Bombardier, Inc. (TSX: BBD.B) has received billions of dollars of taxpayer money in support of a business that has continued to fail to produce a meaningful turnaround. In the latest segment of this evolving saga, the airline manufacturer has announced a hefty pay increase for the company’s senior management team of 50% across the board.
The public, including investors and analysts, are not pleased.
The top five executives at Bombardier pulled in over $43 million last year, and this is considered a slight to many shareholders as the cumulative total of the compensation packages of five individuals within the company amounts to a significant portion of the bailout funds the company has received from the provincial and federal governments in 2016.
After the CSeries debacle, in which Bombardier received over $1 billion from the provincial and federal governments to keep the company on life support, the airline manufacturer was forced to take over $5 billion of write-downs after announcing the CSeries jet was officially over budget by more than $2 billion and delayed my more than two-and-a-half years.
The inability of Bombardier to execute is striking, and it is clear that the company needs to do much more than reduce salaries to inspire public confidence. In addition to ramping up its production schedule and increasing margins across the board, Bombardier should be eager to return value to shareholders in the form of dividends should it become profitable again.
Instead of linking executive compensation to the company’s stock price, another option the board should consider is linking compensation to the company’s bottom line or, alternatively, to the distributions the company gives back to shareholders.
Shareholders are different than stakeholders. At this point, since the Canadian and Quebec governments have put their money and faith in Bombardier, the least the company could do is show its stakeholders it is serious about returning the money it received in good faith back to the Canadian people.
The problem is, due to Bombardier’s existing dual-class share structure, in which the vast majority of voting shares are held primarily by insiders (Clair Bombardier Beaudoin, J.R. Andre Bombardier, Janine Bombardier, and Huguette Bombardier Fontaine), the fact remains that shareholders not in the Bombardier, Beaudoin, or Fontaine families have no say in how the company is run.
Articles can circulate about how poorly the company is managed, and public outrage can manifest itself after the company announces 50% pay increases for senior management, but nothing can really be done about this because of the share structure of Bombardier.
The dual-class share structure is, in my opinion, what will eventually lead to the company’s demise. In the long term, poor strategic decisions are deal killers for investors such as myself, and the inability of capital markets to do anything to shake up the management team is a huge problem for long-term investors in any company.
Stay Foolish, my friends.
