A truck from Canadian waste management company GFL Environmental Inc. makes its rounds through a neighbourhood in Toronto on Nov. 5, 2019.CARLOS OSORIO/Reuters
GFL Environmental Inc. GFL-T paid founder and chief executive officer Patrick Dovigi $68.46-million in 2023, earning the ire of two major proxy advisory firms who say shareholders should express their displeasure with the GFL directors who approved the pay.
Institutional Shareholder Services and Glass Lewis & Co. recommend a “no” vote on GFL’s executive compensation, known as “say on pay.” They both also recommend withholding votes from the four members of the board who serve on GFL’s compensation committee, which ISS says in its proxy report “has failed to adequately address pay-for-performance concerns over multiple years.”
It’s the fourth year in a row that both proxy advisers, who give voting advice to institutional investors, have recommended “no” votes on GFL’s non-binding say-on-pay measure. The four years of negative recommendations cover the company’s entire history as a public company.
And for a fourth year in a row, shareholders will likely approve the pay measure at the company’s annual general meeting next week. Mr. Dovigi and two long-time institutional shareholders, including Ontario Teachers’ Pension Plan, hold nearly half the votes in GFL. Mr. Dovigi is the sole owner of a class of shares with 10 votes apiece.
Last year’s say-on-pay measure received just 80.66-per-cent support. (The average say-on-pay vote in Canada is 90 per cent in favour.) That means a little more than half of the shareholders of TSX-listed common shares, other than Mr. Dovigi and his two backers, voted “yes.”
Mr. Dovigi owns 11,812,964 multiple-voting GFL shares. Combined with 1,278,860 common shares, his stake in GFL is worth about $590-million based on Thursday’s Toronto Stock Exchange trading. The stock options he held at April 1, the record date for the upcoming meeting, have potential profit of more than $47-million at Thursday’s prices. And another unvested block of stock awards are worth nearly $22-million.
Trading records filed with Canadian securities regulators show he has sold US$126.6-million worth of GFL stock on the New York Stock Exchange since the company went public. The company’s stock-option program is structured so that all of Mr. Dovigi’s sales proceeds from options are pure profit, as opposed to executives at other companies, whose gross sales don’t capture the price of exercising an option.
Mr. Dovigi received a $2.11-million salary and a $7.80-million bonus. The package includes a restricted stock award valued at $36.44-million. GFL says $10.17-million of those awards were for “amounts owed as a result of tax reassessments for historical periods.”
GFL also paid $10.19-million in premiums for Mr. Dovigi’s life-insurance policies and $10.82-million in “gross up payments” to cover his taxes on the insurance reimbursement. Instead of making those payments entirely in cash, GFL covered $15.08-million of them by issuing Mr. Dovigi more restricted stock.
Reached by e-mail, Mr. Dovigi declined to comment for this story.
In its explanation for why shareholders should vote “yes” on the say-on-pay measure, GFL says its equity-based incentives “are intended to tie executive compensation to the performance of our subordinate voting shares, our business and the long-term interests of shareholders, while discouraging inappropriate risk-taking.”
In its summary of its executive compensation philosophy, GFL says its board committee that sets compensation “also takes into account the compensation philosophies and structures of private equity funds, which are in our experience more likely competitors for attracting executive-level employees.” Private-equity funds typically offer “significant long-term incentive compensation elements designed to align management with the long-term performance of the business.”
ISS notes Mr. Dovigi’s pay increased by 307 per cent from 2022, and the restricted shares he received vested immediately, without any performance conditions, rather than having a multiyear vesting schedule. “Such outsized grant value raises significant concerns, especially since it is awarded following the large option grants in 2020 and 2021.”
ISS says GFL’s total shareholder return underperformed peers on a one-year and three-year basis, but Mr. Dovigi’s pay in 2023 and for the past three years “is substantially higher than all the peers.”
Glass Lewis says GFL “consistently exhibits a misalignment not just between pay and its relative size but also its relative performance. Moreover, considering the CEO’s significant ownership and control of the company, there is not a compelling case for the size and structure of his incentives.”
ISS recommends “withhold” votes for GFL’s compensation committee members Paolo Notarnicola, the chair, and Dino Chiesa, Jessica McDonald and Arun Nayar. (Shareholders are asked to vote “for” a director or to “withhold” their votes. At a majority of Canadian companies, there is no “against.”) Glass Lewis recommends withhold votes for those four, as well as Sandra Levy, who joined the board in April, 2023, and the compensation committee on April 3.