSITY AT CP
• | CP has implemented a Diversity Philosophy |
• | CP is committed to diversity throughout the Corporation and is a founding member of the Canadian Board Diversity Council and a member of the 30% Club |
• | Women currently represent 40% of CP’s directors, including the Chairs of the Compensation Committee and the Governance Committee |
CP is committed to Board diversity, including with respect to gender, age, cultural heritage and geographical representation and has therefore adopted a diversity philosophy that reflects CP’s ongoing commitment to maintaining and increasing diversity at the Board level. CP’s diversity philosophy can be found on the Company’s website at www.cpr.ca under “Corporate Governance”. CP is also a founding member of Risk Management
The Governance Committee and the Board do not adhere to any quotas or specific targets in determining Board membership as we do not believe that it is in the Corporation’s best interest to implement arbitrary targets with respect to the composition of the Board. However, CP’s diversity philosophy states that the Governance Committee will take into account the diversity considerations, such as gender, age, cultural heritage and regional representation of candidates when identifying and recommending qualified director nominees in order to ensure that the Board reflects the gender, age, cultural and geographic representation of the regions in which CP operates. The Governance Committee’s thorough investigation and nominating process, including the engagement of an external search consultant where necessary, acts to ensure implementation of CP’s Governance Principles and Guidelines respecting director nominations, including diversity.
In 2016, the Governance Committee engaged in a renewal process that resulted in the appointment of four new directors since the last annual meeting of shareholders, including two women. During this renewal process the Governance committee ensured that top female candidates were included in the search process and vetting. Due to CP’s ongoing commitment to diversity of experience and competencies as well as through the regular review and consideration of the Board’s skills matrix, CP’s Board currently consists of four women representing 40% of the Board and includes representation from numerous regions in Canada and the United States. In addition, the Chair of both the Compensation Committee and the Governance Committee, two key committees at CP, are female.
CP encourages the advancement of women and other individuals with diverse backgrounds at the Corporation through its employment equity program. CP has put in place an in-depth Diversity and Employment Equity program pursuant to theEmployment Equity Act(Canada) to remove workplace barriers at all levels that impede or prevent the inclusion of qualified individuals and minority groups, including women, from consideration for positions. CP has not implemented quotas or specific targets with respect to gender diversity at the Executive Officer level other than with respect to CP’s Diversity and Employment Equity Program. CP believes that the Diversity and Employment Equity Program encourages the advancement and employment of women and that arbitrary targets are not in the best interests of CP in obtaining the highest calibre Executives. CP does not currently have any female executive officers.
32 | CANADIAN PACIFIC | STATEMENT OF CORPORATE GOVERNANCE |
RISK OVERSIGHT
The Board has oversightoverall responsibility for material risks associated with CP’s business. This includes taking reasonable steps to confirm that management has an effective risk management structure in place to identify,
Specific Risk Oversight | ||||||||||
Assists with identification of principal business risks, ensures the implementation of appropriate risk assessment and risk management policies | Monitors risks that may have a material | |||||||||
disclosures Reviews insurance program to mitigate risk | ||||||||||
Compensation | Oversight of risks associated with the Corporation’s compensation, succession and | |||||||||
human resources strategy with the goal of preventing excessive or undue risk taking | Oversees risks relating to compensation, talent management, succession, labour relations, and | |||||||||
Finance | Oversight of financial risks and contingent exposure that may have a material impact on the Corporation | Review and recommendation of the Corporation’s strategic plan and budget Oversight of risk relating to pension plans Oversight of financings and M&A risk | ||||||||
Governance | Monitors the Board oversight of enterprise risk management and oversight of corporate governance risk and Board composition risk | Oversight of enterprise risk management by the Board and its committees Oversight of compliance with corporate governance requirements, legal and regulatory requirements and best practices Oversight of process to determine the competencies, and personal qualities required for new directors to add value to the Corporation |
Governance
The Board and its Governance Committee are responsible for developing CP’s approach to corporate governance. This includes annual reviews of the Corporate Governance Principles and Guidelines, as well as the terms of reference for the Board and each of its committees.
Internal Controls and Certification
The Board and its Audit Committee oversee the integrity of the internal control and management information systems of the Corporation and its subsidiaries, which are designed, monitored and periodically reviewed by the CEO, the CFO, the Vice-President and Controller, and are also periodically reviewed by the Internal Audit Department. Such systems are also examined
Annually and quarterly, the CEO and CFO certify that they are responsible for establishing and maintaining
These certifications have been filed with the SEC as an exhibit to our annual report on Form 10-K and will be filed as an exhibit to our interim reports on Form 10-Q, and, prior to January 1, 2016, on our annual report on Form 40-F or furnished to the SEC on Form 6-K as a foreign private issuer, as applicable. As an issuer listed in Canada and the United States, CP fulfills Canadian requirements by filing these certifications annually and quarterly.
In addition, the CEO and CFO, following review by senior management and CP’s Disclosure Policy Committee, also certify that our annual and quarterly filings do not contain an untrue statement of material fact, or omit to state a material fact, and that the financial statements and other financial information included in the annual and quarterly filings fairly present, in all material respects, CP’s financial condition, the results of our operations and cash flows.
STATEMENT OF CORPORATE GOVERNANCE | 2017 MANAGEMENT PROXY STATEMENT | 33 |
COMMUNICATION AND SHAREHOLDER ENGAGEMENT
The Board believes that regular and its Governance Committee are responsible for developing CP’s approachconstructive communication is an important part of creating an open, candid and productive dialogue. The Board annually communicates information about the Board and individual directors, the Company’s corporate governance and executive compensation practices through the Company’s management proxy circular.
Shareholders may themselves initiate communications directly with the Board. To do so, shareholders should communicate their questions or concerns to corporate governance. This includes annual reviewsthe independent directors through the Chairman of the Board by delivering a sealed envelope, marked “confidential”, to:
Chairman of the Board
c/o Office of the Corporate Governance PrinciplesSecretary
Canadian Pacific
7550 Ogden Dale Road SE
Calgary, AB T2C 4X9
Email: shareholder@cpr.ca
Although communications may be submitted anonymously, parties are encouraged to identify themselves so that the Chair of the Board may acknowledge the communication.
In 2016 members of the Board of Directors began a formal shareholder engagement program that involved in-person meetings with institutional shareholders, shareholder advocacy groups and Guidelines,two proxy advisory firms. The outreach and engagement program is summarized in the diagram below.
For additional details regarding the topics discussed and outcomes resulting from these engagement activities please refer to the message from the Chair of the Management Resources and Compensation Committee on page 5 as well as the terms of reference for the BoardCompensation Discussion and each of its committees.
CANADIAN PACIFIC | STATEMENT OF CORPORATE GOVERNANCE |
ETHICAL BUSINESS CONDUCT
• | |
Annual certification for all directors, officers and non-union employees |
Code of Business Ethics and Code of Ethics for CEO and Senior Financial Officers available at www.cpr.ca and in print to any shareholder upon request |
Code of Business Ethics
The Corporation’s Code of Business Ethics (the “Code”) specifically addresses, among other things, conflicts of interest, protection and proper use of corporate assets and opportunities, confidentiality of corporate information, fair dealing with third parties, compliance with laws, rules and regulations and reporting of illegal or unethical behaviour. The Code applies to all directors, officers and employees, both unionized and non-unionized, of the Corporation and its subsidiaries in Canada, the United States and elsewhere, and forms part of the terms and conditions of employment of all such individuals. All directors have signed acknowledgments that they have read, understood and agree to comply with the Code, and they annually confirm compliance. Annually, officers and non-union employees are required to acknowledge that they have read, understood and agree to comply with the Code. Contractors engaged on behalf of the Corporation or its subsidiaries must undertake, as a condition of their engagement, to adhere to principles and standards of business conduct consistent with those set forth in the Code. The Code is, and all amendments to the Code, and all waivers of the Code with respect to any director or Executive Officer will be, posted on CP’s website and provided in print to any shareholder who requests them.
Code of Ethics for Chief Executive Officer and Senior Financial Officers
A Code of Ethics for the CEO and Senior Financial Officers applies to the Corporation’s CEO, CFO and Vice-President and Controller. All amendments to the code, and all waivers of the code with respect to any of the officers covered by it, will be posted on CP’s website and provided in print to any shareholder who requests them.
Monitoring of Ethics Codes
The Governance Committee, with the assistance of the Audit Committee, is responsible for periodically reviewing, and if appropriate recommending changes to, the Code and the Code of Ethics for the CEO and Senior Financial Officers of the Corporation, monitoring compliance with the codes, and reviewing, and if appropriate approving, waivers from compliance therefrom for directors or Executive Officers and promptly disclosing such waivers to the shareholders.
The Governance Committee did not approve any waivers of the codes for any directors or Executive Officers during 2015.
Related Party Transactions
If a director has a material interest in a transaction or agreement involving the Corporation they are required to disclose that interest to the CEO and the Chairman of the Board, and will not participate in any discussions or votes concerning such transactions. In addition, the Board annually reviews related party transactions in conjunction with making director independence determinations. Pursuant to the Code of Business Conduct, all employees, including officers of the Corporation are required to report related party transactions. The Corporation requires senior management employees to annually confirm any related party transactions that they are party to or that have been reported to them during the year. These are reviewed by the Corporation’s accounting and legal departments to ensure appropriate reporting. During 20152016 there were no transactions between the Corporation and related persons as described in Item 404 of RegulationS-K. For the purposes of the foregoing, "related person"“related person” is defined as a (i) a director, nominee director or executive officer of the Corporation; (ii) an immediate family member of a director, nominee director or executive officer, or (iii) a beneficial holder of greater than 5% of the Corporation'sCorporation’s shares or an immediate family member of such holder.
Promotion of Ethical Culture
The Board promotes a culture of ethical business conduct and sets the tone for a foundation of high business standards, integrity and respect.
Insider Trading and Disclosure Policies
The Board has approved a disclosure and insider trading/reporting policy. It is available on CP’s website at
www.cpr.ca and reflects the commitment of the Board and management to promote timely, factual and accurate communications to the investing public. Among the matters addressed in the policy are guidelines on CP’s interaction with analysts and the public and measures to avoid selective disclosure.The Board has also appointed a Disclosure Policy Committee, currently comprised of senior legal, financial/accountingthe Company’s Chief Financial Officer, Chief Legal Officer and communications officers.Chief Risk Officer. The committee reports to the Board and is responsible for overseeing and monitoring disclosure matters and implementing additional policies and procedures, where necessary. The committee reviews all major disclosure documents. These documents are also approved by the Board and/
2017 MANAGEMENT PROXY STATEMENT | 35 |
NOMINATION OF DIRECTORS
• | CP’s shareholders elect individual directors annually |
The Board has a majority voting policy in the uncontested election of directors |
A skills matrix is used to assess areas of director expertise and experience |
Nomination Process
Directors are elected annually by shareholders, each to hold office until the close of the next annual meeting of shareholders or until such person’s successor is elected or appointed. Between shareholder meetings, the Board may appoint additional directors.
The Governance Committee, with the assistance of an external search consultant if necessary, identifies and recommends to the Board qualified director nominees for appointment or election at the annual meeting of shareholders consistent with criteria approved by the Board which takes into account:
(a) | the competencies and skills the Board, as a whole, should possess; |
(b) | the competencies, skills and personal and other diverse qualities the existing directors possess; |
(c) | the competencies, skills and personal and other diverse qualities required for new directors in order to add value to CP in light of the opportunities and risks facing the Corporation; and |
(d) | the size of the Board, with a view to facilitating effective decision-making. |
The requirements derived from this process are used in determining whether, and how many, new directors should be added to the Board. The Board considers a skills matrix and regularly reviews and updates, as applicable, the industries, regions and companies where director candidates meeting the skills required by CP are most likely to be identified, and will, if necessary or deemed advisable, retain outside advisors to assist in the identification of director candidates. A table identifying some of the current skills and experience of the Nominees is set out under the heading “Nominees for Election to the Board – Director Skills Matrix”.
The Governance Committee also considers director nominees, if any, recommended by the shareholders for election as directors.
Evergreen Process
Each year the Governance Committee with the assistance of an external search consultant, reviews the composition of the Board in order to ensure it has the best representation of skills and experience. This information is compiled through the use of a competency/skills matrix that outlines the areas of expertise and experience for each director.
In line with CP’s needs, the Governance Committee reviews and updates, as applicable, the industries, regions and companies where director candidates meeting the skills required by CP are most likely to be identified.
Term Limits and Retirement Age
The Board believes that the need to have experienced directors who are familiar with the business of CP must be balanced with the need for renewal, fresh perspectives and a healthy skepticism when assessing management and its recommendations. The average age of CP’s directors is 59 and the average director tenure at CP is currently 2.4two years with directors ranging from less than one year’s experience to fourfive years on the Board. In November 2013, the Board approved removing the mandatory retirement age for directors. After considering the director profile at CP, the Board has determined that neither a mandatory retirement age nor term limits are appropriate for the Corporation. Instead, the Board has implemented a more comprehensive assessment process that evaluates the performance, skills and contribution of each director on an annual basis, as well as an ongoing assessment of the outside activities of each director to ensure that each director continues to meet the standards and requirements of the Board. The Board believes that this is the preferable route to boardBoard refreshment.
Majority Voting Policy
In an uncontested election of directors, a director is required to immediately tender his or her resignation if that director receives more “withheld” votes than “for” votes. The Governance Committee would be expected to recommend that the Board accept the resignation except in extenuating circumstances and the Board will act upon the recommendation of the Governance Committee within 90 days of the certification of the shareholder vote. A director who has tendered his or her resignation pursuant to the majority voting policy shall not participate in Board or Governance Committee deliberations concerning the resignation. The majority voting policy is set forth in CP’s Corporate Governance Principles & Guidelines, which can be found on the Company’s website at www.cpr.ca under “Corporate Governance”.
DIRECTOR SKILLS MATRIX
The Governance Committee maintains and annually evaluates a matrix which summarizes the skills, experience, qualifications, and competencies identified as important for directors to provide effective oversight of the Corporation. The matrix below shows the areas of experience and expertise that the nominees have indicated that they bring to the Board.
Skills and Qualifications | J.R. Baird | I. Courville | K. E. Creel | G. H. Denham | W. R. Fatt | R. MacDonald | M. H. Paull | J.L. Peverett | A. F. Reardon | G. T. Trafton II | ||||||||||||||||||||||||||||||
Accounting/Financial Literacy and Expertise -based onthe definitions of financial literacy/expert formembers of the Audit Committee under securitieslaws | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | |||||||||||||||||||||||||||||||||
Environment, Health and Safety -experience inoversight of environmental, health and safetymatters, corporate responsibility or sustainabledevelopment | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||||||||||||
Executive Compensation/Human Resources -experience in oversight of compensation design anddecision-making; experience with talentmanagement, leadership development, successionplanning and executive recruitment | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||||||||||
Transportation Industry Knowledge -experience in, orknowledge of, transportation industry includingstrategic context and business issues facing thetransportation industry | ✓ | ✓ | ✓ | ✓ | ✓ | |||||||||||||||||||||||||||||||||||
Investment Management -experience in overseeingcomplex financial transactions, real estate, andinvestment management | ✓ | ✓ | ✓ | ✓ | ✓ | |||||||||||||||||||||||||||||||||||
Governance -experience in, or understanding of,governance practices in a public company;experience leading a culture of accountability andtransparency | ✓ | ✓ | ✓ | �� | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | |||||||||||||||||||||||||||||
Government/Regulatory Affairs and Legal -experiencein government affairs, public policy, governmentrelations, or law and compliance in complexregulatory regimes | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||||||||||||
Risk Management -experience in, or understanding of,risk assessments and systems and mitigationmeasures to oversee the management of risk | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||||||||
Sales and Marketing -experience as a senior executivein a product, service or distribution company orexperience in supply chain management | ✓ | ✓ | ✓ | ✓ | ✓ | |||||||||||||||||||||||||||||||||||
Senior Executive Leadership -broad businessexperience as a senior executive or director of apublic company or other major organization | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||||||||
Strategic Oversight -experience driving strategicdirection and leading growth | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||||||||
TOTAL | 7 | 10 | 9 | 8 | 7 | 7 | 6 | 8 | 11 | 9 |
STATEMENT OF CORPORATE GOVERNANCE | ||||||
ORIENTATION AND CONTINUING EDUCATION
• | Orientation material and educational presentations are delivered to new directors to provide a basis of informed decision-making |
• | Ongoing education on matters of significance and developing issues are provided periodically |
• | Site visits are provided to increase understanding of CP’s operations |
Orientation
CP has developed a directors’ orientation program to provide prospective Board candidates with background on both the Corporation’s business and the role of the Board and its committees. Prospective Board candidates are provided with substantial information about CP’s operations and the rail industry. Annual Board and Board committee schedules and work plans are also provided to all prospective directors.
New directors are invitedprovided with the opportunity to attend every committee meetinginteract with management, particularly in those areas of activity overseen by the committees to which the new director is appointed. They also receive a formal orientation session held at one of CP’s operations facilities where a detailed program is provided with respect to railroad operations fundamentals.
Continuing Education
The Board recognizes the importance of ensuring that all directors understand the business of CP and committee meetings are scheduled sequentiallythe railway industry to assist in orderthe fulfillment of their duties. The continuing education program is comprised of director site visits, director education sessions, a directors’ handbook, as well as procedures in place to allow attendance.
(a) | Director Site Visits – directors are provided from time to time with site tours of CP facilities, and on occasion, tours of CP customer facilities. |
(b) | Director Education Sessions – directors are regularly provided with education sessions on CP and the railway industry. Management and external advisors make presentations to the Board and committees on topical issues in preparation for key business decisions, during strategic planning meetings and in response to requests from directors. In 2016, these presentations included director education provided to all directors relating to cyber security, rail industry financial metrics and operating terminology and the Audit Committee was provided with a review of depreciation studies. |
The following individuals compriseBoard also receives regular reports and presentations on the current membership of the audit committees of bothregulatory and business environment from senior executives, as well as CP’s Investor Fact Book and a daily media scan which covers important news and developments about the Corporation and CPRC (collectively, the Audit Committee”), which have been establishedrailroad industry in accordancegeneral. In addition, CP has a policy of encouraging, supporting and paying for individual Board members’ outside director education.
(c) | Directors’ Handbook – the Corporate Secretary’s office prepares and regularly updates a “Corporate Handbook” for new and existing directors. The Handbook contains, among other items: copies of all Board and Committee terms of reference, the Corporation’s charter documents, a corporate organizational chart outlining the Corporation’s structure and subsidiaries, current lists of directors and officers, information on directors’ and officers’ liability insurance, Corporate Governance Principles and Guidelines, Code of Business Ethics, Code of Ethics for CEO and Senior Financial Officers, and position descriptions for the Board chair, chairs of the Board committees and the CEO. |
(d) | Procedures are in place to provide the Board with timely and efficient access to information necessary to fulfill its duties including: |
Board Dinner Sessions
The Board meets for dinner the evening of committee meetings prior to regularly scheduled Board meetings. Board dinners function as an opportunity to achieve a number of important governance objectives including meeting in a less formal atmosphere with the Exchange Act of 1934President and New York Stock Exchange Standards (“NYSE Standards”)Chief Executive Officer and CSA National Instrument 52-110 Audit Committees (“NI 52-110”).
For the year ended December 31 | Total 2015 ($) | Total 2014 ($) | ||
Audit Fees | 2,741,100 | 2,184,800 | ||
Audit-Related Fees | 525,500 | 155,000 | ||
Tax Fees | 322,700 | 295,600 | ||
All Other Fees | - | 250,000 | ||
TOTAL | 3,589,300 | 2,885,400 |
BOARD ASSESSMENT
The Board is recommending that shareholders approve an annual frequency of such votes.
This formal assessment consists of individual director interviews conducted by the Chairman of the Board, as well as interviews with select executive officers and Governance Committee and Board discussions. In 2015,2016, the evaluation process included:
The Board and Committee Chairs take into consideration the overall results and suggestions derived from the annual performance review in order to improve the functioning of the Board and its committees. The Governance Committee monitors progress on suggestions made as a result of the performance assessment at each meeting.
The evaluation of the Board Chair is led by the Chair of the Governance Committee who contacts every director and conducts confidential one-on-one discussions with each director.
William A. Ackman New York New York U.S.A. Age: 49 Director since May 17, 2012 Independent 2015 annual meeting votes in favour: 99.63% | Mr. Ackman is the founder and CEO of Pershing Square Capital Management, L.P. (“Pershing Square”), an investment adviser registered with the U.S. Securities and Exchange Commission. Pershing Square is a concentrated, research-intensive, fundamental value investor in the public markets. Mr. Ackman is Chairman of the Board of The Howard Hughes Corporation, a trustee of the Pershing Square Foundation and a member of the Board of Dean’s Advisors of the Harvard Business School. In addition to his substantial public company board experience, Mr. Ackman’s investment and capital allocation experience in a wide array of businesses and assets, as well as his expertise in real estate, enable him to make a substantial contribution to the CP board. Mr. Ackman holds an M.B.A. from Harvard Business School and a Bachelor of Arts magna cum laude from Harvard College. Principal Occupations Held in Last Five Years Founder, Chief Executive Officer, Pershing Square Capital Management, L.P. | ||||
Overall attendance: 97% | |||||
Meeting attendance | Public company directorships in the past five years | ||||
Board | 14 of 15 | 93% | CPRC | 2012 – present | |
Finance | 11 of 11 | 100% | The Howard Hughes Corporation | 2010 – present | |
Governance | 5 of 5 | 100% | |||
J.C. Penney Company, Inc. | 2011 – 2013 | ||||
Justice Holdings Ltd. | 2011 – 2012 | ||||
Securities held as at February 29, 2016(d) | |||||
Shares | DDSUs | Options | Meets or exceeds minimum shareholding requirements | ||
13,940,890(a) | 0 | 0 | Yes |
The Hon. John Baird, P.C. Ottawa Ontario Canada Age: 46 Director since May 14, 2015 Independent 2015 annual meeting votes in favour: 99.80% | The Honourable John Baird served as Canadian Foreign Minister, Minister of Transport and Infrastructure, Minister of the Environment, and President of the Treasury Board during his three terms as a Member of the Canadian Parliament. Previously, he served three terms in the Ontario Provincial Legislature as Minister of Community and Social Services and Minister of Energy. Mr. Baird is a Senior Advisor at the law firm of Bennett Jones LLP. He also serves on the Board of Directors of PineBridge Investments and the FWD Group and is a member of the International Advisory Board of Barrick Gold. Mr. Baird brings senior level executive experience in public policy and regulatory affairs to the Board, especially in the areas of transport, environment, and Canada - U.S. relations. Mr. Baird holds an Honours Bachelor of Arts degree in Political Studies from Queen's University at Kingston. He was appointed to the Privy Council in 2006. Principal Occupations Held in Last Five Years Member of Parliament of Canada. During the last five years Mr. Baird served as Minister of Transport, Infrastructure and Communities, Government House Leader and Minister of Foreign Affairs for the Government of Canada. | ||||
Overall attendance: 93% | |||||
Meeting attendance | Public company directorships in the past five years | ||||
Board | 11 of 11 | 100% | CPRC | 2013 – present | |
Governance | 3 of 3 | 100% | |||
HSSE | 0 of 1 | 0% | |||
Securities held as at February 29, 2016d) | |||||
Shares | DDSUs | Options | Meets or exceeds minimum shareholding requirements | ||
0 | 795 | 0 | To be fully met by May 2020 |
Isabelle Courville Rosemère Québec Canada Age: 53 Director since May 1, 2013 Independent 2015 annual meeting votes in favour: 99.82% | Ms. Courville is Chair of the Board of Directors of the Laurentian Bank of Canada. From 2007 to 2013, she was President of Hydro-Québec Distribution and Hydro-Québec TransÉnergie. Ms. Courville was active for 20 years in the Canadian telecommunications industry. She served as President of Bell Canada’s Enterprise Group and as President and Chief Executive Officer of Bell Nordiq Group. Ms. Courville brings to the Board significant executive level management experience including financial and legal expertise. Ms. Courville holds a Bachelor’s degree in Engineering Physics from the École Polytechnique de Montréal and a Bachelor’s degree in Civil Law from McGill University. Principal Occupations Held in Last Five Years Corporate Director; Chair, Laurentian Bank of Canada, President, Hydro-Québec Distribution; President, Hydro-Québec TransÉnergie | ||||
Overall attendance: 100% | |||||
Meeting attendance | Public company directorships in the past five years | ||||
Board | 15 of 15 | 100% | CPRC | 2013 – present | |
Audit (Chair) | 9 of 9 | 100% | TVA Group | 2013 – present | |
HSSE | 3 of 3 | 100% | Laurentian Bank of Canada | 2007 – present | |
Veolia Environment | 2015 - present | ||||
Miranda Technologies Inc. | 2006 – 2012 | ||||
Securities held as at February 29, 2016d) | |||||
Shares | DDSUs | Options | Meets or exceeds minimum shareholding requirements | ||
900 | 4,138 | 0 | To be fully met by May 2018 |
Keith E. Creel Chicago Illinois U.S.A. Age: 47 Director since May 14, 2015 Not Independent 2015 annual meeting votes in favour: 98.71% | Mr. Creel was appointed CP’s President and Chief Operating Officer in February 2013. Additionally, he is responsible for the Operations and Marketing & Sales functions at the railway. Prior to joining CP, Mr. Creel was Executive Vice-President and Chief Operating Officer at Canadian National (CN). He held various positions at CN including executive Vice-President, Operations, Senior Vice-President Eastern Region, Senior Vice-President Western Region, and Vice-President of the Prairie Division. Mr. Creel's extensive railroad operating experience, combined with his executive management and marketing and sales expertise provide significant value to the Board. Mr. Creel began his railroad career at Burlington Northern Railway in 1992 as an intermodal ramp manager in Birmingham, Alabama. He also spent part of his career at Grand Trunk Western Railroad as a superintendent and general manager and at Illinois Central Railroad as a trainmaster and director of corridor operations, prior to its merger with CN in 1999. Mr. Creel obtained a Bachelor of Science in Marketing from Jacksonville State University. He also completed the Advanced Management Program at the Harvard Business School. Mr. Creel has a military background as a commissioned officer in the US Army, during which time he served in the Persian Gulf War in Saudi Arabia. Mr. Creel was the 2014 recipient of the “Railroad Innovator Award,” from Progressive Railroading and RailTrends, which award recognizes an individual’s outstanding achievement in the rail industry. Principal Occupations Held in Last Five Years President and Chief Operating Officer, Canadian Pacific Railway Limited and Canadian Pacific Railway Company; Executive Vice-President and Chief Operating Officer, Canadian National Railway Company. | ||||
Overall attendance: 100% | |||||
Meeting attendance | Public company directorships in the past five years | ||||
Board | 11 of 11 | 100% | CPRC | 2013 – present | |
HSSE | 1 of 1 | 100% | |||
Securities held as at February 29, 2016d) | |||||
Shares | DDSUs | Options | Meets or exceeds minimum shareholding requirements | ||
1,326 | 30,572 | 349,675 | Yes |
E. Hunter Harrison(b) Wellington Florida U.S.A. Age: 71 Director since July 6, 2012 Not Independent 2015 annual meeting votes in favour: 99.79% | Mr. Harrison is the Chief Executive Officer of Canadian Pacific Railway Limited and Canadian Pacific Railway Company (“CPRC”). He joined CP in 2012. Mr. Harrison served as President and Chief Executive Officer at Canadian National Railway Company (CN) from 2003-2009 and as the Executive Vice-President and Chief Operating Officer from 1998-2002. He served on CN’s Board of Directors for 10 years. Mr. Harrison's decades of executive leadership in the rail industry provide significant insight and value to the Board. Prior to joining CN, Mr. Harrison was President and CEO at Illinois Central Corporation (IC), and Illinois Central Rail Road Company (ICRR) from 1993-1998, during which time he was also a member of the Board. Mr. Harrison held various positions throughout his time at IC and ICRR, including Vice-President, COO and Senior VP of Operations. Before his time at IC and ICRR in 1989, Mr. Harrison served as Burlington Northern’s Vice- President of Transportation and Vice-President of Service Design. Mr. Harrison has served as a director on several railway companies and industry associations, including The Belt Railway of Chicago, Wabash National Corporation, The American Association of Railroads, Terminal Railway, TTX Company, CN, IC, and ICRR. Mr. Harrison was recently named 2015 Railroader of the Year by railroad industry trade journal Railway Age. This is the second time he has been so-honored; the first time was in 2002, when he was chief operating officer of the then-recently combined Canadian National/Illinois Central system. He was honored on March 10, 2015, at Chicago’s Union League Club. Principal Occupations Held in Last Five Years President and Chief Executive Officer, Canadian Pacific Railway Limited and Canadian Pacific Railway Company; Chairman of the Board, Dynegy Inc.; Interim President and Chief Executive Officer, Dynegy Inc.; President and Chief Executive Officer, Canadian National Railway Company. | ||||
Overall attendance: 67% | |||||
Meeting attendance | Public company directorships in the past five years | ||||
Board | 10 of 15 | 67%(1) | CPRC | 2012 – present | |
HSSE | 2 of 3 | 67% | |||
Dynegy Inc. | 2011 (Mar – Dec) | ||||
Foresight Energy LP | 2014 – 2015 | ||||
Securities held as at February 29, 2016(d) | |||||
Shares | DDSUs(c) | Options(c) | Meets or exceeds minimum shareholding requirements | ||
178,617 | 67,807 | 967,493 | Yes |
Rebecca MacDonald North York Ontario Canada Age: 62 Director since May 17,2012 Independent 2015 annual meeting votes in favour: 99.77% | Ms. MacDonald is a founder and current Executive Chair of Just Energy Group Inc., a Toronto-based independent marketer of deregulated gas and electricity. Ms. MacDonald has been a director of Just Energy since 2001 and has held the position of Executive Chair since 2007. She served as President and Chief Executive Officer of Just Energy prior to becoming Executive Chair in 2007. In 1989, Ms. MacDonald founded Energy Marketing Inc., and in 1995 founded another company which aggregated customers within the U.K. natural gas deregulation. Ms. MacDonald brings to the Board extensive executive management, marketing and sales and corporate governance experience. Ms. MacDonald serves as a member of the Board of the Horatio Alger Association in both Canada and the United States. She founded the Rebecca MacDonald Centre for Arthritis and Autoimmune Disease at Mount Sinai Hospital in Toronto. Ms. MacDonald holds an honorary LLD degree from the University of Victoria. Principal Occupations Held in Last Five Years Founder, Executive Chair, Just Energy Group Inc. | ||||
Overall attendance: 96% | |||||
Meeting attendance | Public company directorships in the past five years | ||||
Board | 14 of 15 | 93% | CPRC | 2012 – present | |
Compensation | 7 of 7 | 100% | Just Energy Group Inc. | 2001 – present | |
Governance (Chair) | 5 of 5 | 100% | |||
Securities held as at February 29, 2016(d) | |||||
Shares | DDSUs | Options | Meets or exceeds minimum shareholding requirements | ||
3,900 | 6,378 | 0 | Yes |
Dr. Anthony R. Melman Toronto Ontario Canada Age: 68 Director Since May 17, 2012 Independent 2015 annual meeting votes in favour: 99.86% | Dr. Melman is the President and CEO of Acasta Capital Inc. and the CEO of Acasta Enterprises Inc. Previously, Dr. Melman was a Managing Director and a Special Advisor, Strategic Acquisitions at Onex Corporation. Prior to joining Onex, he served as Senior Vice-President of CIBC. Dr. Melman was Chair of The Baycrest Centre for Geriatric Care, from 2006 – 2011, and is presently Executive Chair of Baycrest Global Solutions. He was also Chair of Cogniciti Inc. Dr. Melman served as a director at the Ontario Lottery and Gaming Corporation, and a director of Celestica Inc., ProSource Inc. and the University of Toronto Asset Management Corporation. Mr. Melman brings extensive financial and business leadership to the Board, as well as significant experience in senior executive roles. Dr. Melman holds a Bachelor of Science degree in Chemical Engineering from the University of the Witwatersrand, an M.B.A. degree (Gold Medalist) from the University of Cape Town and a Ph.D. in Finance from the University of the Witwatersrand. Principal Occupations Held in Last Five Years President and Chief Executive Officer, Acasta Capital Inc.; CEO of Acasta Enterprises Inc.; Chairman and CEO of Nevele Inc. | ||||
Overall attendance: 97% | |||||
Meeting attendance | Public company directorships in the past five years | ||||
Board | 14 of 15 | 93% | CPRC | 2012 – present | |
Finance (Chair) | 11 of 11 | 100% | |||
Audit | 5 of 5 | 100% | Celestica Inc. | 1996 – 2008 | |
Securities held as at February 29, 2016(d) | |||||
Shares | DDSUs | Options | Meets or exceeds minimum shareholding requirements | ||
15,000 | 6,553 | 0 | Yes |
Matthew H. Paull Wilmette Illinois U.S.A Age: 64 Director since January 26, 2016 Independent 2015 annual meeting votes in favour: N/A | Mr. Paull was Senior Executive Vice President and Chief Financial Officer of McDonald’s Corporation from 2001 until he retired from that position in 2008. Prior to joining McDonald’s in 1993, he was a partner at Ernst & Young where he managed a variety of financial practices during his 18-year career and consulted with many leading multinational corporations. He served as the lead independent director of Best Buy Co. and chairman of that board’s Finance Committee. Mr. Paull currently serves as a director of Air Products & Chemicals Corporation, where he is a member of the Audit and Governance Committees and Chair of the Finance Committee, and of KapStone Paper and Packaging Corporation, and was previously a director of WMS Industries Inc. He is a member of the Advisory Board of Pershing Square Capital Management, L.P. and The One Acre Fund. He holds a Master’s degree in Accounting and a Bachelor’s degree from the University of Illinois. Mr. Paull brings to the Board significant financial expertise with a deep understanding of financial markets, corporate finance, accounting and controls, and investor relations. As a former chief financial officer of a multinational corporation, he also has extensive experience in international operations and marketing. Principal Occupations Held in Last Five Years Corporate Director | |||
Public Company Directorships in the Past five years | ||||
Air Products & Chemicals Corporation | 2013 - Present | |||
KapStone Paper and Packaging Corporation | 2010 - Present | |||
Best Buy Co. | 2003 - 2013 | |||
WMS Industries Inc. | 2012 - 2013 | |||
Securities held as at February 29, 2016(d) | ||||
Shares | DDSUs | Options | Meets or exceeds minimum shareholding requirements | |
0 | 0 | 0 | To be fully met by January 2021 |
Andrew F. Reardon Marco Island Florida U.S.A. Age: 70 Director since May 1, 2013 Independent 2015 annual meeting votes in favour: 99.84% | Mr. Reardon has been the Chairman of the Board of CP since July 20, 2015. He was an attorney at the law firm of Reardon & Chasar, LPA, which he co-founded in 2009 until he retired in December 2011. Prior to that, Mr. Reardon served as Chairman and Chief Executive Officer, and President and Chief Executive Officer from 2001 to 2008, and Vice-President, Law and Human Resources from 1992 to 2000 of TTX Company, the leading railcar leasing company in North America. Previously, he was a Presidential Appointee to the Railroad Retirement Board and was the Senior Vice-President, Law and Administration for Illinois Central Railroad. From 2007 to 2015, Mr. Reardon served as a director of Appvion Inc. where he served on the Compensation Committee and as Chair the Governance Committee. Mr. Reardon was a Presidential Appointee confirmed by the US Senate from 1990-1992. He has also served on various railroad industry boards including TTX, Terminal Railroad Association of St. Louis, and the Peoria and Pekin Union Railway. Mr. Reardon brings to the Board extensive experience relating to executive management, law and corporate governance. Mr. Reardon holds a Bachelor’s Degree from the University of Notre Dame, a Juris Doctor Degree from the University of Cincinnati and a Master’s Degree in Taxation from Washington University Law School. He served as an officer in the United States Navy from 1967 to 1971. Principal Occupations Held in Last Five Years Corporate Director; Attorney | ||||||
Overall Attendance: 100% | |||||||
Meeting Attendance | Public company directorships in the past five years | ||||||
Board | 15 of 15 | 100% | CPRC | 2013 – present | |||
Audit | 9 of 9 | 100% | |||||
Finance | 10 of 10 | 100% | Appvion Inc. | 2007 – 2015 | |||
Securities held as at February 29, 2016(d) | |||||||
Shares | DDSUs | Options | Meets or exceeds minimum shareholding requirements | ||||
4,031 | 5,071 | 0 | No - to be met by May 2018(f) |
DIRECTORS’ COMPENSATION
| ||||
•Directors’ compensation is comprised entirely of an annual retainer in the form of deferred share units with a one-year post-retirement |
PHILOSOPHY
Canadian Pacific’s directors’ compensation program shares the same objectives as the Corporation’s executive compensation program, namely to attract and retain skilled director talent and to create alignment with shareholder interests.
The compensation elements used to achieve these objectives consist of annual retainers, share ownership requirements and director deferred share units (“DDSUs”) granted under the Directors’ Deferred Share Unit Plan (the “DDSU Plan”). These elements are described in further detail below.
Mr. Paul Hilal, who resigned as a director on January 26, 2016 and Mr. William Ackman, who resigned as a director of CP on September 6, 2016 each previously elected not to receive any retainer or fees, or any initial, annual or quarterly DDSUs, in connection with his service on the Board or any committees. Additionally, Mr. Paul Hilal, who resigned as a director of CP on January 26, 2016 had also elected not to receive any retainer or fees for his services as a director.
Directors who are also employees of CP do not receive any compensation for Board or committee service.
DIRECTORS’ 2016 COMPENSATION
The Governance Committee reviews directors’ compensation every two to three years after considering the advice of an independent compensation consultant, taking into account such factors as the time commitment required of directors, compensation provided by comparable companies, and responsibilities of directors.
The comparator group used to establish competitive pay practices for directors’ compensation is a group of capital-intensive Canadian businesses ranging from one-third to three times the samesize of CP on an asset basis. The comparator group as used for executivesduring the last completed review in 2014 is set out in Schedule “B”below, with the Class I Railroads1 railroads being used as a secondary reference.
Agrium | Kinross Gold Corp. | |
Air Canada | Maple Leaf Foods | |
ATCO Group | Penn West Petroleum Ltd. | |
Blackberry | Potash Corp Sask Inc. | |
Bombardier | Rogers Communications | |
CN | SNC-Lavalin Group | |
Cenovus Energy | Teck Resources | |
Encana | Telus | |
Finning International Inc. | TransAlta Corporation |
The Board has a flat fee structure for director compensation, consisting entirely of deferred share units with a one-year post-retirement hold period. The flat fee structure is simpler to administer and disclose, and aligns with the ongoing responsibilities of the Board of Directors.Board. Attendance at meetings is an important component of the role of a director; however, CP’s Board believes that a flat fee structure better compensates for the directors'directors’ continual oversight role and responsibility.
Item or Service | Annual Retainer | ||
Board Chair Retainer | $ | 395,000 | |
Director Retainer | $ | 235,000 | |
Committee Chair Retainer | $ | 30,000 |
Item or Service | Annual Retainer | |||
Board Chair Retainer | $ | 395,000 | ||
Director Retainer | $ | 235,000 | ||
Committee Chair Retainer | $ | 30,000 |
Directors are reimbursed for travel and out-of-pocket expenses related to the Board and committee meetings.
Canadian directors are paid in Canadian dollars, with DDSUs being granted based on the trading price of the Shares on the TSX. U.S. directors are paid in U.S. dollars, with DDSUs being granted based on the trading price of the Shares on the NYSE.
40 | CANADIAN PACIFIC | DIRECTORS’ COMPENSATION |
Directors’ Deferred Share Unit Plan
All directors will receive 100% of their annual retainer entirely in the form of DDSUs until they have met the share ownership requirements and at least 50% in DDSUs after that. A DDSU is a bookkeeping entry having the same value as one Share, paid after the director leaves the Board, thereby providing an ongoing equity stake in the Corporation throughout the director’s tenure. DDSUs earn dividends in the form of additional DDSUs at the same rate as dividends on Shares. DDSUs are subject to a one year post-retirement holdholding period. One year after a director leaves the Board, the director will receive a cash amount equal to the value of the DDSUs held by the director, based on the market value of the Shares at that time, minus applicable withholding taxes.
A director who has met the share ownership requirements may elect annually to receive up to 50% of his or her retainer in DDSUs.cash. To participate in this aspect of the DDSU Plan, the director’s election must be received prior to the beginning of each calendar year. Only non-employee directors participate in the DDSU Plan.
DIRECTOR SHARE OWNERSHIP REQUIREMENTS
To enhance the alignment of directors’ interests with those of shareholders, non-employee directors are required to hold $1,175,000 in Shares/DDSUs within five years of their initial election or appointment to the Board. The Chairman of the Board is required to hold $1,975,000 in Shares/DDSUs within five years of the Chair’s initial appointment. These amounts represent five times their respective annual retainers. The share ownership requirement may alternatively be satisfied through a direct or indirect interest in Shares.
DIRECTORS’ COMPENSATION | 2017 MANAGEMENT PROXY STATEMENT | 41 |
The following table sets out each incumbent Nominee’s equity ownership interest in the Corporation as of December 31, 2016 and 2015, the total value of Shares and DDSUs held, and the amount needed to meet the minimum share ownership requirement.
Director | Year | Number of Shares | Number of DDSUs | Total Number of Shares and DDSUs | Total Value of Shares and DDSUs ($) | Multiple of Minimum Shareholding Requirement(a) | Minimum Shareholding Requirement ($) | Value At Risk as a Multiple of Annual Retainers & Stock Based Comp | Has Achieved Minimum Shareholding Requirement(a) | |||||||||||||||||||||||||||
J.R. Baird(b) | 2016 | 0 | 2,117 | 2,117 | 405,584 | 0.35 | 1,175,000 | 1.70 | | No - To be met by May 2020 |
| |||||||||||||||||||||||||
2015 | 0 | 795 | 795 | 140,472 | ||||||||||||||||||||||||||||||||
Change | 0 | 1,322 | 1,322 | 265,112 | ||||||||||||||||||||||||||||||||
I. Courville(b) | 2016 | 900 | 5,659 | 6,559 | 1,256,535 | 1.07 | 1,175,000 | 4.68 | Yes | |||||||||||||||||||||||||||
2015 | 900 | 4,138 | 5,038 | 890,347 | ||||||||||||||||||||||||||||||||
Change | 0 | 1,521 | 1,521 | 366,188 | ||||||||||||||||||||||||||||||||
K.E. Creel(c) | 2016 | 1,861 | 30,860 | 32,721 | 6,272,433 | 1.22 | 5,137,192 | N/A | Yes | |||||||||||||||||||||||||||
2015 | 1,326 | 30,572 | 31,898 | 5,204,700 | ||||||||||||||||||||||||||||||||
Change | 535 | 288 | 823 | 1,607,733 | ||||||||||||||||||||||||||||||||
G.H. Denham(b) | 2016 | 0 | 386 | 386 | 74,756 | 0.06 | 1,175,000 | 0.99 | | No - To be met by September |
| |||||||||||||||||||||||||
W.R. Fatt(b) | 2016 | 0 | 435 | 435 | 84,299 | 0.07 | 1,175,000 | 0.99 | | No - To be met by September |
| |||||||||||||||||||||||||
R. MacDonald(b) | 2016 | 0 | 7,920 | 7,920 | 1,517,229 | 1.29 | 1,175,000 | 5.65 | Yes | |||||||||||||||||||||||||||
2015 | 3,900 | 6,378 | 10,278 | 1,816,399 | ||||||||||||||||||||||||||||||||
Change | (3,900 | ) | 1,542 | (2,358 | ) | (299,170 | ) | |||||||||||||||||||||||||||||
M.H. Paull(c) | 2016 | 1,000 | 1,809 | 2,809 | 538,533 | 0.46 | 1,175,000 | 1.63 | | No - To be met by January 2021 |
| |||||||||||||||||||||||||
J.L. Peverett(b) | 2016 | 0 | 63 | 63 | 12,133 | 0.01 | 1,175,000 | 1.00 | | No - To be met by December |
| |||||||||||||||||||||||||
A.F. Reardon(c) | 2016 | 4,031 | 8,024 | 12,055 | 2,309,256 | 1.17 | 1,975,000 | 4.38 | Yes | |||||||||||||||||||||||||||
2015 | 4,031 | 5,071 | 9,102 | 1,485,117 | ||||||||||||||||||||||||||||||||
Change | 0 | 2,953 | 2,953 | 824,139 | ||||||||||||||||||||||||||||||||
G.T. Trafton II | 2016 | 0 | 0 | 0 | 0 | 1,175,000 | | No - To be met by January 2022 |
|
Notes:
(a) | Ownership in 2016 was determined using the greater of acquisition value and the closing price of a CP share on December 30, 2016 which was $191.56 per share on the TSX and US$142.77 on the NYSE. |
(b) | Total dollar values determined by reference to the DDSUs owned by the directors and the closing price of Shares on the TSX on December 31, 2016 ($191.56) and December 31, 2015 ($176.73). |
(c) | Total dollar values determined by reference to the DDSUs owned by the directors and the closing price of Shares on the NYSE on December 31, 2016 ($142.77) and December 31, 2015 ($127.60), converted to Canadian dollars using the year-end exchange rate of $1.3427 for 2016 and at the exchange rate of $1.2787 for 2015. |
Directors’ Compensation Consultant
In discharging its mandate, the Governance Committee engaged Meridian Compensation Partners to provide expertise and advice on matters relating to director compensation. This included providing market compensation information and advice on appropriate
42 | CANADIAN PACIFIC | DIRECTORS’ COMPENSATION |
Director | Year | Number of Shares | Number of DDSUs | Total Number of Shares and DDSUs | Total At- Risk Value of Shares and DDSUs ($) | Multiple of Minimum Shareholding Requirement | Minimum Shareholding Requirement ($) | Value At Risk as a Multiple of Annual Retainers & Stock Based Comp | Has Achieved Minimum Shareholding Requirement | |||||
W.A. Ackman | 2015 | (a) | 0 | (a) | (a) | (a) | 1,175,000 | N/A | Yes(a) | |||||
J.R. Baird(b) | 2015 | 0 | 795 | 795 | 140,472 | 0.12 | 1,175,000 | 0.95 | No - To be met by May 2020 | |||||
I. Courville(b) | 2015 | 900 | 4,138 | 5,038 | 890,347 | 0.76 | 1,175,000 | 3.38 | No - | |||||
2014 | 900 | 2,786 | 3,686 | 824,648 | To be met by | |||||||||
Change | 0 | 1,352 | 1,352 | 65,699 | May 2018 | |||||||||
K.E. Creel(c) | 2015 | 1,326 | 30,572 | 31,898 | 5,204,700 | 1.12 | 4,668,529 | N/A | Yes | |||||
E.H. Harrison(c) | 2015 | 178,617 | 67,807 | 246,424 | 40,207,032 | 2.86 | 14,065,700 | N/A | Yes | |||||
2014 | 178,617 | 67,398 | 246,015 | 52,358,414 | ||||||||||
Change | 0 | 409 | 409 | (12,151,382 | ) | |||||||||
R. MacDonald(b) | 2015 | 3,900 | 6,378 | 10,278 | 1,816,399 | 1.55 | 1,175,000 | 7.34 | Yes | |||||
2014 | 3,900 | 5,087 | 8,987 | 2,010,922 | ||||||||||
Change | 0 | 1,291 | 1,291 | (194,523 | ) | |||||||||
A.R. Melman(b) | 2015 | 15,000 | 6,553 | 21,553 | 3,809,140 | 3.24 | 1,175,000 | 15.14 | Yes | |||||
2014 | 15,000 | 5,244 | 20,244 | 4,529,619 | ||||||||||
Change | 0 | 1,309 | 1,309 | (720,479 | ) | |||||||||
A.F. Reardon(c) | 2015 | 4,031 | 5,071 | 9,102 | 1,485,117 | 0.75 | 1,975,000 | 3.55 | No - | |||||
2014 | 4,031 | 2,891 | 6,922 | 1,473,231 | To be met by | |||||||||
Change | 0 | 2,180 | 2,180 | 11,886 | May 2018(d) |
Directors Compensation
The following table provides the total compensation received by non-employee directors who served at any time during 2015.
Name | Fees earned or paid in cash ($) | Stock awards ($)(a) | Option awards ($) | Non-equity incentive plan compensation ($) | Change in pension value and nonqualified deferred compensation earnings(a) | All other compensation ($) | Total ($) | |||||||
W.A. Ackman(b) | — | — | — | — | — | — | — | |||||||
J.R. Baird | — | 148,534 | — | — | — | — | 148,534 | |||||||
G.F. Colter (former director) | — | 216,215 | — | — | — | — | 216,215 | |||||||
I. Courville | — | 263,772 | — | — | — | — | 263,772 | |||||||
P.G. Haggis (former director) | 43,578 | 43,005 | — | — | — | — | 86,583 | |||||||
P.C. Hilal(b) (former director) | — | — | — | — | — | — | — | |||||||
K. T. Hoeg (former director) | — | 145,056 | — | — | — | — | 145,056 | |||||||
R. MacDonald | — | 247,433 | — | — | — | — | 247,433 | |||||||
A.R. Melman | — | 251,556 | — | — | — | — | 251,556 | |||||||
L.J. Morgan (former director) | — | 272,406 | — | — | — | — | 272,406 | |||||||
A.F. Reardon | — | 418,625 | — | — | — | — | 418,625 | |||||||
S.C. Tobias (former director) | — | 160,365 | — | — | — | — | 160,365 |
Name | Fees earned or paid in cash ($) | Stock awards ($)(a) | Option awards ($) | Non-equity incentive plan compensation ($) | Change in pension value and nonqualified deferred compensation earnings(a) | All other compensation ($) | Total ($) | |||||||||||||||||||||
W.A. Ackman(b)(c) (former director) | — | — | — | — | — | — | — | |||||||||||||||||||||
J.R. Baird | — | 238,189 | — | — | — | — | 238,189 | |||||||||||||||||||||
I. Courville | — | 268,596 | — | — | — | — | 268,596 | |||||||||||||||||||||
G.H. Denham | — | 74,646 | — | — | — | — | 74,646 | |||||||||||||||||||||
W.R. Fatt | — | 84,175 | — | — | — | — | 84,175 | |||||||||||||||||||||
P.C. Hilal(b)(c) (former director) | — | — | — | — | — | — | — | |||||||||||||||||||||
R. MacDonald | — | 268,596 | — | — | — | — | 268,596 | |||||||||||||||||||||
A.R. Melman(c) (former director) | — | 148,782 | — | — | — | — | 148,782 | |||||||||||||||||||||
M.H. Paull | — | 329,380 | — | — | — | — | 329,380 | |||||||||||||||||||||
J.L. Peverett | — | 12,016 | — | — | — | — | 12,016 | |||||||||||||||||||||
A.F. Reardon | — | 526,691 | — | — | — | — | 526,691 |
Notes:
(a) | In accordance with SEC rules, the amounts shown reflect the aggregate grant date fair value of stock awards granted to non-employee directors during |
(b) | Messrs. Ackman and Hilal |
(c) | Mr. Hilal resigned from the Board on January 26, 2016, Mr. Melman resigned from the Board on July 19, 2016 and Mr. Ackman resigned from the Board on September 6, 2016. |
The total compensation received, in aggregate, by all non-employee directors in 20152016 was approximately $2,210,545.$1,951,071. This amount includes the approximate dollar value of DDSUs credited to the directors’ respective DDSU accounts in 2015.
INDEBTEDNESS OF DIRECTORS AND COMMITTEES
As at the date of this Proxy Statement, there is responsible for the stewardshipno indebtedness outstanding by, or any guarantees, support agreements, letters of credit or other similar arrangements or understandings provided by CP or its subsidiaries to, any of the CorporationCorporation’s Directors or Executive Officers or any of their associates.
DIRECTORS’ AND OFFICERS’ INSURANCE
CP carries a Directors and Officers liability insurance program with “Executive Liability & Indemnification Coverage” liability limits of US$300,000,000 (includes excess side A liability of US$100,000,000) with a deductible of US$5,000,000 (per loss). The program insures duly elected or appointed Directors and Officers (employees are covered in certain circumstances) of Canadian Pacific and its subsidiaries as defined under the terms of the policy. In effect, the policy covers losses for monitoringeach of the actions of,insureds due to a wrongful act committed and providing guidanceattempted, or allegedly committed and direction to management.
COMMITTEE REPORTS
The Board has approved the terms of reference for each of its committeesthe Committees of the Board and has delegated responsibilities as set out in those mandates. SuchThe terms of reference mayfor the Board and its Committees can be found at www.cpr.ca.
Every year the Board and each Committee reviews its terms of reference and evaluates whether it fulfills that mandate. Each Committee is satisfied that it has fulfilled all responsibilities under its terms of reference.
DIRECTORS’ COMPENSATION | 2017 MANAGEMENT PROXY STATEMENT | 43 |
REPORT OF THE AUDIT COMMITTEE
All members of the Audit Committee are “financially literate” as required by the New York Stock Exchange (“NYSE”) and the Canadian Securities Administrators (“CSA”). Mr. Paull, Mr. Fatt, Ms. Peverett and Mr. Reardon have been determined to meet the Audit Committee financial expert criteria prescribed by the SEC.
The Audit Committee is satisfied it has fulfilled all responsibilities under its Terms of Reference.
MANDATE | Responsible for fulfilling public company audit committee legal obligations and assisting the Board of Directors in fulfilling its oversight responsibilities in relation to the disclosure of financial statements and information derived from financial statements, including the review of the annual and interim financial statements of the Corporation, the integrity and quality of the Corporation’s financial reporting and internal controls, the Corporation’s legal and regulatory requirements, and the qualifications, independence, engagement, compensation and performance of the Corporation’s external auditor, and the performance of the Corporation’s internal audit function. | |
HIGHLIGHTS | ||
MEMBERSHIP M.H. Paull (Chair effective 2016) G.H. Denham W.R. Fatt J.L. Peverett A.F. Reardon | The Audit Committee, in accordance with its mandate, accomplished the following: | |
External Auditor | ||
•Obtained and reviewed the external | ||
•Discussed with | ||
•Met with management, | ||
•Obtained assurance from the external auditor that the audit was conducted in a manner consistent with accepted audit standards | ||
•Reviewed external auditor’s compensation and recommended for Board approval | ||
•Reviewed external auditor’s internal quality control reports | ||
•Has been provided by | ||
•Reviewed and approved the external | ||
• Completed annual performance review of external auditor and recommended their nomination as the Corporation’s external auditor for the following year | ||
Financial Disclosure Review and Internal Controls | ||
•Reviewed and discussed the audited consolidated financial statements for the fiscal year ended December 31, | ||
•Based upon the review, recommended to the Board that the financial statements for the fiscal year ended December 31, | ||
•Reviewed with management, the internal auditors and the external auditor, the Corporation’s financial reporting processes and its internal controls | ||
•Established procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters | ||
•Reviewed with the internal | ||
Internal Audit | ||
•Reviewed and approved internal | ||
•Reviewed reports and recommendations relating to internal audit issues, and monitored management’s response to any issues identified | ||
Risk Oversight | ||
•Monitored material financial disclosure | ||
•Reviewed the Corporation’s program of insurance to mitigate risks | ||
•Reviewed with the Chief Legal Officer all legal and regulatory matters and claims that could have a material effect upon the financial position of the Corporation. |
44 | CANADIAN PACIFIC | BOARD AND COMMITTEES |
ADDITIONAL AUDIT COMMITTEE DISCLOSURE
The following individuals comprise the current membership of the audit committees of both the Corporation and CPRC (collectively, the “Audit Committee”), which have been established in accordance with the Exchange Act of 1934 (the “Exchange Act”) and New York Stock Exchange Standards (“NYSE Standards”) and CSA National Instrument 52-110 Audit Committees (“NI 52-110”).
Full biographies of the members of the Audit Committee describing the education and experience relevant to the performance of their duties is provided under “Nominees for Election to the Board – Director Nominee Profiles”.
A member of the Audit Committee may not serve on the audit committees of more than three public companies, unless the Board determines that this simultaneous service would not impair the ability of that individual to effectively serve on the Audit Committee. No member of the Audit Committee serves on more than three public company audit committees.
The Audit Committee has adopted a written policy governing the pre-approval of audit and non-audit services to be provided to CP by its independent auditor. The policy is reviewed by the Audit Committee as necessary to reflect the Company’s needs and the audit and non-audit services to be provided to CP by its external auditor, as well as the budgeted amounts for such services, are pre-approved at least annually, including by the Board in respect of fees for audit services. CP’s Controller must submit to the Audit Committee at least quarterly a report of all services performed or to be performed by the external auditor pursuant to the policy. Any additional non-audit services to be provided by the external auditor either not included among the pre-approved services or exceeding the budgeted amount for such pre-approved services by more than 10% must be individually pre-approved by the Audit Committee or its Chairman, who must report all such additional pre-approvals to the Audit Committee at its next meeting following the granting thereof. The external auditor’s annual audit services engagement terms are subject to the specific pre-approval of the Audit Committee, with the associated fees being subject to approval by the Board. In addition, prior to the granting of any pre-approval, the Audit Committee or its Chairman, as the case may be, must be satisfied that the performance of the services in question will not compromise the independence of the external auditor. Compliance with this policy is monitored by CP’s Chief Internal Auditor. In accordance with this policy, the Audit Committee pre-approved all services performed by the Corporation’s external auditor.
A copy of the Audit Committee Charter is provided as Schedule A to this Proxy Statement.
BOARD AND COMMITTEES | 2017 MANAGEMENT PROXY STATEMENT | 45 |
REPORT OF THE CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
The Governance Committee is satisfied that it has fulfilled all of its responsibilities under its Terms of Reference.
MANDATE | Responsible for monitoring and assessing the functioning of the Board and Committees, and for developing and implementing good corporate governance practices. Identifies individuals qualified to become Board Members and recommends to the Board the director nominees for the annual meetings of shareholders. | ||
HIGHLIGHTS | |||
MEMBERSHIP R. MacDonald (Chair) J.R. Baird I. Courville A.F. Reardon G.T. Trafton II | The Governance Committee, in accordance with its mandate, accomplished the following: | ||
Board Composition, Director Qualifications and Director Nominations | |||
• Engaged in Board renewal program pursuant to which, four new directors were thoroughly reviewed and | |||
• Reviewed and recommended the acceptance of the resignations of three past directors | |||
•Reviewed the competencies, skills and other diverse qualities that the existing directors possess | |||
• Reviewed the current Director Skills Matrix to ensure that the skills and experience possessed by the current Board properly addresses the Board’s requirements | |||
Effectiveness of Board, Committees and Directors | |||
•Reviewed and evaluated the performance and effectiveness of the Board, its Committees, individual directors and the Chairman of the | |||
•Reviewed, and where applicable revised, the terms of reference of the Board and each Committee | |||
•Reviewed position descriptions for Board Chair, CEO and Committee Chairs | |||
Corporate Governance | |||
•Reviewed and confirmed the corporate governance principles and guidelines, Code of Business Ethics and Code of Ethics for Senior Financial Officers of the Corporation | |||
•Reviewed corporate governance disclosures and monitored legal and regulatory requirements, as well as best practices | |||
•Assessed the effectiveness of directors and of the Board based on the | |||
Directors’ Orientation and Education | |||
•Reviewed orientation and continuing education programs for directors | |||
Risk Oversight | |||
•Monitored the Board’s oversight of enterprise risk management | |||
•Reviewed and reported to the Board on a process to determine, in light of the risks and opportunities facing the Corporation, what skills and personal qualities are required for new directors |
46 | CANADIAN PACIFIC | BOARD AND COMMITTEES |
REPORT OF THE FINANCE COMMITTEE
The Finance Committee is satisfied that it has fulfilled all of its responsibilities under its Terms of Reference.
MANDATE | Responsible for assisting the Board in fulfilling its responsibility to oversee the Corporation’s financial position, financing plans, programs and dividend policy; strategic options and opportunities for the Corporation, including acquisitions and divestitures. Oversight of the pension plans sponsored by the Corporation and its subsidiaries. | |
HIGHLIGHTS | ||
MEMBERSHIP W.R. Fatt (Chair effective September 6, 2016) G.H. Denham M.H. Paull J.L. Peverett A.F. Reardon | The Finance Committee, in accordance with its mandate, accomplished the following: | |
Finance Matters | ||
•Oversaw the Corporation’s capital structure, cash flows and key financial ratios | ||
•Reviewed the Corporation’s credit facilities, and compliance with financial covenants; oversaw the extension and amendment to the | ||
•Reviewed major financings, offering documents and financing plans and strategies, | ||
•Reviewed the Corporation’s credit ratings and monitored the Corporation’s activities relating to credit rating agencies | ||
•Reviewed strategic options and opportunities for the Corporation | ||
•Reviewed and recommended approval of the operating and capital budgets for the Corporation | ||
Pension Matters | ||
•Exercised oversight responsibilities of pension matters | ||
•Appointed pension fund external auditor and custodian | ||
•Received the annual audited pension fund financial statements and reviewed the | ||
• Oversaw a review of the defined benefit pension plan by the Office of the Superintendent of Financial Institutions (OSFI) | ||
•Revised the Statement of Investment Policy | ||
• Reviewed investment manager performance, revised asset mix and selected new investment managers | ||
• Approved pension plan hedging strategy | ||
Risk Oversight | ||
•Reviewed financial risks, including credit risk, commodity risk, M&A risk and interest rate | ||
•Reviewed risk assessment and risk management policies relative to financial risk that may impact the Corporation | ||
•Oversaw financial risks and contingent exposure |
BOARD AND COMMITTEES | 2017 MANAGEMENT PROXY STATEMENT | 47 |
REPORT OF THE MANAGEMENT RESOURCES AND COMPENSATION COMMITTEE
The Compensation Committee is satisfied that it has fulfilled all of its responsibilities under its Terms of Reference.
For a detailed review of compensation governance, refer to “Compensation Governance and Oversight” below. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and on the discussion described above, on February 14, 2017, the Compensation Committee recommended to the full Board that the Compensation Discussion and Analysis be included in this Proxy Statement. See “Compensation Discussion and Analysis” below on page 51.
MANDATE | Responsible for fulfilling public company compensation legal obligations and assisting the Board with its responsibility relating to the appointment, compensation and reporting relationships of the Corporation’s executives. Reviews the Corporation’s compensation philosophy and programs, the adoption and amendment of incentive compensation plans, and retirement plans. Establishes the performance objectives and performance evaluations for senior officers. Reviews organizational health, and succession planning. | |
HIGHLIGHTS | ||
MEMBERSHIP I.Courville (Chair effective J.R. Baird R. MacDonald A.F. Reardon G.T. Trafton II | The Compensation Committee, in accordance with its mandate, accomplished the following: | |
Succession Planning | ||
•Undertook succession planning for senior management positions in the Corporation, and reviewed processes to identify, develop and retain executive talent, including the retirement of Mr. E. Hunter Harrison and the appointment of Mr. Keith Creel as President and Chief Executive Officer | ||
• Due to effective long-term succession planning, internal appointments for the | ||
Compensation Philosophy | ||
•Reviewed the compensation philosophy and programs of the Corporation generally and reviewed reports from independent advisors | ||
•Considered total compensation for named | ||
•Recommended short-term and long-term incentive plan metrics for | ||
•Approved awards under the short-term incentive plans for | ||
•Reviewed executive share ownership guidelines and monitored compliance | ||
Chief Executive Officer Performance and Compensation | ||
•Established the performance objectives and the process for evaluating the performance of the CEO | ||
•Conducted performance evaluations of the CEO in accordance with the performance evaluation process | ||
•Reviewed and made recommendations to the independent directors of the Board on the level of compensation to be paid to the CEO | ||
•Reviewed and made recommendations to the independent directors of the Board on revisions to the CEO’s Employment Agreement | ||
Risk Oversight | ||
•Reviewed Corporation’s compensation plans with the view towards not encouraging excessive or undue risk taking | ||
•Oversight of risk associated with the compensation philosophy and programs |
48 | CANADIAN PACIFIC | BOARD AND COMMITTEES |
EXECUTIVE COMPENSATION SUMMARY
Executive Compensation
CP’s executive compensation programs are structured to have a clear focus on pay for performance and to align management’s interests with CP’s business strategy and shareholder interests. Attracting and retaining high calibre executives is crucial to our long-term success, therefore, our programs are designed to be market competitive with a majority of pay at risk. We believe strong performance should yield significant rewards.
At our 2016 MANAGEMENT PROXY STATEMENT 50
The agenda for the meetings requested feedback from shareholders and generally included the following additional content:
In some cases management representatives were excused from discussions with institutional shareholders.
As noted in the HSSE Committee fulfilled allmessage from Ms. Isabelle Courville on page 5, the common themes emerging from these discussions included the alignment between pay and long-term performance as our corporate strategy transitions, improved transparency and disclosure on changes to performance metrics, the inclusion of its responsibilities under its Termssafety and operating metrics as performance measures, as well as concerns related to transition awards for departing executives and the calculation of Reference.
Selected shareholders also provided feedback on Board diversity, sustainability reporting and succession planning which were conveyed back to the Board of Directors.
Taking into consideration the feedback received, the following changes were made to the 2017 compensation plans:
Change | Rationale | |||
Long-Term Incentive Plan | Increased the proportion of performance based awards in the long-term incentive plan from 50% to 60% for 2017 | Better aligns at-risk pay to long-term corporate performance | ||
Option Grants | Reduced the option term for future grants from 10 years to 7 years | Reduces the dilution horizon | ||
Performance Share Units | Operating ratio was removed as a long-term measure; the weightings for ROIC and TSR were increased | Operating ratio was intended to be a singular metric for the Company to focus on during its turnaround; as the Company matures and enters a new strategic phase, it is appropriate to focus management on longer-term return metrics | ||
Short-Term Incentive Plan | Changed the short-term incentive plan measures and weightings: operating ratio reduced from 50% to 40%, operating income increased from 25% to 40%, free cash flow removed and replaced with safety and operating measures Individual component of the CEO’s bonus is capped at the corporate performance factor | With the turnaround largely complete and the Company transitioning towards a growth-based strategy, less emphasis on cost reduction and more emphasis on increased operating income was deemed appropriate. Safety and operating performance had previously been taken into consideration when determining the individual performance rating of the CEO and other executives; providing explicit targets provides more rigour and transparency to the determination |
EXECUTIVE COMPENSATION SUMMARY | 2017 MANAGEMENT PROXY STATEMENT | 49 |
Practice | Change | Rationale | ||
Executive Perquisites | The | Better aligns corporate needs with common market practices. Mr. Creel is required to regularly travel by air for |
Named Executive Officers
The following six individuals are referred to in this Compensation Discussion & Analysis as the “Named Executive Officers” (“NEOs”) for 2016:
Where to find it.... | Page | |
Compensation Discussion and Analysis | 51 | |
Performance Graphs | 60 | |
2016 Named Executive Officers’ Compensation | 63 | |
Compensation Governance | 68 | |
Compensation Details | 72 | |
Summary Compensation Table | 72 | |
Grants of Plan-Based Awards | 76 | |
Outstanding Equity Awards | 77 | |
Option Exercises & Stock Vested | 79 | |
Pension Plan Benefits | 82 | |
Nonqualified Deferred Compensation | 83 | |
Termination and Change in Control Benefits | 84 |
50 | CANADIAN PACIFIC | EXECUTIVE COMPENSATION SUMMARY |
COMPENSATION DISCUSSION AND ANALYSIS
OUR APPROACH TO EXECUTIVE COMPENSATION
CP’s executive compensation program is closely linked to the crucial metrics that drive the achievement of our strategic plan and create shareholder value. We have created a railroad-focused culture with compensation plans designed to align management compensation with shareholder interests. The Compensation Committee believes that the Company’s compensation philosophy enables CP to reward behaviour that drives short- and long-term business performance and effectively manages risk. For more information on the Compensation Committee, please refer to the Report of the Management Resources and Compensation Committee on page 48 and the Compensation Governance section on page 68.
Our executive compensation program is weighted towards pay-for-performance components that are integrated into a comprehensive executive compensation program. A significant proportion of pay is at risk, meaning, if the Company performs well, executives earn more and when performance is not as strong, pay is less. Compensation is aligned with shareholders’ interests through having a significant portion tied to equity value.
The chart below illustrates the pay mix for our NEOs, with the exception of our former CFO, based on their target total compensation.
2016 Percent of Total Target Direct Compensation
Benchmarking Compensation
In determining compensation for the NEOs and other executive officers, the Compensation Committee considers a peer comparator group of the following Class 1 railroads: BNSF Railway, CN, CSX Corporation, Kansas City Southern Railroad, Norfolk Southern Corporation and Union Pacific Corporation. The Company benchmarks each component of compensation for the NEOs against those for employees in similar positions at these railroads.
This comparator group reflects CP’s need to attract and retain experienced railroad executives with highly specialized skills by ensuring that we offer compensation programs that are competitive with those offered by competing North American railroads.
COMPENSATION DISCUSSION AND ANALYSIS | 2017 MANAGEMENT PROXY STATEMENT | 51 |
Throughout the annual executive compensation review process, depicted below, the Compensation Committee receives advice from its independent compensation consultant, Meridian Compensation Partners LLC.
For the incentive plans, the Compensation Committee aligns performance goals directly with CP’s strategic plan, which is reviewed and approved by the Board. In setting STIP targets for the upcoming year, CP generally excludes items that are outside the normal business of the Company and can impact the comparability of CP’s year-over-year financial performance. The Compensation Committee also considers safety as part of its overall assessment of performance; safety is treated as an integral part of each employee’s responsibility in addition to forming part of the operations teams’ individual objectives. Effective with the 2017 plan year, CP has added a specific safety metric to the corporate component of the STIP.
In determining the performance level achieved under the STIP, the Compensation Committee may decrease payouts even if CP achieves its financial and operational objectives, where safety and minimization of environmental impact have not been achieved. In addition, the Compensation Committee may, at its discretion, make adjustments to the Company’s reported results (for purposes of calculating payouts under the STIP) to reflect unusual items.
52 | CANADIAN PACIFIC | COMPENSATION DISCUSSION AND ANALYSIS |
Compensation Program
CP’s total compensation consists of three main elements: base salary, annual incentives and long-term incentives (PSUs and Options). CP also provides the NEOs with a standard pension benefit plan as well as a modest perquisites plan. The following table summarizes the various elements of CP’s executive compensation program:
Compensation Element | Description and Purpose | Risk-Mitigating Elements | Link to Business and Talent Strategies | |||||
Base Salary Cash | Fixed pay with individual salary recommendations based on competitive assessment and economic outlook, leadership, retention, and succession considerations. Reviewed annually and adjusted when appropriate. | • Provides an adequate fixed component of pay to ensure access to talented employees and is set taking into account external advisor and peer group analysis. | • Competitive base salaries help attract and retain highly qualified leaders: benchmarking against the comparator group ensures that base pay is competitive. • Increases are not automatic or guaranteed, to promote a performance culture. | page 56 | ||||
Short-Term Incentive Plan Cash | Target awards are based on the executive’s level in the organization and are benchmarked to the 50th percentile of the One-year performance period. | • Multiple performance metrics used with plan targets reviewed and approved annually based on detailed review of strategic plan. Payouts are capped with no guaranteed minimum payout. | • Attract and retain highly qualified leaders through an opportunity to • Alignment of personal objectives with area of responsibility and role in | page 54 | ||||
DSUs | Provided that the DSUs are required to be held until at least six months after retirement or termination of employment. | • Aligns management interests with shareholder value growth and contributes to retention of key talent. • Executive cannot defer DSUs beyond an ownership level provided in CP’s stock ownership guidelines. • Matching DSUs have a three-year vesting period. | • Sustained alignment of executive and shareholder interests since the value of DSUs is directly related to share price and DSUs cannot be liquidated until a minimum of six months after termination of employment. • Matching DSUs encourage share ownership. | page 82 | ||||
Long-Term Incentive Plan PSUs | Designed to target total long-term incentives at the median of the PSUs are granted to executive officers equal to half of their total LTIP award. For 2017, this has been increased to 60%. PSUs vest only upon achievement ofpre-defined market and financial goals. Three-year performance period. | • PSUs offer mid- and long-term incentive compensation through overlapping multi-year performance periods. • Performance multiplier is capped with no minimum guaranteed payout. | • PSUs align executive and shareholder interests over the mid-term by focusing the • Operating Ratio (“OR”), Return On Invested Capital (“ROIC”) and total shareholder return against the S&P/TSX 60 and the | page 55 | ||||
Stock Options | Options are granted to executive officers equal to half of their total LTIP award. For 2017, this has been reduced to 40%.The value awarded is based on the executive’s level in the organization. Vesting over four years with ten-year Option term. For grants made in 2017 and future years the grants will have a seven-year term. | • Options offer long-term incentive compensation through a long-term interest in Share price appreciation. | • We continue to deliver a portion of long-term incentives as Options to ensure direct alignment with, and focus on, stock price appreciation. | page 79 | ||||
Pension Defined Contribution Pension Plans | Pension benefit is based on pay and service and is designed to be market competitive. The Supplemental Plan is limited to senior managers and executives. | • Provide an appropriate risk management balance to an otherwise highly performance-focused pay package. | • Attract and retain highly qualified leaders. | page 82 | ||||
Executive Perquisites Flexible Spending Account | Designed to be market competitive. | • Attract and retain highly qualified leaders. | page 73 |
COMPENSATION DISCUSSION AND ANALYSIS | 2017 MANAGEMENT PROXY STATEMENT | 53 |
Target Compensation Mix
CP’s compensation philosophy is designed so that the portion of total compensation at risk increases by level in the organization. Incentive compensation is more focused on corporate results for executives (75% of target) than for lower-level employees (50% of target), for whom there is a higher emphasis on individual and departmental goals. This design reflects CP’s view that short-term incentives should be tied to both overall corporate performance as well as those areas of its business that each employee influences directly.
The Compensation Committee strives to strike a balance between short-, medium- and long-term compensation. The mix of fixed and variable compensation is designed to align NEOs’ financial incentives with shareholder interests. The following chart shows our different compensation components for 2016 and the timeline for receipt.
Short-Term Incentive Plan (“STIP”)
This plan provides an opportunity for employees to earn an annual cash award based on the achievement of corporate targets and specific individual performance objectives. Employees are required to set individual performance objectives annually, and the individual component of the STIP is based on achievement of these and other pre-determined goals set prior to the performance year, which reflect the strategic and operational priorities critical to each executive’s function. Each goal has a minimum, target, and maximum standard achievement. An employee’s payout on the individual component of the STIP may be zero or range from 50% to 200%. Any award payable under the individual component is subject to a minimum level of corporate performance, which is set annually by the Board. No award under the STIP is paid unless this minimum corporate hurdle is achieved. The Compensation Committee also considers safety as part of its overall assessment of performance; safety is treated as an integral part of each employee’s responsibility in addition to forming part of the operations teams’ individual objectives. Minimum, target, and maximum payouts, expressed as a percentage of base salary are established for the NEOs as follows:
Level | Minimum Payout as Percentage of Base Salary (%) | Target Payout as Percentage of Base Salary (%) | Maximum Payout as Percentage of Base Salary (%) | |||
CEO | 75 | 150 | 300 | |||
Other NEOs | 30 – 50 | 60 – 100 | 120 – 200 |
54 | CANADIAN PACIFIC | COMPENSATION DISCUSSION AND ANALYSIS |
Payouts under the STIP are a sum of the corporate and individual components calculated as follows:
Target Attributable to Performance (% of salary) | ||||||||||||||||||||||||||
X | CP Performance Factor (0% – 200%) | = | ||||||||||||||||||||||||
Total STIP Award | ||||||||||||||||||||||||||
X | Target Attributable to Individual Performance (% of salary) | X | Individual Performance Factor (0% – 200%) | = |
The Board has discretion to adjust targets and payouts under the STIP. Adjustments, whether positive or negative, are reviewed on an individual basis, using guidelines adopted by the Compensation Committee. The Compensation Committee may also approve a downward adjustment on the corporate component of the STIP for any executive officer.
To determine NEO payouts under the STIP, the Compensation Committee, in addition to assessing corporate performance, directly assesses the individual performance of the CEO and considers the CEO’s assessment of the individual performance of the NEOs. The CEO evaluates individual NEO performance against quantitative and qualitative financial, operational and strategic assessments of pre-defined performance objectives including management, safety, financial and other objectives. The actual annual incentive payouts for each NEO in 2016 are provided in the Summary Compensation Table on page 72.
Long-Term Incentive Plan (“LTIP”)
In 2016, with the exception of the CEO, long-term incentive grants to NEOs consisted of 50% PSUs and 50% Options. To determine the appropriate value of long-term incentive grants provided to NEOs, the Board and the Compensation Committee consider our comparator groups’ practices and external market data together with internal factors including executive retention, dilution impact, long-term value-creation and executive stock ownership.
The granting of PSUs and Options to NEOs is annually reviewed and approved at a meeting of the Board on the recommendation of the Compensation Committee. The annual broad-based long-term incentive awards are granted at approximately the same time each year following the release of year-end financial information. Any off-cycle grants are made the first Tuesday of the month following approval unless the Company is in a blackout period in which case the grant would be made after the blackout has been lifted. No equity grants are awarded when the Company possesses material non-public information.
The Compensation Committee does not take into account previous executive grants when setting individual awards, as long-term plans are contingent on future performance. At the CEO’s recommendation, the Board may eliminate or adjust an executive’s actual grant (but may not increase a grant more than 25% above an executive’s target). In determining adjustments, the Compensation Committee considers, among other factors, the competitive positioning of each individual’s compensation.
The objective of PSU grants is to focus executives on medium-term goals within a three-year performance period. Performance measures, thresholds and targets are set by the Board at the beginning of each performance period. Performance measures are assessed independently. If threshold measures are not met for a given performance period, no award is payable in respect of PSUs for that period. If performance is exceptional, a PSU payout of up to a maximum of 200% may be approved by the Board.
PSUs vest after three years dependent on the level of performance achieved, and upon vesting the executive is paid out in cash or, at the CEO’s recommendation, in Shares using an after-tax value, based on the number of units that are earned and the average closing Share price for the 30 trading days prior to the end of the performance period on the TSX or NYSE, as applicable. If performance targets are not achieved at the end of the three-year period, PSUs are forfeited for no consideration. The Board may exercise discretion to adjust payouts. PSUs are credited with dividend equivalents which are reinvested into additional PSUs, and which vest at the same time and are based on the achievement of the same performance conditions as the PSUs.
Options are granted to provide a long-term incentive to NEOs to create enduring long-term shareholder value. If our Share price increases between the grant date and the vesting date, Options are “in-the money” and provide value to the Option holder once the Options are exercised.
COMPENSATION DISCUSSION AND ANALYSIS | 2017 MANAGEMENT PROXY STATEMENT | 55 |
2016 COMPENSATION AND PERFORMANCE
Base Salary
The Compensation Committee reviews the base salaries of NEOs on an annual basis. The Compensation Committee considers each individual’s leadership abilities, performance, responsibilities and experience as well as median comparator group practices, succession and retention considerations and economic outlook.
The following changes to base pay for the NEOs occurred during 2016:
The Committee reviewed the NEO salaries for 2017 and approved the following increases:
2016 Short-Term Incentive Plan Results
The 2016 STIP was based on three metrics: Operating Income, Operating Ratio and Free Cash Flow. These measures were chosen because they support CP’s strategic plan and are linked to the creation of long-term shareholder value.
In 2016, corporate performance was assessed against measures approved by the Board in December of 2015 as follows:
Performance Range | ||||||||||||||||||
Company Measure | Weight | Threshold | Target | Exceptional | ||||||||||||||
Operating Ratio | Operating expenses divided by total revenues based on assumed fuel price and foreign exchange (“FX”) | 50% | 61% | 59.5% | 58% | |||||||||||||
Operating Income ($M) | Total revenues less operating expenses based on an assumed FX | 25% | 2,618 | 2,719 | 2,819 | |||||||||||||
Free Cash Flow ($M) | Cash provided by operating activities less cash used in investing activities as shown on the Consolidated Statement of Cash-Flows | 25% | 774 | 874 | 975 |
Target levels for the 2016 STIP were designed to drive significant improvements over actual results achieved in 2015 and align with CP’s strategic plan. In assessing targets, the Compensation Committee considered, among other things, the results achieved on these metrics (both in whole amount and in pace of improvement) by other Class 1 railroads during similar transformational periods. This ensured that our targets not only require achievement of significant improvement year over year, but reflect a very high level of improvement relative to the performance that other Class 1 railroads have been able to achieve.
For 2016, Free Cash Flow targets were set lower than 2015 achievement levels to reflect significant asset sales in 2015 that were not expected to be repeated, and the expectation of a significant increase in cash tax payments in 2016 as a result of CP becoming fully cash taxable in Canada.
The following table shows the 2016 corporate performance objectives and results achieved (with 2015 results for comparison):
2015 | 2016 | |||||||||||||||||||||||||||||||||
Measure | Target | STIP Results | Threshold | Target | Exceptional Target | Reported Results | STIP Results | Performance Assessment | ||||||||||||||||||||||||||
Operating Ratio | 64.5% | 64.25% | 61% | 59.5% | 58.0% | 58.6% | 58.2% | above target | ||||||||||||||||||||||||||
Operating Income | $ | 2,440 M | $ | 2,318 M | $ | 2,618 M | $ | 2,719 M | $ | 2,819 M | $ | 2,578 M | $ | 2,694 M | below target | |||||||||||||||||||
Free Cash Flow | $ | 660 M | $ | 1,059 M | $ | 774 M | $ | 874 M | $ | 975 M | $ | 1,007 M | $ | 1,021 M | exceptional |
Free Cash Flow is a Non-GAAP measure, for a full description and reconciliation see CP’s Form 10-K at www.cpr.ca
STIP targets are set using certain FX and fuel assumptions. Consistent with the definitions provided above, results are adjusted to reflect changes to those assumptions in order to accurately measure the true operating performance of the business. Additionally, STIP results may be adjusted to reflect non-recurring items that would not accurately reflect the ongoing operating results or business trends of CP. Therefore, STIP results may differ from CP’s reported GAAP results.
56 | CANADIAN PACIFIC | COMPENSATION DISCUSSION AND ANALYSIS |
Based on the results above the payout would have been above target on Operating Ratio (187%), below target on Operating Income (88%) and exceptional on Free Cash Flow (200%). The resulting overall corporate performance factor, based on the weighting of the components, would have been 165%. Taking into consideration broader corporate performance – in particular, softer-than-expected revenue and earnings growth – the Board, on the recommendation of the Compensation Committee, exercised their discretion to lower the payment to 150%.
2017 Short-Term Incentive Plan
The metrics and weightings for 2017 have been adjusted to reflect the Company’s shift in focus to growing revenue in a cost effective manner; the weighting for Operating Income has been increased and the weighting for Operating Ratio reduced. Safety and operating measures have been added to create a more balanced scorecard. In addition, although the payout for the individual component may range from 0% to 200% of target, effective in 2017, the CEO’s payout on the individual component may not exceed the corporate performance payout level achieved. Following is a description of the metrics and weighting approved for the 2017 STIP:
Performance | Definition | 2017 Weighting | ||||
Operating Ratio | Total operating expenses divided by total revenues based on an assumed FX. | |||||
Operating Income | Total revenues less total operating expenses based on an assumed FX. | |||||
Safety Measure (NEW) | FRA Train Accident Frequency is defined as train accidents per million train miles. | 10% | ||||
Operating Measure (NEW) | Train Speed measures the movement of trains from origin to destination including all time between departure origin and arrival destination. Excludes: bulk trains, local trains, passenger trains, and trains used for repairing track. Hours of delay caused by customer and foreign railroad issues are removed from the transit time. For all mainline trains, total train hours (excluding foreign railway and customer delays), divided by total train miles. | 10% |
2016 Long-Term Incentive Grants
Options were granted on January 22, 2016 to all NEOs. PSUs were granted on February 23, 2016 to all NEOs with the exception of the CEO who received a smaller cash bonus in lieu of a PSU grant.
Further information on CP’s long-term incentive plan can be found on page 55. Options under the LTIP are granted to NEOs pursuant to the Management Stock Option Incentive Plan (“MSOIP”), which is described in detail on page 79. In 2016, Options had a ten-year term, and will vest over four years at a rate of 25% on each anniversary of the grant date. The exercise price was $165.74 for Options granted in respect of Shares listed on the TSX and US$116.80 for Options granted in respect of Shares listed on the NYSE. The grant date fair value, determined in accordance with FASB ASC Topic 718, of the Options awarded to NEOs is included in the Summary Compensation Table on page 72, in the Option Awards column.
PSUs under the LTIP are granted to NEOs and other executives pursuant to our PSU Plan. The PSUs granted in 2016 are subject to a three-year performance period beginning on January 1, 2016, and ending on December 31, 2018.
COMPENSATION DISCUSSION AND ANALYSIS | 2017 MANAGEMENT PROXY STATEMENT | 57 |
The Board approved 2016 PSU grants on February 23, 2016 with four performance measures: OR, ROIC, Total Shareholder Return (“TSR”) against the S&P/TSX 60 and the TSR against Class 1 railroads. PSUs vest contingent on performance against these four measures as summarized in the table below:
Measure | Weight | Performance Range | Rationale | |||||||||
2018 Operating Ratio | Total operating expenses divided by total revenues | 60% | 61% to 58% | OR was chosen as a metric because it is a rigorous quantifiable measure of cost-efficient growth and is fundamental to achieving the Corporation’s strategic plan. Based on CP’s significant reduction in OR the Compensation Committee has determined that beginning in 2017, the OR metric will apply only to awards under the short-term incentive plan. | ||||||||
2016 to 2018 average ROIC | Net operating profit after tax divided by average invested capital | 20% | 14% to 15.5% | Return On Invested Capital was chosen to measure profitable returns on our invested capital and is strongly linked to shareholder value. In 2017 the weighting of ROIC will increase to 60%. | ||||||||
Total Shareholder Return (Measured over 3 years) | Compound average growth rate (CAGR) relative to S&P/TSX 60 Index | 10% | 0% to 5% above the index | TSR was chosen as a performance measure to align long-term incentive compensation with long-term shareholder interests by rewarding performance above the performance in our two key comparative markets for investors. | ||||||||
10% | ||||||||||||
fourth-first |
For a full description and reconciliation of Non-GAAP measures see CP’s Form 10-K at www.cpr.ca
In assessing the PSU targets, the Compensation Committee considers CP’s historical performance long-term strategic objectives and performance achieved on these metrics by investors in other Class 1 railroads. The Compensation Committee determined that our targets require significant and sustained improvement, reflect a very high level of improvement relative to the performance that the other Class 1 railroads have been able to achieve and, if achieved, should provide a significant increase in value to long-term shareholders.
The grant date fair value, in accordance with FASB ASC Topic 718, of the PSUs awarded to NEOs is included in the Summary Compensation Table on page 72, under the Stock Awards column.
Payout of 2014 PSU Grant
For the three-year performance period ending December 31, 2016, there were four performance measures applicable to PSU grants: Operating Ratio, Free Cash Flow, Total Shareholder Return CAGR relative to the S&P/TSX 60 Index and TSR CAGR relative to Class 1 railroads. The Company’s overall performance was above target, at a payout of 118% as outlined in the following table:
Performance Metric | Operating Ratio | Free Cash ($M) | TSR CAGR relative to Index | TSR CAGR relative to Class 1 RR | ||||||||||||
Measure Weighting | 40% | 40% | 10% | 10% | ||||||||||||
Threshold | 65% | 790 | 0% | fourth | ||||||||||||
Target 100% | 63% | 961 | 1% | third | ||||||||||||
Exceptional 200% | 61.8% | 1,132 | 5% | first | ||||||||||||
Result | 58.6% | 942 | 0.27% | fifth | ||||||||||||
Payout Level Achieved | 200% | 94% | 0% | 0% |
The number of PSUs vested and their value for each NEO is included in the Option Exercise & Stock Vested table on page 79.
2017 LTIP Grant
As referenced in the message from the Chair of the Management Resources and Compensation Committee on page 6, based on input from our shareholders, changes have been made to our 2017 long-term incentives as follows:
On January 20, 2017, under the LTIP, Options were granted to NEOs with the exception of the CEO. The exercise price was $201.49 for Options granted in respect of Shares listed on the TSX and US$150.99 in respect of Shares listed on the NYSE.
On February 21, 2017 the Board approved a PSU grant with a performance period beginning January 1, 2017, and ending December 31, 2019. The grant has three performance measures, as detailed below:
Weight | |||||
2017 to 2019 average ROIC | Net operating profit after tax divided by average invested capital | 60% | |||
Total Shareholder Return (Measured over 3 years) | The percentile ranking of CP’s compound average growth rate (CAGR) relative to the constituents in the S&P/TSX Capped Industrial Index | 20% | |||
Total Shareholder Return (Measured over 3 years) | The percentile ranking of CP’s CAGR relative to the constituents in the S&P 1500 Road and Rail Index | 20% |
COMPENSATION DISCUSSION AND ANALYSIS | 2017 MANAGEMENT PROXY STATEMENT | 59 |
PERFORMANCE HIGHLIGHTS
Historically CP’s total shareholder return performance has tracked the S&P/TSX Composite Index, however, in late 2011, CP’s performance began to diverge from the Index. This divergence has magnified under the leadership of our former Chief Executive Officer, E. Hunter Harrison, who joined us in 2012.
Assuming the initial $100 investment was challengingmade on the last trading day in 20152011 and the reinvestment of dividends are to the end of the period, the following performance graph illustrates the cumulative total shareholder return in CP’s common Shares on both the TSX and the NYSE compared with the lowest commodity pricescumulative total return of the S&P/TSX Composite and the S&P 500 indices from the last trading day in 2011 to December 31, 2016.
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |||||||||||||||||||
CP TSR (C$) | 100.00 | 147.98 | 238.19 | 334.24 | 265.73 | 290.69 | ||||||||||||||||||
S&P/TSX Composite Index (C$) | 100.00 | 107.19 | 121.11 | 133.90 | 122.76 | 148.64 | ||||||||||||||||||
CP TSR (US$) | 100.00 | 151.96 | 228.77 | 293.53 | 195.68 | 220.98 | ||||||||||||||||||
S&P 500 Index (US$) | 100.00 | 115.88 | 153.01 | 173.69 | 176.07 | 196.78 |
60 | CANADIAN PACIFIC | COMPENSATION DISCUSSION AND ANALYSIS |
Assuming the initial $100 investment was made on the last trading day in 2012 and the reinvestment of dividends are to the end of the period, the following performance graph illustrates the cumulative total shareholder return in CP’s common Shares on the TSX compared with the cumulative total shareholder return of the Class 1 railroads from December 31, 2012 to December 31, 2016.
Performance of CP TSR vs. Class 1 Railroads
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |||||||||||||||||||
CP (C$) | 100.00 | 147.98 | 238.19 | 334.24 | 265.73 | 290.69 | ||||||||||||||||||
CN (C$) | 100.00 | 114.69 | 156.27 | 209.37 | 205.68 | 244.65 | ||||||||||||||||||
NS | 100.00 | 87.38 | 134.57 | 162.40 | 128.65 | 168.80 | ||||||||||||||||||
UP | 100.00 | 120.53 | 164.28 | 237.40 | 160.28 | 217.79 | ||||||||||||||||||
CSX | 100.00 | 96.04 | 143.29 | 184.14 | 134.94 | 191.52 | ||||||||||||||||||
KCS | 100.00 | 124.02 | 185.06 | 184.10 | 114.08 | 131.75 |
COMPENSATION DISCUSSION AND ANALYSIS | 2017 MANAGEMENT PROXY STATEMENT | 61 |
The following graph illustrates the relationship between shareholder value and Total Direct Compensation (“TDC”) for the NEOs. TDC is defined as a decade. DespiteNEO’s Total Compensation amount less the economic conditions, CP performed well, setting recordsChange in several of our key metrics forPension Value and Nonqualified Deferred Compensation Earnings amount, each consecutive quarter. CP hasas reported in the Summary Compensation Table. The Total Shareholder Return is defined as the return on an effective operational model and a diverse mix of business. The structure we have is resilient and has produced positive results despite the economic headwinds. CP’s continued focus on service, combined with disciplined cost management and incrementalinitial $100 investment in CP’s common Shares (assuming the franchise, yielded strong results for customers and shareholders.
The NEO Total Direct Compensation, when compared with the trend in Total Shareholder Return from the period shows a close correlation between compensation earned by NEOs and shareholder return.
CP Total Shareholder Return vs. Total Direct Compensation
2012 | 2013 | 2014 | 2015 | 2016 | ||||||||||||||||
TDC ($ thousands) | 59,780 | 44,049 | 35,080 | 35,845 | 32,162 | |||||||||||||||
CP TSR (C$) | 147.98 | 238.19 | 334.24 | 265.73 | 290.69 | |||||||||||||||
Actual TDC ($ thousands) after resignations | 24,779 | 39,619 | 30,126 | 21,095 | 27,162 |
In years where there were more than five NEOs, the following guidelines were used:
Messrs. Harrison, Creel, Johnson, and Pitz are paid in U.S. dollars, amounts reported have been converted using the following average exchange rate of $1.3248 for 2016, $1.2787 for 2015, $1.1045 for 2014, $1.0299 for 2013 and $0.9996 for 2012. Actual TDC after resignations reflects the amounts previously reported in the Summary Compensation table that were forfeited upon departure from the Company for Messrs. Harrison, Erceg, and Demosky.
62 | CANADIAN PACIFIC | COMPENSATION DISCUSSION AND ANALYSIS |
NAMED EXECUTIVE OFFICER COMPENSATION FOR 2016
KEITH E. CREEL PRESIDENT AND CHIEF OPERATING OFFICER
Mr. Creel was appointed as the President and Chief Executive Officer on January 31, 2017. During the financial year ended December 31, 2016, Mr. Creel was CP’s President and Chief Operating Officer (“COO”). In that role, Mr. Creel provided strategic leadership and drove superior customer service and operational excellence across the organization. Mr. Creel was responsible for CP’s operations and sales and marketing teams. Prior to joining Canadian Pacific, Mr. Creel had a very successful operating career which began at Burlington Northern as a management trainee in operations and eventually led to his becoming the EVP and COO at CN in 2010. Mr. Creel obtained a Bachelor of Science in marketing from Jacksonville State University and has completed the Advanced Management Program at the Harvard Business School. He served as a commissioned officer in the U.S. Army during which time he served in the Persian Gulf War. As part of CP’s long-term succession plan, in June 2016, CP entered into an agreement with Mr. Creel concerning the terms of his employment upon becoming President and CEO. |
Upon appointment to President and CEO, Mr. Creel’s target total cash compensation (base salary plus target short-term incentive award) will be positioned at the 50th percentile of similar positions at the Class 1 railroads. As a retention measure, he received an initial grant of 177,255 performance-vested Options upon appointment that vest no earlier than five years from the date of grant. The number of such options that vest depends on CP’s total shareholder return performance highlights:
Mr. Creel’s access to the corporate aircraft for personal use is now limited to business commuting and family visits in North America. He will not be eligible for tax equalization payments. Mr. Creel will continue to be provided reasonable accommodation in the city of Calgary.
Mr. Creel’s employment agreement includes non-competition and non-solicitation restrictions.
For 2016, Mr. Creel’s performance was assessed against individual performance objectives, which included improvements in service performance and operating efficiency. Safety and environmental principles, which are fundamental to how the Company operates, were taken into consideration during the assessment. Mr. Creel was assessed as exceeding on his overall individual performance objectives. Based on these individual objectives and the Company’s financial performance, Mr. Creel received a 2016 annual bonus in the amount of $1,900,765 calculated as follows:
Salary | STIP Target Award Level | Component | Rating/Results | Bonus | ||||||||||||||||
Corporate: | $ | 1,267,176 | x 100% | x | 75% | x | 150% | = | $ | 1,425,573 | ||||||||||
Individual: | $ | 1,267,176 | x 100% | x | 25% | x | 150% | = | $ | 475,192 | ||||||||||
Total: | $ | 1,900,765 |
Following is a 470 basis point improvement from 2014
Actual 2016 Pay Mix | Compensation ($ ‘000) | 2016 | 2015 | 2014 | ||||||||||||
| Fixed: | |||||||||||||||
Base Salary | 1,261 | 1,164 | 964 | |||||||||||||
Variable: | ||||||||||||||||
STIP | 1,901 | 1,602 | 1,924 | |||||||||||||
LTIP | ||||||||||||||||
- MSOIP | 2,131 | 2,130 | 4,315 | |||||||||||||
- PSUs | 2,404 | 1,959 | 1,706 | |||||||||||||
Total Direct Compensation: | 7,697 | 6,855 | 8,909 | |||||||||||||
Total Target Direct Compensation: | 6,336 | 5,836 | 4,870 | |||||||||||||
Base salary is actual amount received in the applicable year. Payments made in U.S. dollars have been converted for each year to Canadian dollars using an average exchange rate of $1.3248 for 2016, $1.2787 for 2015 and $1.1045 for 2014. The 2014 MSOIP value includes a performance Option grant that was awarded in July 2014. | ||||||||||||||||
Ownership Target Multiple of Salary | Minimum Ownership Value | Total Ownership Level | Total Ownership (Multiple of Salary) | |||||||||||||
4x | $5,137,192 | $6,272,433 | 4.88x |
Ownership is valued at December 30, 2016. U.S. values have been converted using a year-end exchange rate of $1.3427.
NAMED EXECUTIVE OFFICER COMPENSATION | 2017 MANAGEMENT PROXY STATEMENT | 63 |
NADEEM S. VELANI VICE-PRESIDENT AND CHIEF FINANCIAL OFFICER
Mr. Velani was appointed Interim Vice-President and Chief Financial Officer on September 9, 2016 and was appointed on October 18, 2016 as Vice-President and Chief Financial Officer. Mr. Velani is a key member of the senior management team responsible for the long-term strategic direction of the Company. Other responsibilities include financial planning, reporting and accounting systems, as well as pension, treasury and tax functions. In addition, Mr. Velani continues to be responsible for Investor Relations. Mr. Velani joined CP in March 2013 and most recently served as Vice-President Investor Relations. Prior to CP, Mr. Velani spent approximately 15 years at CN where he worked in a variety of positions in financial planning, sales and marketing, investor relations and the Office of the President and CEO. In 2016, Mr. Velani’s performance was assessed by the CEO against individual performance objectives, which included developing a culture and organizational structure in finance better aligned to support an operations-focused Company, building a strong team of financial leaders, and improving the financial planning, budgeting and forecasting process. |
All aspects of these functions were taken into consideration during the assessment.
Mr. Velani was assessed as having exceeded his overall individual performance objectives. Based on these individual objectives and the Company’s financial performance, Mr. Velani received a 2016 bonus in the amount of $373,500 calculated as follows:
Salary | STIP Target Award Level | Component | Rating/Results | Bonus | ||||||||||||||||
Corporate: | 415,000 | x 60% | x | 75% | x | 150% | = | $ | 280,125 | |||||||||||
Individual: | 415,000 | x 60% | x | 25% | x | 150% | = | $ | 93,375 | |||||||||||
Total: | $ | 373,500 |
Following is a 370 basis point improvement from 2014
Actual 2016 Pay Mix | Compensation ($‘000) | 2016 | ||||||||||||||
| Fixed: | |||||||||||||||
Base Salary | 299 | |||||||||||||||
Variable: | ||||||||||||||||
STIP | 374 | |||||||||||||||
LTIP | ||||||||||||||||
- MSOIP | 105 | |||||||||||||||
- PSUs | 132 | |||||||||||||||
Total Direct Compensation: | 910 | |||||||||||||||
Total Target Direct Compensation: | 1,141 | |||||||||||||||
Base salary is the actual amount received in the year. | ||||||||||||||||
Ownership Target Multiple of Salary | Minimum Ownership Value | Total Ownership Level | Total Ownership (Multiple of Salary) | |||||||||||||
2x | $830,000 | $309,004 | 0.74x |
64 | CANADIAN PACIFIC | NAMED EXECUTIVE OFFICER COMPENSATION |
ROBERT A. JOHNSON EXECUTIVE VICE-PRESIDENT, OPERATIONS
Mr. Johnson was appointed as Executive Vice-President, Operations in April of 2016. In this role, Robert has overall operational responsibility for CP’s rail network, including aspects of operational safety, service, engineering and mechanical services in both Canada and the U.S. with a focus on train performance and overall fluidity of the network. Prior to this appointment, Robert was CP’s Senior Vice-President Operations, Southern Region. Mr. Johnson’s railroad career spans 32 years with BNSF where he held successively more responsible roles in operations, transportation, engineering, and service excellence. His most recent position at BNSF was General Manager, Northwest Division, overseeing day-to-day operations for that region. Mr. Johnson was assessed as having exceeded his overall individual performance objectives, which included safety, service, cost control, optimizing assets and people development. Based on these individual objectives and the Company’s financial performance, Mr. Johnson received a 2016 bonus in the amount of $648,324 calculated as follows: |
Salary | STIP Target Award Level | Component | Rating/Results | Bonus | ||||||||||||||||
Corporate: | $ | 576,288 | x 75% | x | 75% | x | 150% | = | $ | 486,243 | ||||||||||
Individual: | $ | 576,288 | x 75% | x | 25% | x | 150% | = | $ | 162,081 | ||||||||||
Total: | $ | 648,324 |
Following is a decreasesummary of 1% from 2014
Actual 2016 Pay Mix | Compensation ($‘000) | 2016 | 2015 | 2014 | ||||||||||||
| Fixed: | |||||||||||||||
Base Salary | 532 | 425 | 350 | |||||||||||||
Variable: | ||||||||||||||||
STIP | 648 | 362 | 437 | |||||||||||||
LTIP | ||||||||||||||||
- MSOIP | 318 | 327 | 294 | |||||||||||||
- PSUs | 359 | 300 | 251 | |||||||||||||
- RSUs | 416 | |||||||||||||||
Total Direct Compensation: | 1,857 | 1,414 | 1,748 | |||||||||||||
Total Target Direct Compensation: | 2,305 | 1,203 | 1,112 | |||||||||||||
Base salary is actual amount received in the applicable year. Payments made in U.S. dollars have been converted for each year to Canadian dollars using an average exchange rate of $1.3248 for 2016, $1.2787 for 2015 and $1.1045 for 2014. | ||||||||||||||||
Ownership Target Multiple of Salary | Minimum Ownership Value | Total Ownership Level | Total Ownership (Multiple of Salary) | |||||||||||||
3x | $1,752,224 | $1,054,322 | 1.81x |
Ownership is valued at December 30, 2016. U.S. values have been converted using a year-end exchange rate of $10.10,$1.3427.
NAMED EXECUTIVE OFFICER COMPENSATION | 2017 MANAGEMENT PROXY STATEMENT | 65 |
LAIRD J. PITZ VICE-PRESIDENT AND CHIEF RISK OFFICER
Mr. Pitz was appointed Vice-President and Chief Risk Officer in October of 2014. He is responsible for all aspects of risk-management in Canada and the U.S., including police services, casualty and general claims, environmental risk, field safety and systems, operational regulatory affairs and training, disability management and forensic audit investigations. Mr. Pitz joined CP on April 2, 2014, as Vice-President of Security and Risk Management. Mr. Pitz, a Vietnam War veteran and former FBI special agent, is a 40-year career professional who has directed strategic and operational risk-mitigation, security and crisis-management functions for companies operating in a wide range of fields including defence, logistics, and transportation. In 2016, Mr. Pitz’s performance was assessed by the CEO against individual performance objectives, which included mitigating risks in Safety, Environmental, Risk Management, Police, Casualty Management, Regulatory/Operating Practices, Forensic Audit, and Disability Management for the Company. Safety, environmental and risk-management principles, which are fundamental to how the Company operates, were taken into consideration during the assessment. Mr. Pitz was assessed as having exceeded his overall individual performance objectives. Based on these individual objectives and the Company’s financial performance, Mr. Pitz received a 2016 annual bonus in the amount of $417,312 calculated as follows: |
Salary | STIP Target Award Level | Component | Rating/Results | Bonus | ||||||||||||||||
Corporate: | 463,680 | x 60% | x | 75% | x | 150% | = | $ | 312,984 | |||||||||||
Individual: | 463,680 | x 60% | x | 25% | x | 150% | = | $ | 104,328 | |||||||||||
Total: | $ | 417,312 |
Following is an increasea summary of 19% from 2014
Actual 2016 Pay Mix | Compensation ($‘000) | 2016 | 2015 | |||||||||||||
| Fixed: | |||||||||||||||
Base Salary | 438 | 406 | ||||||||||||||
Variable: | ||||||||||||||||
STIP | 417 | 331 | ||||||||||||||
LTIP | ||||||||||||||||
- MSOIP | 279 | 288 | ||||||||||||||
- PSUs | 315 | 265 | ||||||||||||||
- DSUs | 83 | 83 | ||||||||||||||
Total Direct Compensation: | 1,531 | 1,373 | ||||||||||||||
Total Target Direct Compensation: | 1,275 | 1,126 | ||||||||||||||
Base salary is actual amount received in the applicable year. Payments made in U.S. dollars have been converted for each year to Canadian dollars using an average exchange rate of $1.3248 for 2016 and $1.2787 for 2015. | ||||||||||||||||
Ownership Target Multiple of Salary | Minimum Ownership Value | Total Ownership Level | Total Ownership (Multiple of Salary) | |||||||||||||
2x | $939,890 | $888,514 | 1.89x |
Ownership is valued at December 30, 2016. U.S. values have been converted using a year-end exchange rate of $1.3427.
66 | CANADIAN PACIFIC | NAMED EXECUTIVE OFFICER COMPENSATION |
E. HUNTER HARRISON CHIEF EXECUTIVE OFFICER AS AT DECEMBER 31, 2016
Mr. Harrison was appointed Chief Executive Officer (“CEO”) on June 28, 2012. As CEO, Mr. Harrison was responsible for leading CP to achieve operational and strategic goals that will build long-term shareholder value. Mr. Harrison resigned from CP effective January 31, 2017. As part of a separation agreement, Mr. Harrison forfeited all of his outstanding equity awards with the exception of 215,348 Options from an initial grant he received in 2012. These Options were exercised on February 14, 2017. Mr. Harrison’s annual bonus for 2016 was also agreed to be paid at 100% of the corporate amount which the Board approved at 150%. As a result of Mr. Harrison’s resignation, he forfeited $122.9 million dollars of compensation. For further information please refer to the message from the Chair of the Management Resources and Compensation Committee on page 5. Mr. Harrison’s total target compensation value considering his forfeitures from June 29, 2012 to January 31, 2017 was 0.35% of the total additional value created for shareholders over the same period ($16,009,943,247). |
Ownership Target Multiple of Salary | Minimum Ownership Value | Total Ownership Level | Total Ownership (Multiple of Salary) | |||||||||
5x | $14,769,700 | $47,360,854 | 16.03x |
Ownership is valued at December 30, 2016. U.S. values have been converted using a year-end exchange rate of $1.3427.
MARK J. ERCEG FORMER EXECUTIVE VICE-PRESIDENT AND CHIEF FINANCIAL OFFICER
Mr. Erceg was appointed Executive Vice-President and Chief Financial Officer on May 18, 2015. On September 23, 2016 Mr. Erceg resigned from CP to pursue other opportunities.
Mr. Erceg was provided with certain payments in the form of cash, Options, PSUs and DSUs as Executive Vice-President and CFO. As a result of Mr. Erceg’s resignation, the following equity awards reported in the Summary Compensation Table on page 72 for the indicated years were forfeited: | ||||||||||||||||
Year | Forfeited Stock Awards | Forfeited Options | ||||||||||||||
2015 | $ | 1,965,587 | $ | 1,658,189 | ||||||||||||
2016 | $ | 1,419,151 | $ | 1,052,731 | ||||||||||||
$ | 3,384,738 | $ | 2,710,920 |
In addition, per the terms of Mr. Erceg’s offer of employment, Mr. Erceg repaid the US$750,000 cash flow of $1,155 (millions), up from $725 (million) in 2014
In accordance with approximately 13.5 million shares repurchased over the course of 2015
NAMED EXECUTIVE OFFICER COMPENSATION | 2017 MANAGEMENT PROXY STATEMENT | 67 |
COMPENSATION
• The Compensation Committee is fully independent and has no interlocks |
• The Compensation Committee and management retain separate independent compensation advisors |
• CP has adopted “Say-on-Pay” |
• CP has policies in place prohibiting hedging and pledging of CP securities |
Compensation Committee Interlocks and Insider Participation
The Compensation Committee has no interlocks or insider participation. The members of the Compensation Committee during fiscal 20152016 were, Paul HilalIsabelle Courville (Chair), Hon. John Baird PC, Rebecca MacDonald, Krystyna Hoeg, Linda Morgan,and Andrew Reardon, and Stephen Tobias.Reardon. None of these members have ever been employed by Canadian Pacific, and no members had any relationship with CP during 20152016 requiring disclosure as a transaction with a related person, promoter, or control person under Item 404 or Regulation S-K or under the Compensation Committee Interlocks disclosure requirements of Item 407(e)(4) of Regulation S-K.
Composition of the Compensation Committee
In 2016, the Compensation Committee currently consistsconsisted of threefour independent directors: Isabelle Courville (Chair), John Baird and Rebecca MacDonald.
Each member of the Compensation Committee has education, skills and experience that are relevant to the performance of their responsibilities as a member of the Compensation Committee. The following skills and experience enable the Compensation Committee members to make decisions on the suitability of CP’s compensation policies and practices:
Ø | Isabelle Courville (Chair) is Chair of the Board of the Laurentian Bank of Canada. From 2007 to 2013, Ms. Courville was President of Hydro-Québec Distribution and Hydro-Québec TransÉnergie. Ms. Courville was active for 20 years in the Canadian telecommunications industry. She served as President of Bell Canada’s Enterprise Group and as President and Chief Executive Officer of Bell Nordiq Group. |
The Compensation Committee benefits from Ms. Courville'sCourville’s experience in managing large companies, including the design and planning of executive compensation.
Ø | John Baird most recently served as a Member of Parliament of Canada until his resignation on March 16, 2015. Prior to being elected as a MP, Mr. Baird was a Member of the Legislative Assembly of Ontario, during which time he served in a number of capacities including Minister of Community and Social Services, Minister Responsible for Children, Minister of Francophone Affairs, Deputy House Leader, Chief Government Whip, Minister of Energy and Government House Leader. |
Mr. Baird was a Member of the Legislative Assembly of Ontario, during which time he served in a number of capacities including Minister of Community and Social Services, Minister Responsible for Children, Minister of Francophone Affairs, Deputy House Leader, Chief Government Whip, Minister of Energy and Government House Leader.
Ø | Rebecca MacDonald is founder and current Executive Chair of Just Energy Group Inc., a Toronto-based independent marketer of deregulated gas and electricity. Ms. MacDonald served as President and Chief Executive Officer of Just Energy prior to becoming Executive Chair in 2007. As Chief Executive Officer, the head of the human resources department reported directly to her. |
Ms. MacDonald has strong succession planning experience including her development of candidates in preparation for her succession as Chief Executive Officer of Just Energy.
Ø | Andrew Reardon is a forty-year veteran of the railroad industry, and is the former Chairman and Chief Executive Officer of TTX Company, the leading railcar leasing company in North America. Mr. Reardon has extensive experience in compensation policies and practices, discussion of compensation matters with investors, talent development, succession planning, executive recruitment and human resource management in the rail industry. From 2007 to 2015, Mr. Reardon served on the Board of Appvion Inc. (formerly Appleton Papers, Inc) where he served on the Compensation Committee. |
Mr. Paul Hilal, a former directors were also ondirector, was Chair of the Compensation Committee until his resignation in 2015:
Overall, the Compensation Committee members possess human resources and compensation-related experience in the following areas:
COMPENSATION GOVERNANCE |
Executive Compensation Consultants
The Compensation Committee and management retain separate independent executive compensation advisors.
Compensation Committee Advisors
In 2015,2016, the Compensation Committee continued to engage Meridian Compensation Partners LLC (“Meridian”) as its independent compensation consultant. Meridian was originally retained by the Compensation Committee in 2012. Meridian has agreed not to perform any services for CP management. During 2015,2016, Meridian advised the Compensation Committee on executive compensation and to the Governance Committee on director compensation. The Chair of the Compensation Committee approves all fees and work performed by Meridian. Meridian’s fees were $170,267 for 2016 and $100,005 for 2015 and $228,455 for 2014.
Management Advisors
In 2015,2016, CP management engaged Towers Watson to provide market data and survey results relating to executive compensation. Total fees paid in this regard were $59,264 for 2016 and $89,519 for 2015 and $71,407 for 2014.
Tax and Accounting Considerations Deductibility
Tax and accounting implications are considered when designing incentive and equity compensation plans, but the Compensation Committee has not adopted a policy that all compensation must be deductible for income tax purposes. Other important considerations outweigh tax or accounting considerations.
Summary of Risk Profile and Risk Management
The Compensation Committee oversees risk management related to executive compensation and considers the implications of the risks associated with CP’s compensation policies and practices. Broad-based short-term and long-term incentive plans as well as the executive compensation program are aligned with CP’s strategic plan and enterprise risk management practices. Our compensation programs, policies and practices operate to encourage the right behaviours, to reward performance, and to align with long-term shareholder interests. Risks are mitigated through appropriate plan design, implementation of risk mitigating policies, and specific risk mitigation measures discussed on page 66.
Level | Minimum Payout as Percentage of Base Salary (%) | Target Payout as Percentage of Base Salary (%) | Maximum Payout as Percentage of Base Salary (%) |
CEO | 75 | 150 | 300 |
Other NEOs | 30 – 50 | 60 – 100 | 120 – 200 |
Other Officers | 25 – 32.5 | 50 – 65 | 100 – 130 |
Remaining Participants | 3.75 – 20 | 7.5 – 40 | 15 – 80 |
Level | Target Award as a Percentage of Base Salary (%) | Corporate Component Weighting (%) | Individual Component Weighting (%) |
CEO | 150 | 75 | 25 |
Other NEOs | 60 – 100 | 75 | 25 |
Other Officers | 50 – 65 | 75 | 25 |
Senior Managers | 35 – 40 | 60 | 40 |
Remaining Participants | 7.5 – 30 | 50 | 50 |
Performance Range | |||||||||
Company Measure | Weight | Threshold | Target | Exceptional | |||||
Operating Ratio | Operating expenses divided by total revenues | 50 | % | 65.2 | % | 64.5 | % | 63 | % |
Operating Income ($M) | Revenues less expenses using US GAAP | 25 | % | 2,290 | 2,440 | 2,690 | |||
Free Cash Flow ($M) | Cash provided by operating activities less cash used in investing activities as shown on the Consolidated Statement of Cash-Flows (excluding costs of assets acquired under lease strategy) | 25 | % | 560 | 660 | 960 |
Measure | Target | Exceptional Target | 2015 Actual Result | Performance Assessment | |||
Operating Ratio | 64.5 | % | 63.0 | % | 64.25 | % | above target |
Operating Income | $ 2,440 M | $ 2,690 M | 2,318 M | below target | |||
Free Cash Flow | $ 660 M | $960 M | 1,059 M | exceptional |
Name | % of Base Salary | Target LTIP ($) | ||
E.H. Harrison | 300 | % | 8,439,420 | |
M.J. Erceg | 275 | % | 1,881,287 | |
K.E. Creel | 300 | % | 3,501,396 | |
L.J. Pitz | 115 | % | 471,047 | |
M.K. Wallace | 115 | % | 378,447 | |
T.E. Marsh | 250 | % | 1,350,000 | |
P.A. Guthrie | 115 | % | 453,082 |
Performance Metric | Operating Ratio | Free Cash (M) | TSR CAGR relative to Index | TSR CAGR relative to Class 1 RR | ||||
Target 100% | 68.5 | % | $1,009 | 1 | % | Third | ||
Exceptional 200% | 66.5 | % | $1,080 | 5 | % | First | ||
Corporate Results | 61 | % | $1,534 | 18.14 | % | First | ||
Payout Level Achieved | 200 | % | 200 | % | 200 | % | 200 | % |
Share Ownership Requirements
Executive share ownership is strongly encouraged by CP. Share ownership requirements call for a minimum level of share ownership, expressed as a multiple of base salary, to be achieved within a five-year period. Share ownership requirements can be met through the holding of common sharesShares and deferred share units. Ownership in 20152016 was determined using the greater of acquisition value and the closing price of a CP Share on December 31, 201530, 2016 which was $176.73$191.56 per shareShare on the TSX and US$127.60142.77 on the NYSE.
The share ownership requirements apply to approximately 7971 executives and senior management employees. The following guidelines are currentlywere in place:
Position | Guidelines | |
CEO | 5 times salary | |
President and COO | 4 times salary | |
EVP | 3 times salary | |
SVP | 2 times salary | |
VP | 1.5 to 2 times salary | |
Senior Management | 1 times salary |
Messrs. Harrison Creel, and GuthrieCreel have met their ownership requirements. Messrs. Erceg,Velani, Johnson and Pitz Wallace, and Marsh are expected to achieve their ownership requirement within five years from their date of hire.
# of Units | Value on December 31, 2015 (CAD$) | |
CP Shares (personally held) | 178,617 | 29,143,528 |
DSUs | 67,807 | 11,063,504 |
Value of Shares and DSUs | 40,207,032 | |
Options | 837,873 | 67,985,879 |
Total Value | 108,192,911 |
Governance Structure and Risk Mitigation in Compensation Programs
The Compensation Committee is focused on supporting CP’s key goal of creating enduring shareholder value by developing an executive compensation program that aligns with CP’s strategic plan, emphasizes the importance of long-term value creation and mitigates risk.
COMPENSATION GOVERNANCE | 2017 MANAGEMENT PROXY STATEMENT | 69 |
Risk management is integral to CP’s overall business strategies and long-term success. The Board believes that executive compensation programs should not raise the Company’s risk profile. Accordingly, the Compensation Committee undertakes a comprehensive annual compensation risk review. The focus of this review is to ensure that compensation risks are identified and appropriate mitigation measures are in place. This review is undertaken with the assistance of the Compensation Committee’s independent compensation consultant. As a result of this review in 2015,2016, the Compensation Committee concluded that CP’s pay programs and policies are not reasonably likely to have a material adverse effect on CP, its business or its value.
In assessing compensation-related risk, the Compensation Committee reviews the broad-based
The Compensation Committee also reviews and recommends to the Board for approval compensation for NEOs and individuals reporting directly to the CEO.
Plan Design | Executive compensation consists of a mix of fixed and variable compensation with significant pay at risk | |
The STIP is capped and not guaranteed with the Compensation Committee having discretion to reduce awards | ||
The payout curve under the STIP is designed asymmetrically to reflect that target performance has significant stretch | ||
The STIP and LTIP have multiple specific measurable criteria that are closely aligned with the achievement of CP’s long-term business strategy and are set based on the performance required to achieve results in accordance with guidance provided to the market | ||
The LTIP is designed with overlapping vesting periods to address longer-term risks and maintain executives’ exposure to the risks of their decision-making through unvested share based awards | ||
Policies | A clawback policy is in place for senior executives | |
A holdback policy | ||
retirement. As part of his separation agreement with CP he forfeited the majority of his equity and had an immediate time frame to exercise his remaining Options. Share ownership requirements apply to a broad group of senior management | ||
A whistleblowing policy is in place for all employees and includes prohibitions on retaliating | ||
An anti-hedging policy prohibits directors, officers and employees from hedging Shares and share-based awards | ||
Mitigation Measures | Pay mix is managed so that more senior roles have a significant portion of their compensation deferred | |
Awards under the STIP are examined to ensure they constitute a reasonable percentage of net earnings | ||
No payments are made under the STIP unless a specified operating income threshold is achieved | ||
Financial performance is verified by CP’s auditor before decisions are made respecting payouts under the STIP | ||
The Compensation Committee has approved principles for adjustments to STIP payouts | ||
The Compensation Committee takes safety and environmental principles which are fundamental to how CP achieves its financial and operational objectives, into account in exercising its discretion to determine payouts under the STIP | ||
Safety is considered as part of the individual performance component under the STIP for the CEO and operations executives | ||
Executive compensation is benchmarked regularly against | ||
group The Compensation Committee uses an independent compensation consultant who attends all Compensation Committee meetings as required and meets with the Chair of the Compensation Committee in advance of each meeting | ||
Incentive plans are stress tested to understand possible outcomes |
The Compensation Committee also benefits from overlapping membership with other committees with respect to risk monitoring. Ms. Courville,All Compensation Committee Chair,members are also members of the Governance Committee, and Mr. Reardon is also a member of the Audit Committee and Ms. MacDonald and Mr. Baird are members of the Corporate Governance and Nominating Committee.Finance Committees. This overlapping membership provides a link between the committees’ risk oversight responsibilities and ensures that the Compensation Committee has an in-depth understanding of enterprise risks.
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | |
CP TSR | 100.00 | 108.77 | 161.63 | 260.17 | 365.09 | 290.25 |
S&P/TSX Composite Index | 100.00 | 91.29 | 97.85 | 110.56 | 122.23 | 112.06 |
2012 | 2013 | 2014 | 2015 | |
CP | 100.00 | 160.47 | 225.18 | 179.02 |
UP | 100.00 | 135.56 | 195.91 | 132.27 |
KCS | 100.00 | 149.22 | 148.45 | 92.03 |
CN | 100.00 | 136.26 | 182.55 | 179.33 |
NS | 100.00 | 154.01 | 185.86 | 146.25 |
CSX | 100.00 | 149.21 | 191.73 | 139.56 |
2011 | 2012 | 2013 | 2014 | 2015 | |
TDC ($ thousands) | 12,161 | 20,799 | 27,125 | 34,953 | 35,417 |
TDC ($ thousands) 2015 exchange rate = 2014 exchange rate | 12,161 | 20,799 | 27,125 | 34,953 | 31,520 |
CP TSR ($) | 108.77 | 161.63 | 260.17 | 365.09 | 290.25 |
Salary | STIP Target Award Level | Component | Rating/ Results | Bonus | |||||||
Corporate: | $2,813,140 | x | 150% | x | 75% | x | 123% | = | $ | 3,892,682 | |
Individual: | $2,813,140 | x | 150% | x | 25% | x | 200% | = | $ | 2,109,855 | |
Total: | $ | 6,002,537 |
Compensation ($‘000) | 2015 | 2014 | 2013 | |||
Fixed: | ||||||
Base Salary | 2,804 | 2,422 | 2,267 | |||
Variable: | ||||||
STIP | 6,003 | 7,290 | 4,430 | |||
LTIP | ||||||
-MSOIP | 5,163 | 4,012 | — | |||
-PSUs | 4,749 | 4,413 | — | |||
Total Direct Compensation: | 18,719 | 18,137 | 6,697 | |||
Total Target Direct Compensation: | 15,472 | 13,364 | 12,462 |
Ownership Target Multiple of Salary | Minimum Ownership Value | Total Ownership Level | Total Ownership (Multiple of Salary) |
5x | $14,065,700 | $40,207,032 | 14.29x |
Salary | STIP Target Award Level | Component | Rating/ Results | Bonus | |||||||
Corporate: | $1,167,132 | x | 100% | x | 75% | x | 123% | = | $ | 1,076,679 | |
Individual: | $1,167,132 | x | 100% | x | 25% | x | 180% | = | $ | 525,210 | |
Total: | $ | 1,601,889 |
Compensation ($‘000) | 2015 | 2014 | 2013 | |||
Fixed: | ||||||
Base Salary | 1,164 | 964 | 796 | |||
Variable: | ||||||
STIP | 1,602 | 1,924 | 1,679 | |||
LTIP | ||||||
-MSOIP | 2,070 | 4,315 | 1,760 | |||
-PSUs | 1,904 | 1,706 | 1,615 | |||
Total Direct Compensation: | 6,740 | 8,909 | 5,850 | |||
Total Target Direct Compensation: | 5,836 | 4,870 |
Ownership Target Multiple of Salary | Minimum Ownership Value | Total Ownership Level | Total Ownership (Multiple of Salary) |
4x | $4,668,529 | $5,250,577 | 4.50x |
Salary | STIP Target Award Level | Component | Rating/ Results | Percent of Year Employed | Bonus | ||||||||
Corporate: | $684,105 | x | 80% | x | 75% | x | 123% | x | 62.8% | = | $ | 317,236 | |
Individual: | $684,105 | x | 80% | x | 25% | x | 140% | x | 62.8% | = | $ | 120,360 | |
Total: | $ | 437,596 |
Compensation ($‘000) | 2015 | ||||
Fixed: | Make Whole Hiring Costs: | ||||
Base Salary | 414 | Cash Payment | 923 | ||
Variable: | |||||
STIP | 438 | ||||
LTIP | |||||
-MSOIP | 1,658 | ||||
-PSUs | 1,966 | ||||
Total Direct Compensation: | 852 | Total Hiring Costs: | 4,547 |
Ownership Target Multiple of Salary | Minimum Ownership Value | Total Ownership Level | Total Ownership (Multiple of Salary) |
3x | $2,052,314 | $30,035 | 0.04x |
Salary | STIP Target Award Level | Component | Rating/ Results | Bonus | |||||||
Corporate: | $409,606 | x | 60% | x | 75% | x | 123% | = | $ | 226,717 | |
Individual: | $409,606 | x | 60% | x | 25% | x | 170% | = | $ | 104,449 | |
Total: | $ | 331,166 |
CANADIAN PACIFIC | ||||
COMPENSATION GOVERNANCE |
Ownership Target Multiple of Salary | Minimum Ownership Value | Total Ownership Level | Total Ownership (Multiple of Salary) |
2x | $819,212 | $421,935 | 1.03x |
Executive Compensation Clawback
CP has a clawback policy under which the Board may require reimbursement of short-term and long-term incentive compensation paid to a senior executive or former senior executive if:
(a) the incentive compensation received by the senior executive or former senior executive was calculated based upon the achievement of financial results that were subsequently materially restated or corrected, in whole or in part;
(b) the senior executive or former senior executive engaged in gross negligence, fraud or intentional misconduct that caused or partially caused the need for such restatement or correction, as admitted by the senior executive, or, in the year. Payments madeabsence of such admission, as determined by the Board acting reasonably; and
(c) the incentive compensation paid to the senior executive or former senior executive would have been lower based on the restated or corrected results.
In such circumstances, reimbursement of all or a portion of the applicable incentive compensation paid to the senior executive or former senior executive will be sought as permitted by applicable laws and to the extent that the Board determines, in US dollars were converted using an average rateits sole discretion, that such clawback is in the best interests of exchangethe Corporation.
Anti-Hedging Policy
Under CP’s Disclosure and Insider Trading/Reporting Policy, CP directors, officers and employees are prohibited from purchasing financial instruments that are designed to hedge or offset a decrease in market value of $1.2787Shares or equity awards of CP granted as compensation or held, directly or indirectly, by them.
Anti-Pledging Policy
The Company has a policy that prohibits Executive Officers and Directors of the Company from holding securities of the Company in a margin account or otherwise pledging such securities as collateral for 2015. .
Salary | STIP Target Award Level | Component | Rating/ Results | Bonus | |||||||
Corporate: | $329,084 | x | 60% | x | 75% | x | 123% | = | $ | 182,148 | |
Individual: | $329,084 | x | 60% | x | 25% | x | 175% | = | $ | 86,385 | |
Total: | $ | 268,533 |
71 |
Ownership Target Multiple of Salary | Minimum Ownership Value | Total Ownership Level | Total Ownership (Multiple of Salary) |
2x | $658,168 | $501,869 | 1.53x |
Forfeited Stock Awards | Forfeited Option Awards | |
2013 | $733,116 | $1,936,674 |
2014 | $565,399 | $942,147 |
2015 | $1,045,403 | $953,010 |
Total: | $2,343,918 | $3,831,831 |
Salary | STIP Target Award Level | Component | Rating/ Results | Percent of Year Employed | Bonus | ||||||||
Corporate: | $620,000 | x | 80% | x | 75% | x | 123% | x | 41.0% | = | $ | 187,582 | |
Individual: | $620,000 | x | 80% | x | 25% | x | 100% | x | 41.0% | = | $ | 50,835 | |
Total: | $ | 238,417 |
Salary | STIP Target Award Level | Component | Rating/ Results | Percent of Year Employed | Bonus | ||||||||
Corporate: | 540,000 | x | 68.41% | x | 75% | x | 123% | x | 91.6% | = | $ | 312,059 | |
Individual: | 540,000 | x | 68.41% | x | 25% | x | 100% | x | 91.6% | = | $ | 84,569 | |
Total: | $ | 396,628 |
Salary | STIP Target Award Level | Component | Rating/ Results | Bonus | |||||||
Corporate: | $393,984 | x | 60% | x | 75% | x | 123% | = | $ | 218,070 | |
Individual: | $393,984 | x | 60% | x | 25% | x | 140% | = | $ | 82,737 | |
Total: | $ | 300,807 |
COMPENSATION DETAILS
SUMMARY COMPENSATION TABLE
The following disclosure of executive compensation provides information on the compensation of CP’s NEOs, including the CEO, CFO, former CFO and the three next highest paid NEOs and two former NEOs during the years ended December 31, 2016, 2015 and 2014. Mr. Johnson was a NEO in 2014 and 2013. Messrs. Erceg, Pitz, Wallace and Marsh served as NEOs for the first time in 2015.
Messrs. Harrison, Creel, Johnson and Pitz receive their compensation in U.S. dollars. Their compensationdollars which has been converted for each year to Canadian dollars using an average exchange rate of $1.3248 for 2016, $1.2787 for 2015 and for Messrs. Harrison and Creel at the average exchange rate of $1.1045 for 2014 and $1.0299 for 2013.2014. Mr. Erceg'sErceg’s employment agreement specifiesspecified that his compensation is in U.S. dollars; however, all cash payments on Mr. Erceg'sErceg’s behalf arewere converted to Canadian dollars at time of payment.
Name and Principal Position (a) | Year (b) | Salary ($) (c) | Bonus ($) (d) | Stock Awards ($) (e) | Options Awards ($) (f) | Non-Equity Incentive Plan Compensation ($) (g) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (h) | All other Compensation ($) (i) | Total Compensation ($) (j) | |||||||||
E.H. Harrison | 2015 | 2,803,522 | — | 4,749,089 | 5,163,279 | 6,002,537 | — | 1,184,026 | 19,902,453 | |||||||||
Chief Executive Officer | 2014 | 2,421,592 | — | 4,413,495 | 4,012,023 | 7,289,700 | — | 596,496 | 18,733,306 | |||||||||
2013 | 2,266,718 | — | — | — | 4,429,600 | — | 510,047 | 7,206,365 | ||||||||||
M.J. Erceg | 2015 | 414,138 | 923,400 | 1,965,587 | 1,658,189 | 437,596 | 28,473 | 264,128 | 5,691,511 | |||||||||
Executive Vice-President and | ||||||||||||||||||
Chief Financial Officer | ||||||||||||||||||
B.W. Demosky | 2015 | 306,564 | — | 1,045,403 | 953,010 | 238,417 | 174,907 | 10,033,240 | 12,751,541 | |||||||||
Former Executive Vice-President | 2014 | 603,621 | — | 1,071,237 | 1,256,196 | 868,000 | 619,059 | 44,066 | 4,462,179 | |||||||||
and Chief Financial Officer | 2013 | 4,753 | 470,000 | 3,745,686 | 3,873,348 | — | 518,582 | — | 8,612,369 | |||||||||
K.E. Creel | 2015 | 1,164,270 | — | 1,903,625 | 2,069,755 | 1,601,889 | 300,024 | 513,379 | 7,552,942 | |||||||||
President and | 2014 | 963,772 | — | 1,705,738 | 4,314,507 | 1,923,730 | 252,526 | 131,783 | 9,292,056 | |||||||||
Chief Operating Officer | 2013 | 795,839 | 11,040,814 | 8,118,900 | 7,049,125 | 1,678,608 | — | 108,152 | 28,791,438 | |||||||||
L.J. Pitz | 2015 | 406,126 | — | 338,523 | 279,792 | 331,166 | 58,639 | 92,361 | 1,506,607 | |||||||||
Vice-President and | ||||||||||||||||||
Chief Risk Officer | ||||||||||||||||||
M.K. Wallace | 2015 | 323,994 | 272,326 | 202,434 | 268,533 | 33,338 | 82,866 | 1,183,491 | ||||||||||
Vice-President, Corporate Affairs | ||||||||||||||||||
and Chief of Staff | ||||||||||||||||||
T.E. Marsh | 2015 | 473,989 | — | 856,753 | 735,513 | 396,628 | 40,078 | 110,086 | 2,613,047 | |||||||||
Vice-President Sales - International, | ||||||||||||||||||
Former Senior Vice-President Sales & Marketing | ||||||||||||||||||
P.A. Guthrie | 2015 | 389,948 | — | 270,959 | 247,050 | 300,807 | 696,867 | 49,241 | 1,954,872 | |||||||||
Special Counsel to the CEO, | 2014 | 380,474 | — | 270,281 | 317,428 | 432,422 | 1,190,512 | 43,044 | 2,634,161 | |||||||||
Former Chief Legal Officer | 2013 | 364,226 | — | 246,363 | 268,889 | 338,438 | 82,063 | 62,325 | 1,362,304 | |||||||||
and Corporate Secretary |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Options Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All other Compensation ($) | Total Compensation ($) | |||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
E.H. Harrison Chief Executive Officer | 2016 | 2,904,595 | 3,537,216 | — | 4,999,757 | 6,557,760 | — | 830,466 | 18,829,794 | |||||||||||||||||||||||||||
2015 | 2,803,522 | — | 4,887,846 | 5,314,137 | 6,002,537 | — | 1,187,281 | 20,195,323 | ||||||||||||||||||||||||||||
2014 | 2,421,592 | — | 4,413,495 | 4,012,023 | 7,289,700 | — | 599,131 | 18,735,941 | ||||||||||||||||||||||||||||
N.S. Velani Vice-President and Chief Financial Officer | 2016 | 298,838 | — | 131,634 | 105,305 | 373,500 | 26,674 | 65,023 | 1,000,974 | |||||||||||||||||||||||||||
M.J. Erceg Former Executive Vice-President and Chief Financial Officer | 2016 | 546,184 | — | 1,419,151 | 1,052,731 | — | 61,388 | 143,588 | 3,223,042 | |||||||||||||||||||||||||||
2015 | 414,138 | 923,400 | 1,965,587 | 1,658,189 | 437,596 | 28,473 | 264,128 | 5,691,511 | ||||||||||||||||||||||||||||
K.E. Creel President and Chief Operating Officer | 2016 | 1,261,123 | — | 2,403,912 | 2,131,126 | 1,900,765 | 324,401 | 857,385 | 8,878,712 | |||||||||||||||||||||||||||
2015 | 1,164,270 | — | 1,959,244 | 2,130,228 | 1,601,889 | 300,025 | 514,958 | 7,670,614 | ||||||||||||||||||||||||||||
2014 | 963,772 | — | 1,705,738 | 4,314,507 | 1,923,729 | 252,526 | 131,783 | 9,292,055 | ||||||||||||||||||||||||||||
R.A. Johnson Executive Vice-President, Operations | 2016 | 532,056 | — | 358,674 | 317,991 | 648,324 | 73,902 | 318,936 | 2,249,883 | |||||||||||||||||||||||||||
2015 | 425,160 | — | 300,454 | 326,539 | 362,141 | 76,565 | 90,759 | 1,581,618 | ||||||||||||||||||||||||||||
2014 | 350,479 | — | 666,497 | 293,897 | 436,745 | 42,974 | 65,101 | 1,855,693 | ||||||||||||||||||||||||||||
L.J. Pitz Vice-President and Chief Risk Officer | 2016 | 437,720 | — | 397,394 | 279,071 | 417,312 | 61,891 | 95,912 | 1,689,300 | |||||||||||||||||||||||||||
2015 | 406,126 | — | 347,920 | 287,967 | 331,166 | 58,639 | 92,361 | 1,524,179 |
Salary (Column (c))
The amounts in the Salary column represent the base salary earned by each NEO in the applicable year. Salary differs from annualized salary because annual increases occur on April 1 of the relevant year and because of the average exchange rate used to calculate compensation in Canadian dollars.
Bonus (Column (d))
The amounts in the Bonus column represent the one-time make-wholecash payments made to the NEOs atNEOs. In 2016, the timeBoard approved a request that a portion of hire. Such payments were made to Mr. ErcegHarrison’s 2016 LTIP award be paid in 2015,cash. The Board provided a lower cash award in lieu of PSUs since Mr. Harrison already had significant equity holdings (16X his annual salary) and to Messrs. Creel and Demoskythe value of this cash payment was less than the value of the ordinary course PSU grant that Mr. Harrison would have otherwise received in 2013.
Stock Awards (Column (e))
The amounts in the Stock Awards column representsrepresent share awards in the form of PSUs that were granted in the applicable year. For Messrs. Erceg and Pitz, the value also includes the value of matching DSU awards that they received as a result of deferring all or a part of their annual bonus. The grant date accounting value of these awards is calculated in accordance with FASB ASC Topic 718: Compensation -– Stock Compensation, which represents the grant date fair value (with reference to the Shares underlying the awards), measured using a latticed-based valuation model assuming the probable outcome of the applicable performance conditions and excluding the effect of estimated forfeitures during the applicable vesting periods. The fair value of PSUs granted in respect of Shares traded on the NYSE has been converted using an average exchange rate of $1.3248 for 2016, $1.2787 for 2015 and $1.1045 for 2014. Refer to Item 8, Financial Statements and Supplementary Data, Note 21: Stock-based compensation, in the Company’sForm 10-K filed with the SEC on February 16, 2017 for further details.
72 | CANADIAN PACIFIC | COMPENSATION DETAILS |
Upon Mr. Harrison’s resignation, his PSUs granted in 2015 were forfeited. Upon Mr. Erceg’s resignation, both his 2015 and 2016 grants of PSUs were forfeited.
The maximum grant date fair value of the PSUs for each NEO by grant would be:
Name | 2015 | 2014 | 2013 | ||||||
E.H. Harrison | $ | 9,498,178 | $ | 8,826,990 | |||||
M.J. Erceg | $ | 3,931,174 | |||||||
B.W. Demosky | $ | 2,090,806 | $ | 2,142,474 | $ | 5,721,198 | |||
K.E. Creel | $ | 3,807,250 | $ | 3,411,476 | $ | 9,464,480 | |||
L.J. Pitz | $ | 514,784 | |||||||
M.K. Wallace | $ | 444,012 | |||||||
T. E. Marsh | $ | 1,713,506 | |||||||
P.A. Guthrie | $ | 541,918 | $ | 540,562 | $ | 492,726 |
Name | 2016 | 2015 | 2014 | |||||||||
E.H. Harrison | $ | — | $ | 9,775,692 | $ | 6,424,657 | ||||||
N.S. Velani | $ | 263,268 | $ | — | $ | — | ||||||
M.J. Erceg | $ | 2,611,472 | $ | 3,931,175 | $ | — | ||||||
K.E. Creel | $ | 4,807,824 | $ | 3,918,488 | $ | 2,483,018 | ||||||
R.A. Johnson | $ | 717,349 | $ | 600,908 | $ | 364,655 | ||||||
L.J. Pitz | $ | 629,504 | $ | 529,824 | $ | — |
Option Awards (Column (f))
The amounts reported in the Option Awards column represent the grant date fair value of stock option awards granted to each of the NEOs, calculated in accordance with FASB ASC Topic 718: Compensation -– Stock Compensation. The grant date fair value of stock option awards is measured using the Black-Scholes option-pricing model.model (with reference to the Shares underlying the Options). Refer to Item 8, Financial Statements and Supplementary Data, Note 25:21: Stock-based compensation.
Upon Messrs. Harrison and Erceg’s resignations, all Options relating to the disclosed values were forfeited.
Refer to the Grants of Plan-Based Awards Table on page 8376 for further information on 20152016 grants.
Non-Equity Incentive Plan Compensation (Column (g))
The amounts reported in the Non-Equity Incentive Plan Compensation column reflect the amounts earned by each NEO under the Company'sCompany’s annual STIP. Messrs. Erceg, Pitz, Wallace and Marsh elected to defer all or part of their 2015 STIP payment into DSUs at time of payment in February 2016.
Change in Pension Value and Nonqualified Deferred Compensation Earnings (Column (h))
Further details on the amounts reported can be found in the sections entitled Pension Plan Benefits and Nonqualified Deferred Compensation.
None of the NEOs received above-market or preferential earnings (as defined by the SEC) on their nonqualified deferred compensation accounts.
All Other Compensation (Column (i))
The amounts reported in the All Other Compensation column reflect, for each NEO, the sum of the benefits set forth below:
Perquisites ($) | Other Compensation ($) | ||||||||||||||||||||||||
Name | Personal Use of Company Aircraft | Auto Benefits | Relocation Benefits | Housing Allowance | Financial and Tax Planning | Additional Medical | Club | ESPP Match | DC and 401K Contributions | Tax Reimbursements | Post Employment Benefits | Total | |||||||||||||
E.H. Harrison | 1,082,593 | — | — | 22,873 | — | 50,158 | 14,910 | — | 13,492 | — | — | 1,184,026 | |||||||||||||
M.J. Erceg | — | 10,002 | 180,423 | 26,179 | — | 1,496 | 11,200 | 8,001 | 17,082 | 9,745 | — | 264,128 | |||||||||||||
B.W. Demosky | — | 9,222 | — | — | 2,625 | 1,495 | — | 5,458 | 20,617 | 4,170 | 9,989,653 | 10,033,240 | |||||||||||||
K.E. Creel | 343,615 | 19,825 | — | 40,907 | 19,180 | — | 29,947 | 21,338 | 38,567 | — | — | 513,379 | |||||||||||||
L.J. Pitz | — | 18,497 | — | 32,927 | — | — | 14,321 | — | 16,943 | 9,673 | — | 92,361 | |||||||||||||
M.K. Wallace | — | 18,524 | — | 12,373 | 2,712 | 1,495 | 9,300 | 6,415 | 22,956 | 9,091 | — | 82,866 | |||||||||||||
T. E. Marsh | — | 17,128 | 43,000 | 14,425 | — | — | — | 7,377 | 16,801 | 11,355 | — | 110,086 | |||||||||||||
P.A. Guthrie | — | 19,687 | — | — | — | 1,495 | 11,200 | 7,721 | — | 9,138 | — | 49,241 |
Perquisites ($) | Other Compensation ($) | |||||||||||||||||||||||||||||||||||||||||||
Name | Personal Use of Company Aircraft | Auto Benefits | Relocation Benefits | Housing Allowance | Financial and Tax Planning | Additional Medical | Club | ESPP Match | DC and 401K Contributions | Tax Reimbursements | Total | |||||||||||||||||||||||||||||||||
E.H. Harrison | 719,442 | — | — | 16,756 | — | 32,313 | 36,612 | — | — | 25,343 | 830,466 | |||||||||||||||||||||||||||||||||
N.S. Velani | — | 17,479 | — | — | — | — | 11,200 | 5,917 | 23,008 | 7,419 | 65,023 | |||||||||||||||||||||||||||||||||
M.J. Erceg | — | 14,836 | — | 77,212 | — | 1,733 | — | 10,227 | 17,460 | 22,120 | 143,588 | |||||||||||||||||||||||||||||||||
K.E. Creel | 618,445 | 21,768 | — | 123,069 | 19,872 | — | 19,361 | 24,780 | 30,090 | — | 857,385 | |||||||||||||||||||||||||||||||||
R.A. Johnson | — | 21,735 | 213,387 | 9,354 | — | — | 14,838 | — | 21,291 | 38,331 | 318,936 | |||||||||||||||||||||||||||||||||
L.J. Pitz | — | 17,837 | — | 26,165 | — | 125 | 14,838 | — | 20,690 | 16,257 | 95,912 |
Aircraft Usage
The amount reflects the value of Messrs. Harrison'sMr. Harrison’s and Mr. Creel’s personal travel on company-ownedCompany-owned or leased aircraft. The aggregate incremental cost is determined by multiplying the variable cost per air hour by the number of hours used for travel other than for Company business. This includes costs to the companyCompany such as fuel, maintenance, landing fees and other miscellaneous variable costs.
COMPENSATION DETAILS | 2017 MANAGEMENT PROXY STATEMENT | 73 |
Auto Benefits
The NEOs as are all executives, are entitled to an executive automobile benefit consisting of a company-leased vehicle and reimbursement for associated operating costs.
Relocation Benefits
The Company provides relocation benefits such as a paid home search trip including airfare, car rental, meals and accommodations, temporary lodging and final destination transportation costs, mortgage assistance in higher cost areas (described below under Housing Allowance), legal fees, movement of household goods and an incidental allowance. NEOs are eligible for these benefits under our corporate relocation policy, pursuant to the same terms and using the same formulas as other participating employees.
Housing Allowance
Messrs. Harrison and Creel are provided with reasonable accommodation in the city of Calgary. This is reflected in the amounts disclosed. The value is based on aggregate incremental operating costs to the Company such as condo fees, housekeeping, and other miscellaneous costs.
Messrs. Erceg, Marsh,Johnson and Pitz and Wallace are entitled to a relocation housing subsidy and applicable tax gross-ups as per the relocation policy available to all employees.
Financial and Tax Planning
The Company provides a taxable reimbursement to the NEOs for financial planning services, which includes tax preparation.
Under current Canadian income tax legislation, financial/retirement counseling does not generate a taxable benefit, other than with respect to the preparation of income tax returns. The Company grosses up this portion of the non-cash taxable benefit to a limit of $1,000.Additional Medical
The Company makes available executive physicals available to all NEOs and providesprovided additional fees related to medical expenses not covered under CP'sCP’s group health plans for Mr. Harrison.
Club Memberships
Additional perquisites are given as part of a flexible perquisites program available to all executives for the use of club memberships.
Additional All Other Compensation
Company Contributions to the 401(k), the Defined Contribution Plan, the Supplemental Plan and the ESPP
The Company makes matching contributions to certain NEOs'NEOs’ accounts under the applicable Company 401(k), U.S. Salaried Retirement Income Plan, Canadian Defined Contribution Plan and ESPP on the same terms and using the same formulas as other participating employees.
Employee Share Purchase Plan
CP’s Employee Share Purchase Plan (“ESPP”) is available to all employees and provides the opportunity to purchase voting Shares on the open market through payroll deductions. Employees may contribute between 1% and 10% of their base salary to the ESPP every pay period. CP provides a 33% match on the first 6% of non-unionized employees’ contributions that vest after four consecutive quarters. Employees must remain participants of the ESPP at the time of vesting in order to receive the CP match. As of December 31, 2016, approximately 38% of CP’s employees participated in the ESPP.
Matching Contributions to the Senior Executives'Executives’ Deferred Share Unit Plan
Messrs. PitzErceg and WallacePitz received matching DSUs in 20152016 as a result of deferring all or a part of their 20142015 STIP awards. Upon resignation Mr. Erceg forfeited those units. The number of matching units granted can
Tax Reimbursements
NEOs are eligible for automobile-related gross-ups, as well as gross-ups for any housing subsidy that is available to all eligible relocated employees.
74 | CANADIAN PACIFIC | COMPENSATION DETAILS |
Employment Agreements
The employment agreements for executive officers, with the exception of Messrs. Harrison Creel and Demosky,Creel, are set out in a standard offer letter template from CP. These offer letters contain the standard terms as described elsewhere in compensation discussionthe Compensation Discussion and analysisAnalysis and include an annual salary, participation in the STIP and LTIP plans as approved annually by the Compensation Committee, participation in the benefit plans or programs generally available to management employees, and modest perquisites. All senior management are subject to share ownership requirements.
Messrs. Harrison and Creel are, and Mr. Demosky was,were subject to employment agreements. Specifically,agreements in 2016, however, effective January 31, 2017, Mr. Harrison'sHarrison resigned and this employment agreement includes:
Mr. Creel'sCreel’s 2016 agreement providesprovided for:
2016 Summary Compensation Table After Forfeited Payments
The following table is provided for informational purposes and sets forth the annual compensation for NEOs for 2014, 2015 and 2016 for NEOs excluding any compensation that was forfeited by Mr. Demosky's agreement provided:
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Options Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All other Compensation ($) | Total Compensation ($) | |||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||
E.H. Harrison Chief Executive Officer | 2016 | 2,904,595 | 3,537,216 | — | — | 6,557,760 | — | 830,466 | 13,830,037 | |||||||||||||||||||||||
2015 | 2,803,522 | — | — | — | 6,002,537 | — | 1,187,281 | 9,993,340 | ||||||||||||||||||||||||
2014 | 2,421,592 | — | 4,413,495 | — | 7,289,700 | — | 599,131 | 14,723,918 | ||||||||||||||||||||||||
N.S. Velani Vice-President and Chief Financial Officer | 2016 | 298,838 | — | 131,634 | 105,305 | 373,500 | 26,674 | 65,023 | 1,000,974 | |||||||||||||||||||||||
M.J. Erceg Executive Vice President and Chief Financial Officer | 2016 | 546,184 | — | — | — | — | — | 133,361 | 679,545 | |||||||||||||||||||||||
2015 | 414,138 | — | — | — | 437,596 | — | 264,128 | 1,115,862 | ||||||||||||||||||||||||
K.E. Creel President and Chief Operating Officer | 2016 | 1,261,123 | — | 2,403,912 | 2,131,126 | 1,900,765 | 324,401 | 857,385 | 8,878,712 | |||||||||||||||||||||||
2015 | 1,164,270 | — | 1,959,244 | 2,130,228 | 1,601,889 | 300,025 | 514,958 | 7,670,614 | ||||||||||||||||||||||||
2014 | 963,772 | — | 1,705,738 | 4,314,507 | 1,923,729 | 252,526 | 131,783 | 9,292,055 | ||||||||||||||||||||||||
R.A. Johnson Executive Vice-President, Operations | 2016 | 532,056 | — | 358,674 | 317,991 | 648,324 | 73,902 | 318,936 | 2,249,883 | |||||||||||||||||||||||
2015 | 425,160 | — | 300,454 | 326,539 | 362,141 | 76,565 | 90,759 | 1,581,618 | ||||||||||||||||||||||||
2014 | 350,479 | — | 666,497 | 293,897 | 436,745 | 42,974 | 65,101 | 1,855,693 | ||||||||||||||||||||||||
L.J. Pitz Vice-President and Chief Risk Officer | 2016 | 437,720 | — | 397,394 | 279,071 | 417,312 | 61,891 | 95,912 | 1,689,300 | |||||||||||||||||||||||
2015 | 406,126 | — | 347,920 | 287,967 | 331,166 | 58,639 | 92,361 | 1,524,179 | ||||||||||||||||||||||||
COMPENSATION DETAILS | 2017 MANAGEMENT PROXY STATEMENT | 75 |
INCENTIVE PLAN AWARDS
2016 GRANTS OF PLAN-BASED AWARDS
The NEOs are eligible to receive annual cash awards under the STIP. If an NEO'sa NEO’s ownership requirements have not been met he may defer a portion of his STIP award into DSUs in the year that the STIP award was paid and receive Company matching DSUs on that deferral. NEOs are also eligible for awards of PSUs and Options under the LTIP. The following table provides information on grants of awards under all plans made to the NEOs in 2015.2016. Messrs. Harrison, Creel, Erceg, Johnson and Pitz receivereceived their compensation in U.S. dollars. Their compensationdollars; the estimated future payout under Non-Equity Incentive Plan Awards has been converted to Canadian dollars using an average exchange rate of exchange of $1.2787 for 2015.
Name | Type of Award | Board Approval Date | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units | All Other Option Awards: Number of Securities Underlying Options | Exercise or Base Price of Option Awards | Grant Date Fair Value of Stock and Option Awards | |||||||||||||||
Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||||||||||||||
($) | ($) | ($) | (#) | (#) | (#) | (#) | (#) | ($/Sh) | ($) | |||||||||||||||
E.H. | STIP | 2,109,855 | 4,219,710 | 8,439,420 | ||||||||||||||||||||
Harrison | PSUs | 16-Dec-2014 | 23-Jan-2015 | 11,071 | 22,141 | 44,282 | — | 4,749,089 | ||||||||||||||||
Options | 16-Dec-2014 | 23-Jan-2015 | 84,593 | 175.92 | 5,163,279 | |||||||||||||||||||
M.J. | STIP | 273,642 | 547,284 | 1,094,568 | ||||||||||||||||||||
Erceg | PSUs | 1-May-2015 | 18-May-2015 | 4,634 | 9,267 | 18,534 | — | 1,965,587 | ||||||||||||||||
Options | 1-May-2015 | 18-May-2015 | 35,409 | 215.75 | 1,658,189 | |||||||||||||||||||
B.W. | STIP | 248,000 | 496,000 | 992,000 | ||||||||||||||||||||
Demosky | PSUs | 16-Dec-2014 | 23-Jan-2015 | 2,435 | 4,869 | 9,738 | — | 1,045,403 | ||||||||||||||||
Options | 16-Dec-2014 | 23-Jan-2015 | 18,605 | 218.78 | 953,010 | |||||||||||||||||||
K.E. | STIP | 583,566 | 1,167,132 | 2,334,264 | ||||||||||||||||||||
Creel | PSUs | 16-Dec-2014 | 23-Jan-2015 | 4,438 | 8,875 | 17,750 | — | 1,903,625 | ||||||||||||||||
Options | 16-Dec-2014 | 23-Jan-2015 | 33,910 | 175.92 | 2,069,755 | |||||||||||||||||||
L.J. | STIP | 122,882 | 245,764 | 491,528 | ||||||||||||||||||||
Pitz | PSUs | 16-Dec-2014 | 23-Jan-2015 | 600 | 1,200 | 2,400 | 257,392 | |||||||||||||||||
Options | 16-Dec-2014 | 23-Jan-2015 | 4,584 | 175.92 | 279,792 | |||||||||||||||||||
DSUs | 19-Feb-2015 | 342 | 81,132 | |||||||||||||||||||||
M.K. | STIP | 98,725 | 197,450 | 394,900 | ||||||||||||||||||||
Wallace | PSUs | 16-Dec-2014 | 23-Jan-2015 | 517 | 1,034 | 2,068 | — | 222,006 | ||||||||||||||||
Options | 16-Dec-2014 | 23-Jan-2015 | 3,952 | 218.78 | 202,434 | |||||||||||||||||||
DSUs | 19-Feb-2015 | 212 | 50,320 | |||||||||||||||||||||
T.E. | STIP | 184,707 | 369,414 | 738,828 | ||||||||||||||||||||
Marsh | PSUs | 19-Jan-2015 | 13-Feb-2015 | 1,880 | 3,760 | 7,520 | — | 856,753 | ||||||||||||||||
Options | 19-Jan-2015 | 13-Feb-2015 | 14,350 | 231.85 | 735,513 | |||||||||||||||||||
P.A. | STIP | 118,195 | 236,390 | 472,780 | ||||||||||||||||||||
Guthrie | PSUs | 16-Dec-2014 | 23-Jan-2015 | 631 | 1,262 | 2,524 | — | 270,959 | ||||||||||||||||
Options | 16-Dec-2014 | 23-Jan-2015 | 4,823 | 218.78 | 247,050 |
Name | Type of Award | Board Approval Date | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units | All Other Option Awards: Number of Securities Underlying Options | Exercise or Base Price of Option Awards | Grant Date Fair Value of Stock and Option Awards | |||||||||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | (#) | (#) | ($/Sh) | ($) | |||||||||||||||||||||||||||||||||||||
E.H. Harrison | STIP | 2,185,920 | 4,371,840 | 8,743,680 | ||||||||||||||||||||||||||||||||||||||||||
PSUs | ||||||||||||||||||||||||||||||||||||||||||||||
Options | 14-Dec-2015 | 22-Jan-2016 | 129,620 | 116.80 | 4,999,757 | |||||||||||||||||||||||||||||||||||||||||
N.S. Velani | STIP | 124,500 | 249,000 | 498,000 | ||||||||||||||||||||||||||||||||||||||||||
PSUs | 23-Feb-2016 | 23-Feb-2016 | 391 | 782 | 1,564 | 131,634 | ||||||||||||||||||||||||||||||||||||||||
Options | 14-Dec-2015 | 22-Jan-2016 | 2,927 | 165.74 | 105,305 | |||||||||||||||||||||||||||||||||||||||||
M.J. Erceg | STIP | 283,507 | 567,014 | 1,134,029 | ||||||||||||||||||||||||||||||||||||||||||
PSUs | 23-Feb-2016 | 23-Feb-2016 | 3,879 | 7,757 | 15,514 | 1,305,736 | ||||||||||||||||||||||||||||||||||||||||
Options | 14-Dec-2015 | 22-Jan-2016 | 29,261 | 165.74 | 1,052,731 | |||||||||||||||||||||||||||||||||||||||||
DSUs | 23-Feb-2016 | 674 | 113,415 | |||||||||||||||||||||||||||||||||||||||||||
K.E. Creel | STIP | 633,588 | 1,267,176 | 2,534,353 | ||||||||||||||||||||||||||||||||||||||||||
PSUs | 23-Feb-2016 | 23-Feb-2016 | 7,416 | 14,832 | 29,664 | 2,403,912 | ||||||||||||||||||||||||||||||||||||||||
Options | 14-Dec-2015 | 22-Jan-2016 | 55,250 | 116.80 | 2,131,126 | |||||||||||||||||||||||||||||||||||||||||
R.A. Johnson | STIP | 216,108 | 432,216 | 864,432 | ||||||||||||||||||||||||||||||||||||||||||
PSUs | 23-Feb-2016 | 23-Feb-2016 | 1,107 | 2,213 | 4,426 | 358,674 | ||||||||||||||||||||||||||||||||||||||||
Options | 14-Dec-2015 | 22-Jan-2016 | 8,244 | 116.80 | 317,991 | |||||||||||||||||||||||||||||||||||||||||
L.J. Pitz | STIP | 139,104 | 278,208 | 556,416 | ||||||||||||||||||||||||||||||||||||||||||
PSUs | 23-Feb-2016 | 23-Feb-2016 | 971 | 1,942 | 3,884 | 314,752 | ||||||||||||||||||||||||||||||||||||||||
Options | 14-Dec-2015 | 22-Jan-2016 | 7,235 | 116.80 | 279,071 | |||||||||||||||||||||||||||||||||||||||||
DSUs | 23-Feb-2016 | 510 | 82,642 |
For each plan year, the Compensation Committee establishes a minimum level of corporate operating income performance, below the threshold level, called the corporate hurdle. When performance falls below the corporate hurdle, no awards are paid. If corporate performance falls below the threshold level but above the corporate hurdle, only the individual component of the award may be paid. The threshold value in the chart assumes that the NEO earned the minimum amount payable (and assumes that the corporate hurdle was achieved).
Annually, executives may defer all or part of their annual bonus into DSUs, up to their required ownership level. The Company provides a 25% match on the amount
PSUs at target are as disclosed in the Summary CompCompensation Table. The exercise price of the 20152016 Options is based on the closing Share price on the TSX on the grant date. With respect to Messrs. Harrison, Creel, Johnson and Pitz, the exercise price is reported in U.S Dollars based on ourthe closing Share price in U.S. Dollars on the NYSE on the grant date. With
76 | CANADIAN PACIFIC | COMPENSATION DETAILS |
2016 MANAGEMENT PROXY STATEMENT 83
The following tables show unexercised options,Options, stock that has not vested and any unvested or unearned equity incentive plan awardawards outstanding as atof December 31, 2015.2016. For additional information about Option and Share awards, see the description of the Executive DSU Plan and Long-Term Incentives in the Compensation Discussion and Analysis.
Option Awards | Stock Awards | ||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) (Exercisable) | Number of Securities Underlying Unexercised Options (#) (Unexercisable) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Value of Unexercised In-the-Money Options/SARs at 2015 Year-End ($) | Number of Shares or Units of Stock That Have not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested ($) | |||||||||
E.H. Harrison | 487,500 | 162,500 | 73.39 | 26-Jun-2022 | 67,171,000 | ||||||||||||||
25,820 | 77,460 | 168.84 | 31-Jan-2024 | 814,879 | |||||||||||||||
— | 84,593 | 175.92 | 23-Jan-2025 | — | |||||||||||||||
6,425 | 1,048,381 | ||||||||||||||||||
54,195 | 9,577,902 | ||||||||||||||||||
44,503 | 7,261,164 | ||||||||||||||||||
Total | 513,320 | 324,553 | 67,985,879 | 6,425 | 1,048,381 | 98,698 | 16,839,066 | ||||||||||||
M.J. Erceg | — | 35,409 | 215.75 | 18-May-2025 | — | ||||||||||||||
18,598 | 3,286,906 | ||||||||||||||||||
Total | — | 35,409 | — | — | — | 18,598 | 3,286,906 | ||||||||||||
B.W. Demosky | 6,212 | 1,097,791 | |||||||||||||||||
Total | — | — | — | — | — | 6,212 | 1,097,791 | ||||||||||||
K.E. Creel | 39,775 | 79,550 | 115.78 | 4-Feb-2023 | 7,272,859 | ||||||||||||||
26,675 | 26,675 | 119.18 | 22-Feb-2023 | 3,070,293 | |||||||||||||||
9,975 | 29,925 | 168.84 | 31-Jan-2024 | 314,811 | |||||||||||||||
— | — | 47,940 | 210.32 | 24-Jul-2024 | — | ||||||||||||||
— | 33,910 | 175.92 | 23-Jan-2025 | — | |||||||||||||||
6,123 | 999,032 | ||||||||||||||||||
20,945 | 3,701,691 | ||||||||||||||||||
17,838 | 2,910,565 | ||||||||||||||||||
Total | 76,425 | 170,060 | 47,940 | 10,657,963 | 6,123 | 999,032 | 38,783 | 6,612,256 | |||||||||||
L.J. Pitz | 788 | 2,362 | 187.00 | 03-Jun-2024 | — | ||||||||||||||
— | 4,584 | 175.92 | 23-Jan-2025 | — | |||||||||||||||
344 | 56,091 | ||||||||||||||||||
1,737 | 306,951 | ||||||||||||||||||
2,412 | 393,541 | ||||||||||||||||||
Total | 788 | 6,946 | — | 344 | 56,091 | 4,149 | 700,492 | ||||||||||||
M.K. Wallace | 3,000 | 3,000 | 119.18 | 22-Feb-2023 | 345,300 | ||||||||||||||
2,120 | 2,920 | 129.42 | 5-Mar-2023 | 238,442 | |||||||||||||||
1,290 | 3,870 | 168.84 | 31-Jan-2024 | 40,712 | |||||||||||||||
— | 3,952 | 218.78 | 23-Jan-2025 | — | |||||||||||||||
229 | 40,409 | ||||||||||||||||||
213 | 37,687 | ||||||||||||||||||
2,222 | 392,612 | ||||||||||||||||||
2,712 | 479,253 | ||||||||||||||||||
2,078 | 367,292 | ||||||||||||||||||
Total | 6,410 | 13,742 | 624,454 | 2,664 | 470,708 | 4,790 | 846,545 | ||||||||||||
T.E. Marsh | — | 14,350 | 231.85 | 13-Feb-2025 | — | ||||||||||||||
7,557 | 1,335,606 | ||||||||||||||||||
Total | — | 14,350 | — | — | — | 7,557 | 1,335,606 |
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) (Exercisable) | Number of Securities Underlying Unexercised Options (#) (Unexercisable) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Value of Unexercised In-the- Money Options/ SARs at 2016 Year- End ($) | Number of Shares or Units of Stock That Have not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested ($) | ||||||||||||||||||||||||||||||||||
E.H. Harrison | 650,000 | — | 73.39 | 26-Jun-2022 | 76,810,500 | |||||||||||||||||||||||||||||||||||||||
51,640 | 51,640 | 168.84 | 31-Jan-2024 | 2,346,522 | ||||||||||||||||||||||||||||||||||||||||
21,149 | 63,444 | 175.92 | 23-Jan-2025 | — | ||||||||||||||||||||||||||||||||||||||||
— | 129,620 | 116.80 | 22-Jan-2026 | 4,519,839 | ||||||||||||||||||||||||||||||||||||||||
44,918 | 8,610,615 | |||||||||||||||||||||||||||||||||||||||||||
Total | 722,789 | 244,704 | 83,676,861 | — | — | 44,918 | 8,610,615 | |||||||||||||||||||||||||||||||||||||
N.S. Velani | 1,733 | 577 | 126.34 | 2-Apr-2023 | 150,658 | |||||||||||||||||||||||||||||||||||||||
910 | 910 | 168.84 | 31-Jan-2024 | 41,350 | ||||||||||||||||||||||||||||||||||||||||
385 | 1,154 | 218.78 | 23-Jan-2025 | — | ||||||||||||||||||||||||||||||||||||||||
2,927 | 165.74 | 22-Jan-2026 | 75,575 | |||||||||||||||||||||||||||||||||||||||||
131 | 25,124 | |||||||||||||||||||||||||||||||||||||||||||
66 | 12,711 | |||||||||||||||||||||||||||||||||||||||||||
815 | 156,177 | |||||||||||||||||||||||||||||||||||||||||||
817 | 156,596 | |||||||||||||||||||||||||||||||||||||||||||
1,575 | 301,716 | |||||||||||||||||||||||||||||||||||||||||||
Total | 3,028 | 5,568 | 267,583 | 1,012 | 194,012 | 2,392 | 458,312 | |||||||||||||||||||||||||||||||||||||
M.J. Erceg | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Total | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
K.E. Creel | 79,550 | 39,775 | 115.78 | 4-Feb-2023 | 9,042,449 | |||||||||||||||||||||||||||||||||||||||
40,013 | 13,337 | 119.18 | 22-Feb-2023 | 3,861,473 | ||||||||||||||||||||||||||||||||||||||||
19,950 | 19,950 | 168.84 | 31-Jan-2024 | 906,528 | ||||||||||||||||||||||||||||||||||||||||
— | 47,940 | 210.32 | 24-Jul-2024 | — | ||||||||||||||||||||||||||||||||||||||||
8,478 | 25,432 | 175.92 | 23-Jan-2025 | — | ||||||||||||||||||||||||||||||||||||||||
— | 55,250 | 116.80 | 22-Jan-2026 | 1,926,563 | ||||||||||||||||||||||||||||||||||||||||
18,005 | 3,451,480 | |||||||||||||||||||||||||||||||||||||||||||
29,874 | 5,726,812 | |||||||||||||||||||||||||||||||||||||||||||
Total | 147,991 | 201,684 | 15,737,013 | — | — | 47,879 | 9,178,292 | |||||||||||||||||||||||||||||||||||||
R.A. Johnson | 2,730 | 910 | 129.54 | 2-Jul-2023 | 225,753 | |||||||||||||||||||||||||||||||||||||||
2,935 | 2,935 | 168.84 | 31-Jan-2024 | 133,366 | ||||||||||||||||||||||||||||||||||||||||
1,300 | 3,898 | 175.92 | 2-Jan-2025 | — | ||||||||||||||||||||||||||||||||||||||||
— | 8,244 | 116.80 | 22-Jan-2026 | 287,468 | ||||||||||||||||||||||||||||||||||||||||
2,446 | 468,867 | |||||||||||||||||||||||||||||||||||||||||||
2,761 | 529,292 | |||||||||||||||||||||||||||||||||||||||||||
4,457 | 854,466 | |||||||||||||||||||||||||||||||||||||||||||
Total | 6,965 | 15,987 | 646,587 | 2,446 | 468,867 | 7,218 | 1,383,758 | |||||||||||||||||||||||||||||||||||||
L.J. Pitz | 1,575 | 1,575 | 187.00 | 03-Jun-2024 | 14,364 | |||||||||||||||||||||||||||||||||||||||
1,146 | 3,438 | 175.92 | 23-Jan-2025 | — | ||||||||||||||||||||||||||||||||||||||||
— | 7,235 | 116.80 | 22-Jan-2026 | 252,284 | ||||||||||||||||||||||||||||||||||||||||
347 | 66,519 | |||||||||||||||||||||||||||||||||||||||||||
513 | 98,434 | |||||||||||||||||||||||||||||||||||||||||||
2,434 | 466,679 | |||||||||||||||||||||||||||||||||||||||||||
3,912 | 749,829 | |||||||||||||||||||||||||||||||||||||||||||
Total | 2,721 | 12,248 | 266,648 | 860 | 164,953 | 6,346 | 1,216,508 |
COMPENSATION DETAILS | 2017 MANAGEMENT PROXY STATEMENT | 77 |
Option Awards | Stock Awards | |||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) (Exercisable) | Number of Securities Underlying Unexercised Options (#) (Unexercisable) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Value of Unexercised In-the-Money Options/SARs at 2015 Year-End ($) | Number of Shares or Units of Stock That Have not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested ($) | ||||||||
P.A. Guthrie | 10,000 | — | 62.56 | 2-Mar-2017 | 1,141,700 | |||||||||||||
10,100 | — | 71.69 | 19-Feb-2018 | 1,060,904 | ||||||||||||||
8,540 | — | 36.29 | 18-Feb-2019 | 1,199,358 | ||||||||||||||
17,500 | — | 51.17 | 25-Feb-2020 | 2,197,300 | ||||||||||||||
13,500 | — | 65.06 | 24-Feb-2021 | 1,507,545 | ||||||||||||||
12,250 | — | 75.71 | 1-Apr-2022 | 1,237,495 | ||||||||||||||
7,303 | 2,434 | 97.70 | 7-Dec-2022 | 769,515 | ||||||||||||||
4,075 | 4,075 | 119.18 | 22-Feb-2023 | 469,033 | ||||||||||||||
1,585 | 4,755 | 168.84 | 31-Jan-2024 | 50,023 | ||||||||||||||
— | 4,823 | 218.78 | 23-Jan-2025 | — | ||||||||||||||
3,319 | 586,548 | |||||||||||||||||
2,537 | 448,281 | |||||||||||||||||
Total | 84,853 | 16,087 | 9,632,873 | — | — | 5,856 | 1,034,829 |
In general, regular Options granted prior to 2017, vest over four years at a rate of 25% on each anniversary of the grant date. However, Option grants made prior to June 2012 vested as to 50% on the second anniversary of the date of grant and as to the balance on the third anniversary of the date of grant. Regular Options expire ten years from the date of grant.
The Value of Unexercised In-the-Money Options/SARs at 20152016 Year-End
Mr. Creel was awarded a performance optionperformance-vested Option grant on July 24, 2014. These Options will vestvested upon meeting certain operating ratio and operating income hurdles. None of the optionsOptions would become exercisable before June 1, 2018.2018 (50% of the options would vestOptions vested upon CP'sCP’s attainment of an annual Operating Ratio of 63%, and the other 50% would vestvested upon CP attaining an annual Operating Income of $2,618M)$2,618 million).
The Market Value of Shares or Units of Stock That Have Not Vested
includes the value of unvested DSUs and restricted share units (“RSUs”) based on the closingFor Messrs. Harrison, Creel,Johnson and Pitz the DSU or RSU value is based on the closing shareShare price on the NYSE on December 31, 201530, 2016 (US$127.60)142.77) converted into Canadian dollars using an averagea year-end exchange rate of $1.2787. These$1.3427. The DSU awards are deferred and not redeemable until termination of employment.
The number of shares shown in the column
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other RightsThat Have Not Vested includes the sum of the performance units that would be payable under theFor stock awards, the number of unvested shares reported above includes dividends earned. The original grant units and grant date fair values for 20152016 stock awards are disclosed in the GrantGrants of Plan-Based Awards Table.
The following table shows the vesting dates and the corresponding number of shares in the Outstanding Equity Awards at Fiscal Year End table, assuming continued employment through the vesting date.
Vesting Dates | |||||||||||||||
Name | Stock Award | 28-Jun-2016 | 6-Feb-2016 | 31-Dec-2016 | 26-Feb-2017 | 08-May-2017 | 31-Dec-2017 | 19-Feb-2018 | |||||||
E.H. Harrison | Senior Executive Deferred Share Units | 6,425 | — | — | — | — | — | — | |||||||
Performance Share Units | — | — | 54,195 | — | — | 44,503 | — | ||||||||
M.J. Erceg | Performance Share Units | — | — | — | — | — | 18,598 | — | |||||||
B.W. Demosky | Performance Share Units | — | — | 6,212 | — | — | — | — | |||||||
K.E. Creel | Senior Executive Deferred Share Units | — | 6,123 | — | — | — | — | — | |||||||
Performance Share Units | — | — | 20,945 | — | — | 17,838 | — | ||||||||
L.J. Pitz | Senior Executive Deferred Share Units | — | — | — | — | — | — | 344 | |||||||
Performance Share Units | — | — | 1,737 | — | — | 2,412 | — | ||||||||
M.K. Wallace | Senior Executive Deferred Share Units | — | — | — | 229 | — | — | 213 | |||||||
Restricted Share Units | — | — | — | — | 2,222 | — | — | ||||||||
Performance Share Units | — | — | 2,712 | — | — | 2,078 | — | ||||||||
T.E. Marsh | Performance Share Units | — | — | — | — | — | 7,557 | — | |||||||
P.A. Guthrie | Performance Share Units | — | — | 3,319 | — | — | 2,537 | — |
Vesting Dates | ||||||||||||||||||||||||||
Name | Stock Award | 26-Feb-2017 | 08-May-2017 | 31-Dec-2017 | 19-Feb-2018 | 31-Dec-2018 | 23-Feb-2019 | |||||||||||||||||||
E.H. Harrison | Performance Share Units | 44,918 | ||||||||||||||||||||||||
N.S. Velani | Senior Executive Deferred Share Units | 131 | 66 | |||||||||||||||||||||||
Performance Share Units | 817 | 1,575 | ||||||||||||||||||||||||
Restricted Share Units | 815 | |||||||||||||||||||||||||
K.E. Creel | Performance Share Units | 18,005 | 29,874 | |||||||||||||||||||||||
R.A. Johnson | Performance Share Units | 2,761 | 4,457 | |||||||||||||||||||||||
Restricted Share Units | 2,446 | |||||||||||||||||||||||||
L.J. Pitz | Senior Executive Deferred Share Units | 347 | 513 | |||||||||||||||||||||||
Performance Share Units | 2,434 | 3,912 |
78 | CANADIAN PACIFIC | COMPENSATION DETAILS |
OPTION EXERCISES AND STOCK VESTED
The following table provides details regarding Options exercised and sold by the NEOs, and Stock Awardsstock awards vested during the financial year ended December 31, 2015.
Option Awards | Stock Awards | ||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(a) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(b) | |||||||
E. H. Harrison | — | — | 6,403 | 1,267,399 | |||||||
M.J. Erceg | — | — | — | — | |||||||
B.W. Demosky | 45,823 | 2,375,090 | 29,451 | 5,399,000 | |||||||
K.E. Creel | — | — | 111,223 | 21,648,203 | |||||||
L.J. Pitz | — | — | — | — | |||||||
M.K. Wallace | 800 | 88,480 | 3,196 | 585,844 | |||||||
T.E. Marsh | — | — | — | — | |||||||
P.A. Guthrie | 3,560 | 725,208 | 9,509 | 1,743,199 |
Name | Option Awards | Stock Awards | ||||||||
Number of Shares Acquired on (#) | Value Realized on ($)(a) | Number of Shares Acquired on (#) | Value Realized on ($)(b) | |||||||
E. H. Harrison | — | — | 38,803 | 7,463,388 | ||||||
N.S. Velani | — | — | 568 | 112,755 | ||||||
M.J. Erceg | — | — | — | — | ||||||
K.E. Creel | — | — | 18,640 | 3,525,031 | ||||||
R.A. Johnson | — | — | 3,809 | 685,661 | ||||||
L.J .Pitz | — | — | 1,037 | 205,897 |
The number of shares acquired on vesting include PSUs, related to the 2012/20132014 grant that vested at 200%118%, and DSUs. The value realized on vesting is calculated by multiplying the number of shares acquired on vesting by the market price of the shares on the respective vesting dates.
With respect to Mr. Harrison, 6,452 of the 6,403 unitsstock awards which vested were DSUs, andwhich are settled only upon termination of employment per the terms of the Executive DSU Plan described below under the heading "Deferred“Deferred Compensation Plans"Plans”. As described in the message from our Management Resources and Compensation Committee Chair, Mr. Creel also acquired 24,328 vested DSUs.
MANAGEMENT STOCK OPTION INCENTIVE PLAN
The Management Stock Option Incentive Plan ("MSOIP"(“MSOIP”) was established in October 2001 for the purpose of providing certain officers and select key employees of the Company with an incentive to enhance shareholder value.
The number of Options granted to a recipient is determined by dividing a targeted dollar amount (determined taking into account market practice and a number of other factors), which is expressed as a percentage of the recipient’s salary, by the theoretical value of an Option. That value is determined using broadly used valuation models that estimate the probable future payout, applied to the 30 day average closing shareShare price prior to the issuance of the grant. Neither the amount nor the terms of previously granted Options are taken into consideration in determining the size of a new grant, which otherwise might result in the unintended consequence of encouraging early exercise to avoid having future grants reduced due to significant outstanding Option holdings. In addition, it might disadvantage long-servicinglong-serving employees and those who remain committed to the stock.
Regular Options expire ten10 years from the date of grant. Grants made prior to June, 2012 vested as to 50% on the second anniversary of the grant and as to the
An Option will expire before its normal expiry date if: (a) an Option holder resigns from his or her employment, in which case the Option will expire 30 days following such resignation; (b) an Option holder’s employment is terminated without cause, in which case the Option will expire six months following such termination; (c) an Option holder’s employment is terminated for cause, including where an Option holder resigns after being requested to do so as an alternative to being terminated for cause, in which case the Option will expire immediately upon such termination; (d) an Option holder dies, in which case the Option will expire 12 months following his death and may be exercised by the holder’s estate. An Option will continue to vest and expire on its normal expiry date if an Option holder’s employment ceases due to permanent disability. An Option granted will expire on the earlier of a)(a) its normal expiry date or b)(b) five years after the Option holder retires, upon attaining the applicable mandatory or early retirement age.
If an Option would otherwise expire during a blackout period, it will be extended beyond its normal expiry date to a date ten10 business days after the date on which the
Options may be assigned only to an Option holder’s family trust, personal holding corporation, or retirement trust or a legal representative of an Option holder’s estate or a person who acquires the Option holder’s rights by bequest or inheritance.
The MSOIP includes change of control provisions that cause all Options held by an Option Holder who is terminated without cause upon a change of control to immediately vest. The change of control provisions in the MSOIP, as well as the Corporation'sCorporation’s other incentive plans, are substantially similar to the change of control provisions described below under "Termination“Change in Control and Change of Control Benefits"Termination Benefits”, except that: (i) under the terms of the MSOIP and other incentive plans, the Board cannot adopt a resolution confirming that a change of control has occurred; and (ii) under the MSOIP and other incentive plans the threshold for sharesShares of the Corporation held by a new entity to cause a change of control is 50%.
COMPENSATION DETAILS | 2017 MANAGEMENT PROXY STATEMENT | 79 |
Under the terms of the MSOIP, the maximum number of Shares that may be reserved for issuance to insiders as Options is 10% of the number of Shares outstanding. The maximum number of Options that may be granted to insiders within a one-year period is 10% of the number of Shares outstanding and to any one insider is 5% of the number of Shares outstanding. The maximum number of Options that may be granted to any one individual is 5% of the number of Shares outstanding at the time of the reservation.
Notwithstanding the limits noted above, the dilution level, measured by the number of Options available for issuance as a percentage of outstanding Shares continues to be capped, at the discretion of the Board, at 7%. CP’s potential dilution level at year end is 2.3%2.2%.
The CEO, as well as the Chairman of the Board and the Chair of the Compensation Committee, have authority to grant Options to employees within certain defined parameters, which include the position of the grantee and the expected value of the Options being granted. For 2015,2016, the Compensation Committee authorized a pool of 100,000 Options for allocation by the CEO under this authority from which 1,478 Options in total were granted to 1one employee for the purposes of performance recognition and retention.
Participants in the MSOIP are granted a number of Options, exercisable at the last closing market price of Shares on the TSX or the NYSE (for grants after December 15, 2014 depending on the grant currency) prior to the approval of the grant. The exercise price of Options may not be reduced without shareholder approval. The following table illustrates information
Options Outstanding and Available for Grant as of December 31, 2015:
2015 | Number of Options/Shares | Percentage of Outstanding Shares | |
Options outstanding (December 31, 2015) | 1,654,048 | 1.1 | % |
Options available to grant (December 31, 2015) | 1,860,427 | 1.2 | % |
Shares issued on exercise of Options | 14,564,167 | 9.5 | % |
Options granted | 317,202 | 0.2 | % |
2016 | Number of Options/Shares | Percentage of Outstanding Shares | ||||||
Options outstanding (as at December 31, 2016) | 1,687,407 | 1.2% | ||||||
Options available to grant (as at December 31, 2016) | 1,549,868 | 1.1% | ||||||
Shares issued on exercise of Options in 2016 | 277,200 | 0.2% | ||||||
Options granted in 2016 | 403,740 | 0.3% |
Messrs. Harrison and Creel were granted stand-alone stock optionsOptions in 2012 and 2013 respectively; they were not granted under the MSOIP.
Since the inception of the MSOIP in October 2001, a total of 18,078,642 Shares have been made available for issuance under the MSOIP and 14,564,16714,841,367 Shares have been issued through the exercise of Options. No financial assistance is provided to Option holders to facilitate the purchase of Shares under the MSOIP. In addition, CP has a policy that prohibits employees from forward selling Shares that may be delivered upon the future exercise of Options under the MSOIP or otherwise monetizing Options granted under the MSOIP, other than through exercising the Option and subsequently selling the Shares in a public venue.
The Board may amend the MSOIP, but no amendment may be made without required regulatory or shareholder approval. Other than as set forth elsewhere in this Proxy Statement, no Options have been granted under the MSOIP that require ratification by shareholders.
The MSOIP was amended effective February 28, 2012, to provide that on a change in control the vesting of Options held by a participant will not accelerate unless the participant is thereafter terminated without cause or constructively dismissed.
The MSOIP was amended effective November 19, 2015 to provide Net Stock Settlement as a method of exercise. Net Stock Settlement allows an option holder to exercise optionsOptions without the need to have the corporationCorporation sell the securities on the open market. As a result, the corporationThe Corporation experiences less dilution from the exercise of stock options.
Securities Authorized For Issuance Under Equity Compensation Plans
The Followingfollowing table shows, as of December 31, 2015,2016, compensation plans under which equity securities of the Corporation are authorized for issuance upon the exercise of Options outstanding under the MSOIP and
Plan Category | Number of Securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) | ||||
Equity compensation plans approved by security holders | 2,423,373 | $ | 112.70 | 2,200,427 | |||
Equity compensation plans not approved by security holders | — | $ | — | — | |||
Total | 2,423,373 | $ | 112.70 | 2,200,427 |
Plan Category | Number of Securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) | |||||||
Equity compensation plans approved by security holders | 2,456,732 | $ | 121.79 | 1,889,868 | ||||||
Equity compensation plans not approved by security holders | — | $ | — | — | ||||||
Total | 2,456,732 | $ | 121.79 | 1,889,868 |
80 | CANADIAN PACIFIC | COMPENSATION DETAILS |
The equity compensation plans referred to in the previous table, being the MSOIP and DSOP, are described in the CorporationsCorporation’s audited consolidated financial statements for the year ended December 31, 2015,2016, and in this Proxy Statement. See page 8879 for MSOIP details and see above for DSOP details.
Section 162(m) Incentive Plan
The
COMPENSATION DETAILS | 2017 MANAGEMENT PROXY STATEMENT | 81 |
PENSION PLAN BENEFITS
Canadian Pension Plans and Other Retirement Arrangements
CP maintains both a contributory defined benefit plan and a defined contribution pension plan, which enable pensions to be paid to eligible officers and employees of CP at retirement.
Depending on or after July 1, 2010. Employees hired before that date either continue to participate in the previous plan, which includes both a defined benefit and defined contribution option, or were transferred to the new defined contribution plan.
Messrs. Creel, Velani and Erceg Wallace and Marsh also participateparticipated in a defined contribution supplemental plan (“DC SERP”). The DC SERP is a non-registered plan that provides benefits in excess of the Canadian
U.S. Retirement Plans
The USU.S. retirement program has three elements:
401(k) Plan
Individuals can contribute pre-tax contributions to the 401(k) plan subject to limitations imposed by the US
Defined Contribution Plan (“USU.S. DC Plan”)
The USU.S. DC Plan is employer-funded with an annual contribution amount equal to 3.5% of eligible earnings. Eligible earnings include base salary and annual bonus. These earnings are subject to compensation limitations imposed by the US
Supplemental Defined Contribution Plan (“USU.S. SERP”)
The USU.S. SERP is an unfunded, nonqualified defined contribution plan that provides an additional company contribution equal to 6% of eligible earnings without regard to the limitations imposed by the US
Messrs. Creel, Johnson and Pitz participated in the USU.S. SERP in 2015. Mr. Creel ceased participation in this plan and began participation in the Canadian Supplemental Pension Plan in September 2015.
Name | Plan Name | Number of Years Credited Service | Present Value of Accumulated Benefit | Payments During Last Fiscal Year | |||
(#) | ($) | ($) | |||||
E.H. Harrison | Canadian Pacific Railway Company Pension Plan | — | — | — | |||
M.J. Erceg | Canadian Pacific Railway Company Pension Plan | — | — | — | |||
B.W. Demosky | Canadian Pacific Railway Company Pension Plan | 1.42 | 1,312,548 | — | |||
K.E. Creel | Canadian Pacific Railway Company Pension Plan | — | — | — | |||
L.J. Pitz | Canadian Pacific Railway Company Pension Plan | — | — | — | |||
M.K. Wallace | Canadian Pacific Railway Company Pension Plan | — | — | — | |||
T.E. Marsh | Canadian Pacific Railway Company Pension Plan | — | — | — | |||
P.A. Guthrie | Canadian Pacific Railway Company Pension Plan | 25.67 | 1,282,612 | — | |||
Canadian Pacific Railway Company Supplemental Retirement Plan | 25.67 | 4,710,268 | — |
DEFERRED COMPENSATION PLANS
Officers and other individuals with share ownership requirements may elect to receive all or a portion of their short-term incentive award in DSUs. This is designed to promote the sustained alignment of executive officers’ interests with shareholders. Executive officers must make their election prior to the beginning of the calendar year for which the short-term incentive award is paid. When any short-term incentive award is determined, the amount elected is converted to DSUs, which have a value equal to the average market price of a shareShare for the ten10 trading days immediately prior to December 31 of the calendar year for which the award is paid.
CP will grant an additional 25% of the amount that each participant elects to receive as DSUs as a Company match, which vest after three years. Once the value of a participant’s DSU account is sufficient to meet CP’s stock ownership requirement the participant may no longer elect to receive any portion of theirhis short-term incentive award in DSUs.
Executive DSU participants may redeem their DSUs only after termination of employment or retirement. For DSUs granted after December 31, 2004, redemptionRedemption is permissible only following the date that is six months have after the end of the executive’s employment and must be redeemed no later than the end of the following calendar year. The value of the DSU at the time of payment will be based on the average market price of a shareShare for the ten10 trading days immediately preceding the payment date. Payment is made in a lump sum following the termination of employment. For eligible USU.S. executives, in compliance with USU.S. tax regulations,
Mr. Creel also received a special make-whole DSU payment at his time of hire. NoThe DSUs are not redeemable until after the end of the executive'sexecutive’s employment.
82 | CANADIAN PACIFIC | COMPENSATION DETAILS |
The following table shows the number of DSUs outstanding and their value based on the closing shareShare price on December 31, 2015.
Unvested DSUs (#) | Vested DSUs (#) | Total Units (#) | Value as at December 31, 2015 ($) | |||||
E.H. Harrison | 6,425 | 61,382 | 67,807 | 11,063,504 | ||||
M.J. Erceg | 0 | 0 | 0 | 0 | ||||
K.E. Creel | 6,123 | 24,449 | 30,572 | 4,988,270 | ||||
L.J. Pitz | 344 | 1,375 | 1,719 | 280,454 | ||||
M.K. Wallace | 442 | 1,767 | 2,209 | 390,481 | ||||
T.E. Marsh | 0 | 0 | 0 | 0 | ||||
P.A. Guthrie | 0 | 4,686 | 4,686 | 828,139 | ||||
B.W. Demosky | 0 | 4,438 | 4,438 | 784,401 |
Unvested DSUs (#) | Vested DSUs (#) | Total Units (#) | Value as at December 30, 2016 ($) | |||||||||||||
E.H. Harrison | 0 | 68,444 | 68,444 | 13,120,462 | ||||||||||||
N.S. Velani | 198 | 790 | 988 | 189,175 | ||||||||||||
M.J. Erceg | 0 | 2,714 | 2,714 | 519,923 | ||||||||||||
K.E. Creel | 0 | 30,860 | 30,860 | 5,915,703 | ||||||||||||
R.A. Johnson | 0 | 5,500 | 5,500 | 1,054,321 | ||||||||||||
L.J. Pitz | 860 | 3,442 | 4,302 | 824,768 |
The value of vested and unvested DSUs as of December 31, 2015,30, 2016, is based on the closing shareShare price on the TSX of $176.73$191.56 for Messrs. Wallace, GuthrieVelani and DemoskyErceg, and a closing shareShare price on the NYSE of US$127.60142.77 with an averagea year-end exchange rate of $1.2787$1.3427 for Messrs. Harrison, Creel, Johnson and Pitz.
NONQUALIFIED DEFERRED COMPENSATION TABLE
The following table shows, for the NEOs as of December 31, 2015, the non-qualified2016, each NEO’s balance under our nonqualified deferred compensation plans, including the Senior Executives'Executives’ Deferred Share Unit Plan (DSU), the Canadian Pacific Management Supplemental Pension Plan (DC SERP) and the USU.S. Senior Executive Retirement Plan (US(U.S. DC SERP).
Name | Executive Contributions in Fiscal 2015 | Registrant Contributions in Fiscal 2015 | Aggregate Earnings in Fiscal 2015 | Aggregate Withdrawals/ Distributions | Aggregate Balance at December 31, 2015 | ||||||
Plan Name | ($) | ($) | ($) | ($) | ($) | ||||||
E.H. Harrison | DSU | — | 1,307,797 | (2,915,391 | ) | — | 10,015,123 | ||||
M.J. Erceg | DSU | — | — | — | — | — | |||||
DC SERP | — | 28,473 | 435 | 28,908 | |||||||
B.W. Demosky | DSU | — | — | (202,156 | ) | — | 784,401 | ||||
K.E. Creel | DSU | — | 5,838,591 | (1,849,354 | ) | — | 3,989,237 | ||||
DC SERP | — | 16,484 | 70 | 16,555 | |||||||
US DC SERP | — | 283,540 | (12,134 | ) | — | 622,456 | |||||
L.J. Pitz | DSU | 332,031 | — | (107,668 | ) | — | 224,363 | ||||
US DC SERP | — | 58,639 | (250 | ) | — | 73,747 | |||||
M.K. Wallace | DSU | 201,279 | — | (92,187 | ) | — | 312,385 | ||||
DC SERP | — | 33,338 | (484 | ) | 84,256 | ||||||
T. E. Marsh | DC SERP | 40,078 | 390 | 40,467 | |||||||
P.A. Guthrie | DSU | — | — | (213,428 | ) | — | 828,139 |
Name | Executive Contributions in | Registrant Contributions in | Aggregate Earnings in | Aggregate Withdrawals/ | Aggregate Balance at December 31, 2016 | |||||||||||||||||
Plan Name | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||
E.H. Harrison | DSU | — | 1,069,968 | 2,035,371 | — | 13,120,462 | ||||||||||||||||
N.S. Velani | DSU | — | — | 151,340 | — | 151,340 | ||||||||||||||||
DC SERP | — | 38,649 | 3,890 | — | — | |||||||||||||||||
M.J. Erceg | DSU | 453,660 | — | 66,264 | — | 519,923 | ||||||||||||||||
DC SERP | — | 34,096 | (63,004 | ) | — | — | ||||||||||||||||
K.E. Creel | DSU | — | 1,004,099 | 922,366 | — | 5,915,703 | ||||||||||||||||
DC SERP | — | 299,718 | 31,444 | — | 61,291 | |||||||||||||||||
U.S. DC SERP | — | 14,501 | 36,776 | — | 704,888 | |||||||||||||||||
R.A. Johnson | DSU | — | 326,626 | 158,709 | — | 1,053,566 | ||||||||||||||||
U.S. DC SERP | — | 74,900 | 7,628 | — | ||||||||||||||||||
L.J. Pitz | DSU | 335,035 | — | 99,944 | — | 659,342 | ||||||||||||||||
U.S. DC SERP | — | 62,727 | 2,552 | — | — |
For Messrs. Harrison and Creel, the value of the registrant contributions is calculated with respect to DSUs that vested in 2015.2016. As disclosed in previous Summary Compensation Tables, Mr. Harrison was issued DSUs in 2012 that would vest 25% each year and Mr. Creel was issued DSUs in 2013 that vested in 2015.2016. For Messrs. PitzErceg and Wallace,Pitz, the value of the executive contributions is the deferral of 20142015 bonus tointo DSUs that vested immediately in 2015.
DC SERP and USU.S. DC SERP Contributions have been disclosed in the Change in Pension Value and Nonqualified Deferred Compensation Earnings Column in the Summary Compensation Table.
COMPENSATION DETAILS | 2017 MANAGEMENT PROXY STATEMENT | 83 |
CHANGE IN CONTROL AND TERMINATION BENEFITS
Change in Control Agreements
Mr. Harrison Erceg, Wallace and Guthrie are eachwas the only NEO party to a change in control agreement with CP. These agreementsOn January 18, 2017, Mr. Harrison entered into a separation agreement with the Company pursuant to which he resigned as CEO on January 31, 2017. Therefore as of January 31, 2017, the change in control and termination benefits described below are no longer applicable.
The change in control agreement with Mr. Harrison was “double trigger”, meaning that cash severance payments willwould not behave been made and no awards under any equity plan will havewould be subject to accelerated vesting upon a change in control of the Corporation unless the NEO isMr. Harrison was thereafter terminated without cause or constructively dismissed. EffectiveNote that effective February 22, 2013, all equity awards under CP’s equity incentive plans vest in connection with a change in control only on a “double trigger” basis. Although Mr. Harrison received unvested DSUs issued prior to this date, these DSUs, cannotwhich were vested as of December 31, 2016, could not be redeemed until one year after cessation of his employment, regardless of whether there iswas an intervening change in control. Accordingly, none of Mr. Harrison’s equity can be redeemed on a single-trigger basis on a change in control. Messrs. Erceg, Wallace and Guthrie do not have any awards that vest on a single-trigger basis.
A “change in control” ariseswould have arisen under Mr. Harrison’s change in control agreement in the following circumstances:
Payable on Change in Control
Severance Payment | Value of early vesting of Options & equity based awards ($) | ||||||
Name | Severance Period (# of months) | Base Pay ($) | Short-term Incentive at target ($) | Additional Retirement Benefits ($) | Other Benefits ($) | Payable on Change of Control ($) | |
E.H. Harrison | 18 | 4,219,710 | — | — | 22,855,118 | 27,074,828 | |
M.J. Erceg | 24 | 1,368,209 | 1,094,567 | 362,637 | 140,385 | 547,818 | 3,513,616 |
M.K. Wallace | 24 | 658,168 | 394,901 | 158,755 | 143,078 | 1,088,269 | 2,443,171 |
P.A. Guthrie | 24 | 787,968 | 472,781 | 893,320 | 135,491 | 926,981 | 3,216,541 |
Total NEOs | 7,034,055 | 1,962,249 | 1,414,712 | 418,954 | 25,418,186 | 36,248,156 |
Severance Payment | Value of early vesting of Options & equity based awards ($) | |||||||||||||||||||||||||||
Name | Severance Period (# of months) | Base Pay ($) | Short-term Incentive at target ($) | Additional Retirement Benefits ($) | Other Benefits ($) | Payable on Change of Control ($) | ||||||||||||||||||||||
E.H. Harrison | 6 | 1,476,970 | — | — | — | 8,563,305 | 10,040,275 | |||||||||||||||||||||
Total NEOs | 1,476,970 | 0 | 0 | 0 | 8,563,305 | 10,040,275 |
The value of early vesting of Options and equity-based awards is based on the closing shareShare price on December 31, 2015,30, 2016, on the TSX of $176.73. For Mr. Harrison,$191.56 and for awards issued in respect of Shares traded on the NYSE, the value of unvested DSUs is based on the closing shareShare price on the NYSE on December 31, 2015 of US$127.60142.77 converted into Canadian dollars using an averagea year-end exchange rate of $1.2787.
Compensation on Termination of Employment
We have developed policies to cover all forms of termination that occur absent the prior occurrence of a change in control. ExecutivesMessrs. Velani, Johnson and Pitz are subject to the same terms as all other employees of the Company for voluntary termination, retirement, and termination for cause. No NEO receives an excise tax gross-up provision in relation to any termination benefit. In the event that a NEO ceasesMessrs. Harrison and Creel ceased to be an employee, the NEO will receiveemployees on December 31, 2016, they would have received compensation as summarized below:
Payable on Termination without Cause
Severance Payment | Value of Options & equity based awards ($) | Payable on Termination without Cause ($) | |||||
Name | Severance Period (# of months) | Base Pay ($) | Short-term Incentive ($) | Additional Retirement Benefits ($) | Other Benefits ($) | ||
E.H. Harrison | N/A | 2,557,400 | — | — | — | 5,654,928 | 8,212,328 |
M.J. Erceg | 24 | 1,368,209 | — | — | 20,395 | 547,818 | 1,936,422 |
K.E. Creel | 36 | 3,501,396 | 3,501,396 | — | 21,179 | 4,989,553 | 12,013,524 |
B.W. Demosky | 24 | 1,240,000 | 992,000 | 1,551,000 | 68,432 | 6,687,117 | 10,538,549 |
Total NEOs | 8,667,005 | 4,493,396 | 1,551,000 | 110,006 | 17,879,416 | 32,700,823 |
Severance Payment | Value of awards | Payable on Termination without Cause ($) | ||||||||||||||||||||||||||
Name | Severance Period (# of months) | Base Pay ($) | Short-term Incentive ($) | Additional Retirement Benefits ($) | Other Benefits ($) | |||||||||||||||||||||||
E.H. Harrison | N/A | 2,685,400 | — | — | — | 4,586,795 | 7,272,195 | |||||||||||||||||||||
K.E. Creel | 36 | 3,852,894 | 3,852,894 | — | 30,039 | 6,792,752 | 14,528,579 | |||||||||||||||||||||
Total NEOs | 6,538,294 | 3,852,894 | 0 | 30,039 | 11,379,547 | 21,800,774 |
Other Benefitsbenefits represents the value of accelerated vesting of ESPP Shares. For Mr. Erceg the amount also includes continued coverage under the Company's FlexBenefits. For Mr. Demosky the amount also includes the
The value of his company vehicle which was gifted to him.
The value of the Options and equity-based awards is based on the closing shareShare price on the TSX of $176.73 on December 31, 2015. For Mr. Harrison, the value$191.56 or, for awards in respect of unvested DSUs is basedShares traded on the NYSE, a closing shareShare price on the NYSE of US$127.60142.77 on December 30, 2016, converted into Canadian dollars using an averagea year-end exchange rate of $1.2787.
84 | CANADIAN PACIFIC | COMPENSATION DETAILS |
Compensation on Termination of Employment
In the
Resignation | Retirement | Termination without Cause (Messrs. Harrison and Creel Only) | Change of Control (Mr. Harrison Only) | |||||
Severance | None Mr. Creel would be required to repay up to US$4.64 million of awards paid to him upon hire | None | US$2,000,000 for Mr. Harrison. 36 months’ base salary for Mr. Creel. Effective Jan 31, 2017, this reduces to 24 months for Mr. Creel. | Severance equal to the rate of salary payable in the remaining period immediately preceding the termination date (6 months for the CEO) | ||||
Annual Incentive Plan Award | Forfeited | Award for current year is pro-rated to retirement date | Equal to the target award for severance period for Mr. Creel | Not applicable | ||||
PSUs | Forfeited | Full value providing executive has 6 months active service within the performance period | Pro-rated based on active service within the performance period | PSUs only vest if the holder is terminated following change of control. PSUs vest at target, pro-rated based on active service within the performance period | ||||
Options | 30 days to exercise vested Options or before the expiry date whichever comes first; unvested awards are forfeited | Options continue to vest and grants expire the earlier of 5 years after retirement date and normal expiry date | 6 months to exercise vested Options and Options that will vest within that six-month period | Options only vest early if the option-holder is terminated following the change of control | ||||
Benefits | Terminate upon resignation | Post Retirement Life insurance of $50,000 and a Health Spending Account calculated based on years of Company service (which is the same for all employees) | Not applicable | Not applicable | ||||
Pension | No additional value | No additional value | No additional value | No additional value | ||||
Perquisites | Any unused flex perquisite dollars are forfeited | Not applicable | Not applicable | Not applicable | ||||
ESPP Shares | Unvested Shares are forfeited | Unvested Shares vest if holder retires | Unvested Shares vest if holder is terminated without cause | Unvested Shares vest if change of control occurs | ||||
DSUs | Unvested DSUs are forfeited | Unvested DSUs are forfeited | Unvested DSUs are forfeited | Unvested units vest early if the holder is terminated following change of control |
COMPENSATION DETAILS | 2017 MANAGEMENT PROXY STATEMENT | 85 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP TABLE
The table below sets forth the number and percentage of outstanding sharesShares of Common Stock beneficially owned by each person, or group of persons, known by Canadian Pacific based on publicly available information as of February 23, 2016,March 15, 2017, to own beneficially more than five percent of our Common Stock, each of our directors, each of our NEOs and all directors and executive officers as a group.
Unless otherwise indicated in the table, the address of each of the individuals named below is c/o Canadian
Name of Beneficial Owner | Shares of Common Stock Beneficially Owned | Percent of Common Stock Outstanding | ||
T. Rowe Price Associates, Inc. 100 E Pratt Street, Baltimore, Maryland, 21202 | 16,493,450 | 10.8 | % | |
Pershing Square Capital Management, L.P. 888 Seventh Avenue, 42nd Floor, New York, New York 10019 | 13,940,890 | 9.1 | % | |
William Ackman | 13,940,890(a) | |||
John Baird | — | |||
Isabelle Courville | 900(b) | * | ||
Rebecca Macdonald | 3,900(b) | * | ||
Anthony Melman | 15,000(b) | * | ||
Matthew Paull | — | |||
Andrew Reardon | 4,031(b) | * | ||
E. Hunter Harrison(c) | 178,617 | * | ||
Mark Erceg | 156 | * | ||
Keith Creel(c) | 1,326 | * | ||
Laird Pitz(c) | — | |||
Mark Wallace(c) | 431 | * | ||
All current executive officers and directors as a group | 204,361(d) | * |
Name of Beneficial Owner | Shares of Common Stock Beneficially Owned | Percent of Common Stock Outstanding | ||
John Baird(a) | — | |||
Isabelle Courville(a) | 900 | * | ||
Jill Denham(a) | — | |||
William Fatt(a) | — | |||
Rebecca MacDonald(a) | — | |||
Matthew Paull(a) | 1,000 | * | ||
Jane Peverett(a) | — | |||
Andrew Reardon(a) | 4,031 | * | ||
Gordon T. Trafton II(a) | — | |||
John Brooks | 1,526 | * | ||
James Clements | 1,876 | * | ||
Keith Creel(b) | 1,995 | * | ||
John Derry | 203 | * | ||
Peter Edwards | 3,447 | * | ||
Jeffrey Ellis | 245 | * | ||
Mike Foran | 1,550 | * | ||
Robert Johnson(b) | — | |||
Laird Pitz(b) | 34 | * | ||
Mike Redeker | 2,760 | * | ||
Nadeem Velani(b) | 670 | * | ||
All current executive officers and directors as a group | 20,237 | * |
(a) | See Directors’ 2016 Compensation table on page 42 for disclosure with respect to DDSUs. |
(b) | See “Compensation Details – Deferred Compensation Plans” on page 82 for disclosure with respect to NEO DSUs. |
* | Represents less than one percent of the outstanding Common Stock. |
86 | CANADIAN PACIFIC | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company’s executive officers, directors and persons who own more than 10% of a registered class of the Company’s equity securities to file initial reports of ownership and reports of changes in ownership of the Company’s common stock with the SEC. SEC regulations require executive officers, directors and greater than 10% shareholders to furnish the Company with copies of all forms they file pursuant to Section 16(a). As a matter of practice, the Company’s administrative staff assists the Company’s executive officers and directors in preparing initial reports of ownership and reports of changes in ownership and filing such reports with the SEC. DuringOther than as described below, during the fiscal year ended December 31, 2015,2016, CP relied on the foreign private issuer exemption from the requirements ofbelieves that all Section 16(a) filing requirements were timely met during 2016.
The Corporation’s ESPP was designed for use in Canada, and therefore no forms concerning 2015 beneficial ownership were required to be filed by any person subject tothe ESPP is not considered a qualified plan, exempt from Section 16 reporting requirements, pursuant to US requirements. Late filings with respect to purchases of CP shares in the Exchange ActCorporation’s ESPP for Messrs. Creel, Edwards, Ellis, Redeker and Wallace were made on April 2, 2016, as well as on June 2, 2016 and on September 1, 2016 on behalf of Mr. Creel.
Form 4s with respect to the Company.
Form 4s with respect to acquisitions of common Shares pursuant to CP’s Senior Executive Deferred Share Unit Plan were inadvertently filed late on August 3, 2016 on behalf of Messrs. Creel, Edwards, Ellis, Harrison, Pitz, Redeker and Wallace and Form 4s with respect to acquisitions of common Shares pursuant to CP’s Restricted Share Unit Plan were inadvertently filed late on September 1, 2016 on behalf of Messrs. Redeker and Wallace.
SHAREHOLDER PROPOSALS
In 2015,2016, Canadian Pacific did not receive any shareholder proposals to be included in this Proxy Statement.
The Company is subject to both the rules of the SEC under the Exchange Act and the provisions of the Canada Business Corporations Act (“CBCA”) with respect to shareholder proposals. As clearly indicated under the CBCA and in the rules of the SEC under the Exchange Act, simply submitting a shareholder proposal does not guarantee its inclusion in the proxy materials.
Shareholder proposals submitted pursuant to the rules of the SEC under the Exchange Act for inclusion in the Company'sCompany’s proxy materials for its annual meeting of shareholders to be held in 20172018 (the "2017 Meeting"“2018 Meeting”), must be received no later than November 1, 2016
Proposals submitted pursuant to the applicable provisions of the CBCA that a shareholder intends to present at the 20172018 Meeting and wishes to be considered for inclusion in CP'sCP’s proxy statement and form of proxy relating to the 20172018 annual meeting of shareholders must be received no later than December 1, 2016.15, 2017. Such proposals must also comply with all applicable provisions of the CBCA
All shareholder proposals must be delivered to the Office of the Corporate Secretary by mail at 7550 Ogden Dale Road S.E., Calgary, Alberta, T2C 4X9.
DIRECTORS’ APPROVAL
The contents of this Proxy Statement and its distribution have been approved by the Directors of the Corporation.
/s/ Jeffrey J. Ellis
Jeffrey Ellis
Corporate Secretary
March 15, 2017
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE | ||||||
87 |
SCHEDULE “A” – AUDIT COMMITTEE TERMS OF REFERENCE
CANADIAN PACIFIC RAILWAY LIMITED
AND
CANADIAN PACIFIC RAILWAY COMPANY
AUDIT COMMITTEE TERMS OF REFERENCE
The term “Corporation” herein shall refer to each of Canadian Pacific Railway Limited (“CPRL”) and Canadian Pacific Railway Company (“CPRC”), and the terms “Board,” “Directors”, “Board of Directors” and “Committee” shall refer to the Board, Directors, Board of Directors, or Committee of CPRL or CPRC, as applicable.
A. | Committee and Procedures |
1. | Purpose |
The purposes of the Audit Committee (the “Committee”) of the Board of Directors of the Corporation are to fulfill applicable public company audit committee legal obligations and to assist the Board of Directors in fulfilling its oversight responsibilities in relation to the disclosure of financial statements and information derived from financial statements, including:
the | review of the annual and interim financial statements of the Corporation; |
the | integrity and quality of the Corporation’s financial reporting and systems of internal control; |
the | Corporation’s compliance with applicable legal and regulatory requirements; |
the | qualifications, independence, engagement, compensation and performance of the Corporation’s external auditors; and |
the | performance of the Corporation’s internal audit function; |
and to prepare, if required, an audit committee report for inclusion in the Corporation’s annual management proxy circular, in accordance with applicable rules and regulations. In addition, the Committee will assist the Board with the identification of the principal risks of the Corporation’s business and ensure the implementation of appropriate risk assessment and risk management policies and processes to manage these risks.
The Corporation’s external auditors shall report directly to the Committee.
2. | Composition of Committee |
The members of the Committee of each of CPRL and CPRC shall be identical and shall be Directors of CPRL and CPRC, respectively. The Committee shall consist of not less than three and not more than the number of Directors who are not officers or employees of the Corporation, none of whom is either an officer or employee of the Corporation or any of its subsidiaries. Members of the Committee shall meet applicable requirements and guidelines for audit committee service, including requirements and guidelines with respect to being independent and unrelated to the Corporation and to having accounting or related financial management expertise and financial literacy, as set forth in applicable securities laws or the rules of any stock exchange on which the Corporation’s securities are listed for trading. No Director shall be eligible to serve on the Committee if such Director currently serves on the audit committees of three public companies other than the Corporation, unless the Board of Directors has determined that such simultaneous service would not impair the ability of such member to effectively serve on the Committee. Determinations as to whether a particular Director satisfies the requirements for membership on the Committee shall be affirmatively made by the full Board, upon recommendation from the Corporate Governance and Nominating Committee.
3. | Appointment of Committee Members |
Members of the Committee shall be appointed from time to time by the Board and shall hold office at the pleasure of the Board.
4. | Vacancies |
Where a vacancy occurs at any time in the membership of the Committee, it may be filled by the Board. The Board shall fill a vacancy whenever necessary to maintain a Committee membership of at least three Directors.
5. | Committee Chair |
The Board shall appoint a Chair for the Committee.
6. | Absence of Committee Chair |
If the Chair of the Committee is not present at any meeting of the Committee, one of the other members of the Committee who is present at the meeting shall be chosen by the Committee to preside at the meeting.
7. | Secretary of Committee |
The Committee shall appoint a Secretary who need not be a Director of the Corporation.
88 | CANADIAN PACIFIC | SCHEDULE A – AUDIT COMMITTEE TERMS OF REFERENCE |
8. | Meetings |
The Committee shall meet at regularly scheduled meetings at least once every quarter and shall meet at such other times during each year as it deems appropriate, and as part of such meetings, shall meet in executive session without management being present. In addition, the Chair of the Committee or the Chairman of the Board or any two of its other members may call a meeting of the Committee at any time.
9. | Quorum |
Three members of the Committee shall constitute a quorum.
10. | Notice of Meetings |
Notice of the time and place of every meeting shall be given in writing by any means of transmitted or recorded communication, including facsimile, telex, telegram or other electronic means that produces a written copy, to each member of the Committee at least 24 hours prior to the time fixed for such meeting; provided however, that a member may in any manner waive a notice of a meeting. Attendance of a member at a meeting constitutes a waiver of notice of the meeting, except where a member attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.
11. | Attendance of Others at Meetings |
At the invitation of the Chair of the Committee, other individuals who are not members of the Committee may attend any meeting of the Committee.
12. | Procedure, Records and Reporting |
Subject to any statute or the articles and by-laws of the Corporation, the Committee shall fix its own procedures at meetings, keep records of its proceedings and report to the Board when the Committee may deem appropriate (but not later than the next regularly scheduled meeting of the Board).
13. | Delegation |
The Committee may delegate from time to time to any person or committee of persons any of the Committee’s responsibilities that may be lawfully delegated.
14. | Report to Shareholders |
The Committee shall prepare a report to shareholders or others, concerning the Committee’s activities in the discharge of its responsibilities, when and as required by applicable laws or regulations.
15. | Guidelines to Exercise of Responsibilities |
The Board recognizes that meeting the responsibilities of the Committee in a dynamic business environment requires a degree of flexibility. Accordingly, the procedures outlined in these Terms of Reference are meant to serve as guidelines rather than inflexible rules, and the Committee may adopt such different or additional procedures as it deems necessary from time to time.
16. | Use of Outside Legal, Accounting or Other Advisers; Appropriate Funding |
The Committee may retain, at its discretion, outside legal, accounting or other advisors, at the expense of the Corporation, to obtain advice and assistance in respect of any matters relating to its duties, responsibilities and powers as provided for or imposed by these Terms of Reference or otherwise by law.
The Committee shall be provided by the Corporation with appropriate funding, as determined by the Committee, for payment of:
(i) | compensation of any outside advisers as contemplated by the immediately preceding paragraph; |
(ii) | compensation of any independent auditor engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Corporation; or |
(iii) | ordinary administrative expenses that are necessary or appropriate in carrying out the Committee’s duties. |
All outside legal, accounting or other advisors retained to assist the Committee shall be accountable ultimately to the Committee.
17. | Remuneration of Committee Members |
No member of the Committee shall receive from the Corporation or any of its affiliates any compensation other than the fees to which he or she is entitled as a Director of the Corporation or a member of a committee of the Board. Such fees may be paid in cash and/or shares, options or other in-kind consideration ordinarily available to Directors.
SCHEDULE A – AUDIT COMMITTEE TERMS OF REFERENCE | 2017 MANAGEMENT PROXY STATEMENT | 89 |
B. | Mandate of Committee |
1. | Committee Role: |
The Committee’s role is one of oversight. Management is responsible for preparing the interim and annual financial statements of the Corporation and for maintaining a system of risk assessment and internal controls to provide reasonable assurance that assets are safeguarded and that transactions are authorized, recorded and reported properly, for maintaining disclosure controls and procedures to ensure that it is informed on a timely basis of material developments and the Corporation complies with its public disclosure obligations, and for ensuring compliance by the Corporation with applicable legal and regulatory requirements. The external auditors are responsible for auditing the Corporation’s financial statements.
In carrying out its oversight responsibilities: (i) each member of the Committee is entitled to, absent knowledge to the contrary, rely upon the accuracy and completeness of the Corporation'sCorporation’s records and upon information, opinions, reports or statements presented by any of the Corporation'sCorporation’s officers or employees, or consultants of the Corporation which the member reasonably believes are within such other person'sperson’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation; and (ii) the Committee and its members do not provide any professional certification or special assurance as to the Corporation’s financial statements or the external auditors’ work.
The Committee shall:
External Auditors’ Report on Annual Audit
a) | obtain and review annually prior to the completion of the external auditors’ annual audit of the year-end financial statements a report from the external auditors describing: |
(i) | all critical accounting policies and practices to be used; |
(ii) | all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, the ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the external auditors; and |
(iii) | other material written communications between the external auditors and management, such as any consent or comfort letters issued by the external auditors, management representation letters provided to the external auditors or a schedule of unadjusted differences; |
Management’s/Internal Auditors’ Reports on External Audit Issues
b) | review any reports on the above or similar topics prepared by management or the internal auditors and discuss with the external auditors any material issues raised in such reports; |
Annual Financial Reporting Documents and External Auditors’ Report
c) | meet to review with management, the internal auditors and the external auditors the Corporation’s annual financial statements, the report of the external auditors thereon, the related Management’s Discussion and Analysis, and the information derived from the financial statements, as contained in the Annual Information Form and the Annual Report. Such review will include obtaining assurance from the external auditors that the audit was conducted in a manner consistent with applicable law and will include a review of: |
(i) | all major issues regarding accounting principles and financial statement presentations, including any significant changes in the Corporation’s selection or application of accounting policies or principles; |
(ii) | all significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including the effects on the financial statements of alternative methods within generally accepted accounting principles; |
(iii) | the effect of regulatory and accounting issues, as well as off-balance sheet structures, on the financial statements; |
(iv) | all major issues as to the adequacy and effectiveness of the Corporation’s internal controls and any special steps adopted in light of material control deficiencies and any consideration by the external auditors of fraud during the performance of the audit of the Corporation’s annual financial statements; and |
(v) | the external auditors’ judgment about the appropriateness and quality, not just the acceptability, of the accounting principles applied in the Corporation’s financial reporting; |
d) | following such review with management and the external auditors, recommend to the Board whether to approve the audited annual financial statements of the Corporation and the related Management’s Discussion and Analysis, and report to the Board on the review by the Committee of the information derived from the financial statements contained in the Annual Information Form and Annual Report; |
Interim Financial Statements and MD&A
e) | review with management, the internal auditors and the external auditors the Corporation’s interim financial statements and its interim Management’s Discussion and Analysis, and if thought fit, approve the interim financial statements and interim Management’s Discussion and Analysis and the public release thereof by management; |
90 | CANADIAN PACIFIC | SCHEDULE A – AUDIT COMMITTEE TERMS OF REFERENCE |
Earnings Releases, Earnings Guidance
f) | review and discuss earnings press releases, including the use of “pro forma” or “adjusted” information determined other than in accordance with accounting principles generally accepted in the United States, and the disclosure by the Corporation of earnings guidance and other financial information to the public including analysts and rating agencies, it being understood that such discussions may, in the discretion of the Committee, be done generally (i.e., by discussing the types of information to be disclosed and the type of presentation to be made) and be satisfied that adequate procedures are in place for the review of such public disclosures and periodically assess the adequacy of those procedures; |
Material Litigation, Tax Assessments, Etc.
g) | review with management, the external auditors and, if necessary, legal counsel all legal and regulatory matters and litigation, claims or contingencies, including tax assessments, that could have a material effect upon the financial position of the Corporation, and the manner in which these matters may be, or have been, disclosed in the financial statements; and obtain reports from management and review with the Corporation’s chief legal officer, or appropriate delegates, the Corporation’s compliance with applicable legal and regulatory requirements; |
Oversight of External Auditors
h) | subject to applicable law relating to the appointment and removal of the external auditors, be directly responsible for the appointment, retention, termination and oversight of the external auditors; recommend to the Board the approval of compensation of the external auditors as such compensation relates to the provision of audit services; and be responsible for the resolution of disagreements between management and the external auditors regarding financial reporting; |
Rotation of External Auditors’ Audit Partners
i) | review and evaluate the lead audit partner of the external auditors and assure the regular rotation of the lead audit partner and the audit partner responsible for reviewing the audit and other audit partners, as required by applicable law; |
External Auditors’ Internal Quality Control
j) | obtain and review, at least annually, and discuss with the external auditors a report by the external auditors describing the external auditors’ internal quality-control procedures, any material issues raised by the most recent internal quality-control review, or peer review, of the external auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the external auditors, and any steps taken to deal with any such issues; |
External Auditors’ Independence
k) | review and discuss, at least annually (and prior to the engagement of any new external auditors), with the external auditors all relationships that the external auditors and their affiliates have with the Corporation and its affiliates in order to assess the external auditors’ independence, including, without limitation: |
(i) | obtaining and reviewing, at least annually, a formal written statement from the external auditors delineating all relationships that in the external auditors’ professional judgment may reasonably be thought to bear on the independence of the external auditors with respect to the Corporation; |
(ii) | discussing with the external auditors any disclosed relationships or services that may affect the objectivity and independence of the external auditors; and |
(iii) | recommending that the Board take appropriate action in response to the external auditors’ report to satisfy itself as to the external auditors’ independence; |
Policies Regarding Hiring of External Auditors’ Employees, Former Employees
l) | set clear policies for the hiring by the Corporation of partners, employees and former partners and employees of the external auditors; |
Pre-Approval of Audit and Non-Audit Services Provided by External Auditors
m) | be solely responsible for the pre-approval of all audit and non-audit services to be provided to the Corporation and its subsidiary entities by the external auditors (subject to any prohibitions provided in applicable law), and of the fees paid for the non-audit services; provided however, that the Committee may delegate, to an independent member or members of the Committee, authority to pre-approve such non-audit services, and such member(s) shall report to the Committee at its next scheduled meeting following the granting any pre-approvals granted pursuant to such delegated authority; |
SCHEDULE A – AUDIT COMMITTEE TERMS OF REFERENCE | 2017 MANAGEMENT PROXY STATEMENT | 91 |
n) | review the external auditors’ annual audit plan (including scope, staffing, location, reliance on management and internal controls and audit approach); |
o) | review the external auditors’ engagement letter; |
Oversight of Internal Audit
p) | oversee the internal audit function by being directly responsible for the appointment or dismissal of the Chief Internal Auditor, who shall report directly to the Committee and administratively to the Chief |
q) | review and consider, as appropriate, any significant reports and recommendations issued by the Corporation or by any external party relating to internal audit issues, together with management’s response thereto; |
Internal Controls and Financial Reporting Processes
r) | review with management, the internal auditors and the external auditors, the Corporation’s financial reporting processes and its internal controls; |
s) | review with the internal auditors the adequacy of internal controls and procedures related to |
CEO and Chairman Expenses
t) | review, at least annually, a report on the expense claims of the Chief Executive Officer, as approved by the Chairman of the Board, and the expense claims of the Chairman of the Board, as approved by the Chair of the Audit Committee; |
Complaints Processes
u) | establish procedures for: |
(i) | the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters; and |
(ii) | the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters; |
and review periodically with management and the internal auditors these procedures and any significant
Separate Meetings with External Auditors, Internal Audit, Management
v) | meet separately with management, the external auditors and the internal auditors periodically to discuss matters of mutual interest, including any audit problems or difficulties and management’s response thereto, the responsibilities, budget and staffing of the Internal Audit Department and any matter that they recommend bringing to the attention of the full Board; |
Enterprise Risk Management
w) | discuss risk assessment and risk management policies and processes to be implemented for the Corporation, review with management and the Corporation’s internal auditors the effectiveness and efficiency of such policies and processes and their compliance with other relevant policies of the Corporation, and make recommendations to the Board with respect to any outcomes, findings and issues arising in connection therewith; |
x) | review management’s program to obtain appropriate insurance to mitigate risks; |
y) | oversee risks that may have a material impact on the Corporation’s financial statements; |
Tax
z) | review the Corporation’s tax status and |
Codes of Ethics
aa) | monitor compliance with the Corporation’s code of business ethics and the code of ethics applicable to the Chief Executive Officer and senior financial officers of the Corporation, as well as waivers from compliance therefrom, and ensure that any issues relating to financial governance which are identified by the Directors are raised with management; |
92 | CANADIAN PACIFIC | SCHEDULE A – AUDIT COMMITTEE TERMS OF REFERENCE |
Review of Terms of Reference
bb) | review and reassess the adequacy of these Terms of Reference annually or otherwise as it deems appropriate and recommend changes to the Board; |
Other
cc) | perform such other activities, consistent with these Terms of Reference, the Corporation’s articles and by-laws and governing law, as the Committee or the Board deems appropriate; and |
dd) | report regularly to the Board of Directors on the activities of the Committee. |
December 15, 2015
2017 MANAGEMENT PROXY STATEMENT | 93 |
Any questions and requests for assistance may be directed to the
Strategic Shareholder Advisor and Proxy Solicitation Agent:
The Exchange Tower
130 King Street West, Suite 2950, P.O. Box 361
Toronto, Ontario
M5X 1E2
www.kingsdaleadvisors.com
North American Toll Free Phone:
1-866-879-7649
Email: contactus@kingsdaleshareholder.com
Facsimile: 416-867-2271
Toll Free Facsimile: 1-866-545-5580
Outside North America, Banks and Brokers Call Collect: 416-867-2272
Computershare Investor Services Inc. Transfer Agent for Canadian Pacific Railway Limited 8th Floor, 100 University Avenue Toronto, Ontario M5J 2Y1 www.investorcentre.com\cp
This form of proxy (the ‘‘Proxy’’) is solicited by and on behalf of Management of Canadian Pacific and will be used at the Annual Meeting of Shareholders to be held on Wednesday, May 10, 2017 at 9:00 a.m. (Mountain Daylight time) and any adjournment or postponement thereof (the “Meeting”).