Will Handing Executives $10 Million in Severance Pay Save Bombardier (TSX:BBD.B) Stock?

Not too long ago, Bombardier (TSX:BBD.B) introduced it was giving a $17.5 million “golden parachute” to outgoing CEO Alain Bellemare. The bundle consisted of $10 million in severance pay, $2.7 million in inventory, and a possible $4.9 million if the corporate’s Alstom deal closes. The deal acquired important criticism. The pay itself was criticized within the media, whereas new CEO Eric Martel criticized developments that occurred throughout Bellemare’s tenure.

Throughout Bellemare’s time as CEO, Bombardier’s inventory worth fell dramatically. From February 13, 2015 — the date he took over — till the beginning of this month, the corporate’s inventory worth has declined 75%. In the identical interval, Bombardier bought off many enterprise items, which can have helped the corporate enhance its stability sheet but in addition disadvantaged it of development engines.

Many Canadians are questioning whether or not a CEO whose tenure was unsuccessful ought to get an enormous payout. Earlier than exploring that, we have to take a look at precisely what Bellemare is getting.

A $17.5 million golden parachute

Of the quoted “$17.5 million” golden parachute Bellemare is to obtain, solely $10 million is ready in stone. The remainder has varied strings hooked up. The inventory award is determined by the worth of the shares when Bellemare receives them. The $4.9 million in more money is determined by whether or not Bombardier’s deal with Alstom closes.

So, Bellemare might not get $17.5 million. Nevertheless, he’s assured not less than $10 million, which looks as if rather a lot for a CEO of an organization whose share worth has fallen into the abyss.

Is that this excellent news for traders?

When you take a look at Alain Bellemare’s severance pay from an ethical perspective, it might sound unsuitable. Why ought to a CEO get $10 million plus inventory awards for leaving an ailing company? Bellemare’s departure comes concurrently many Canadians are struggling financially, so the large compensation awarded would possibly appear like a slap within the face.

Nevertheless, it’s potential that the transfer might have been obligatory to show issues round for Bombardier.

CEOs aren’t simple to fireplace, as their removing requires a board vote. Getting an organization’s board to comply with terminate its CEO when the CEO doesn’t need to step down might be troublesome — notably if the CEO has allies on the board. Maybe within the curiosity of putting in a brand new CEO, Bombardier supplied Bellemare a beneficiant compensation bundle that might enable him to go away with out an excessive amount of opposition.

If that’s what occurred, then it could have been the precise transfer. In its most up-to-date quarter, Bombardier misplaced $200 million in GAAP phrases and noticed its adjusted EBITDA decline 36%. Its internet money outflow from working actions was a whopping $1.5 billion. That money outflow was practically as giant as Bombardier’s money available. So, even with the entire firm’s enterprise unit spinoffs, it’s going to want to re-finance simply to cowl the price of operations.

Clearly this firm wants a change of management. Maybe Bellemare’s $10 million in severance pay was wanted to make that occur.

Idiot contributor Andrew Button has no place in any of the shares talked about.