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BlackBerry Investors Urged to Oppose BlackBerry Executive Pay Plan

At the core of the issue is BlackBerry’s share-based compensation plan

Shareholder advisory company Glass Lewis has urged BlackBerry investors to vote against Prem Watsa as lead director, arguing that he should be held accountable for an executive compensation plan that isn’t in shareholders’ interests.

Glass Lewis recommended investors withhold support for Prem Watsa who chairs BlackBerry’s compensation committee. The proxy advisory firm said it has “severe concerns” over the executive pay-outs, and cautioned that Fairfax’s significant holdings in some of BlackBerry’s outstanding debentures could potentially misalign Watsa’s priorities with those of other shareholders.

In a report ahead of the company’s June 23 annual general meeting, Glass Lewis recommended investors vote against BlackBerry’s executive pay plan, and said the company’s compensation compared with overall corporate performance merits an “F” grade.

At the core of the issue is BlackBerry’s share-based compensation plan. Glass Lewis noted that the recent Reddit-fuelled rally in shares of the company could result in outsized share awards compared to the underlying fundamentals of the business.

Glass Lewis said that the long-term incentives outlined in fiscal 2019, combined with the rally, could result in BlackBerry Chair and Chief Executive Officer John Chen receiving $106 million in performance share units (PSUs) and restricted share units (RSUs), along with a $90-million cash incentive.

The PSU performance hurdles – ascending price targets between $16 and $20 per share on a volume-weighted average price basis – have been easier to achieve during the current mania. Glass Lewis noted that three out of the five PSU tranches were achieved, unlocking three million PSUs.

Glass Lewis said the company “has been deficient in aligning pay with performance for each of the last three fiscal years,” and that Watsa, who also has led the board’s compensation committee since late 2013, shouldn’t keep his role. Watsa is one of Canada’s best-known investors through his control of Fairfax Financial Holdings Ltd., which owns about 15 per cent of BlackBerry on a fully diluted basis.

In the report, Glass Lewis said that given the anomalous nature of the Reddit rally, it appeared those share awards were divorced from the fundamentals shown by the company prior to the frenzy.

“Based on the company’s share price performance over the past fiscal year — prior to January 2021 the price hovered around $5 and peaked around $8.50 — it appears to us that these tranches were earned as a result of the company’s sudden share price increase concurrent with the retail trading phenomenon observed in January 2021, which was characterized by extremely volatile trading patterns of shares in certain publicly traded brands, most famously GameStop.”

“We believe the concerns regarding the company’s pay practices and programs are severe enough to warrant withholding votes from the chair of the compensation committee at this time,”

BlackBerry has more than doubled this year in U.S. trading, fuelled by Reddit forums and social media channels where retail speculators seek out unloved or heavily shorted stocks like GameStop Corp. and AMC Entertainment Holdings Inc., hoping to drive them up quickly.

Fairfax, as the largest BlackBerry investor, has benefited from that meme-stock mania, not only through its ownership of 8.2 per cent of its existing shares but through holdings of convertible debt with a conversion price of US$6 each.

Glass Lewis has recommended shareholders vote against BlackBerry’s executive compensation plan in each of the last three years, with 23 per cent of the votes cast last fiscal year following the proxy advisor’s recommendation.