HBC shareholders challenge executive remuneration, real estate plans

Hudson's Bay Company faced a fight from some of its most prominent investors Tuesday over its decision to award executives with multi-million-dollar pay packages despite two years of weak sales and sizable losses for the retailer.

The Ontario Teachers' Pension Plan, British Columbia Investment Management Corp. and the California Public Employees' Retirement System (CalPERS) said they voted against the company's remuneration practices that include a $54.8 million pay package for the retailer's executive chairman Richard Baker.

The "say on pay" vote a non-binding motion that is growing in popularity at Canadian companies and aimed at collecting shareholder feedback took place at the company's annual general meeting in Toronto and ended in the executives' favour.

However, CalPERS spokesperson Mike Osborn said in an email "we don't feel the company sufficiently linked pay with performance" and Teachers' said in its proxy vote statement that "in this case, we do not feel that the awards have been sufficiently justified."

Baker's compensation includes more than $37 million in share-based awards and more than $16.6 million in option-based awards. The company's other executives are due to earn totals between $1.4 million and $9.4 million, according to HBC's information circular.

After the vote passed, one shareholder in the audience criticized Baker's remuneration saying, "It is one thing to award a package. It is another to accept it and so I think accepting it reflects on (Baker)'s character, who not so long ago said the fair value was twice where these payouts are."

The shareholder called on Baker to address the issue, to which Baker replied "we appreciate your question. Thank you."

The majority of other stakeholders at the meeting focused on the value of the company's real estate, which at least one activist investor has previously pushed the company to think strategically about, given the retailer's rocky recent performance that included a $400-million loss in its first quarter compared with a loss of $221 million a year ago.

In October, Jonathan Litt, who is chief investment officer and founder of activist investor Land & Buildings Investment Management, said the company is really a real estate company, not a retailer, that has failed to outline a plan to unlock the "substantial real estate value trapped in the company."

On Tuesday, one shareholder echoed Litt's sentiments saying, "what are you people waiting for? Are you waiting for us to go into a recession before you sell some of your real estate?"

He suggested the company take its Toronto HBC and Saks Fifth Avenue location at Yonge and Queen St. and build condos above it "while real estate is hot."

Helena Foulkes, the company's chief executive officer, indicated that the company might be ready to heed some of their investor's advice.

She said the company was looking at selling certain properties, but was not in a hurry to sell everything quickly.

Baker said the company was looking to "better utilize" its spaces to create revenue as it has through partnerships with Topshop, health clubs or shared office space business We Work.

In Toronto, for example, he said the company had taken its Yonge and Queen St. real estate and emptied two floors, pushing merchandise to other floors "in a way where we will lose no sales."

That freed up 100,000 square feet of prime space that the company used for a lease with We Work, valued at more than $50 a square foot.

He said the deal was generating foot traffic and new shoppers and is indicative of the company's plans moving forward.

"Our general focus around the world is to better utilize space, rather than selling off the particular pieces."