File photo of Don Walker, CEO of Magna International.Fernando Morales/The Globe and Mail
Compensation fell slightly last year for Don Walker, chief executive officer of Magna International Inc. as the board of directors changed how senior executives of the auto parts giant are paid.
Mr. Walker, who annually ranks among the most well-compensated executives in Canada, received US$20.4-million in salary, share-based pay, option-based awards and bonuses last year, compared with US$21.6-million in 2016.
Compensation rose slightly for chief financial officer Vince Galifi and two other senior Magna executives, but fell slightly for Jeffery Palmer, executive vice-president and chief legal officer.
Mr. Walker also holds US$24.5-million in share options that were not exercised as of Dec. 31, 2016, and US$10.2-million in share-based awards that have vested but not been paid out or distributed.
For years, Magna’s compensation system for senior executives consisted of low base salaries and a share of a bonus pool that was based on pretax profit.
The system was changed last year for Mr. Walker and Mr. Galifi, the CFO, and for part of the year for chief technical officer Swamy Kotagiri, who is not one of five senior executives whose annual compensation is listed in the proxy circular for Magna’s annual meeting.
The new system will apply to all named executive officers by 2019, said the circular, which was filed with securities regulators Wednesday. That will shift total compensation levels closer to the median of Magna’s peer group unless tenure, experience and superior performance justify higher levels.
“The new compensation framework has been designed to more directly link compensation to efficient capital allocation and long-term value creation,” the corporate governance committee of Magna’s board of directors said in a report included in the circular.
“We are aiming to moderate executive compensation levels, while avoiding unnecessary disruption to the senior leadership team at a time of rapid change in the automotive industry,” the committee wrote.
The new system will maintain low base salaries and bonuses based on profitability. It now also, however, includes elements that are based on targets set by the board that are designed to reward executives for long-term performance instead of short-term profitability.
That means compensation for executives is now based partly on performance share units (PSU) that reflect the company’s return on invested capital and other PSUs that are based on total shareholder return for Magna shares compared with a set of peer companies.
Mr. Walker’s 2017 compensation consisted of 40 per cent base pay and short-term incentives based on profit and 60 per cent long-term incentive.
The companies against which the board compares Magna’s compensation include heavy-equipment manufacturer Caterpillar Inc., defence and technology company Raytheon Corp. and auto-parts makers BorgWarner Inc. and Lear Corp.
It measures total shareholder return against some of those same companies as well as Canadian parts makers Linamar Corp., Martinrea International Inc. and three key customers, Fiat Chrysler Automobiles NV, Ford Motor Co. and General Motors Co.
Magna reported profit of US$2.2-billion, or US$5.90 a share, in 2017, compared with US$2.06-billion, or US$5.16, a year earlier.
Return on invested capital dropped to 15.7 per cent from 16 per cent a year earlier.
Magna was a vocal critic of Ontario’s recent move to increase the minimum wage to $15 an hour, saying the increase threatened the competitiveness of its manufacturing operations in the province.
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