The short end of the Canwest stick

Execs get big bonuses, employees get squat; it’s ‘business logic’

by Jonathon Gatehouse

The short end of the Canwest stickIf you were to ask the general public how much of a bonus Canwest Global Communications executives deserve for steering the country’s biggest media company into the ground, the answer would fall somewhere between squat and diddly. But according to their bankruptcy protection filing this month, the correct response is $9.8 million.

The Key Employee Retention Plan (KERP) already approved by Canwest’s creditors, and given an initial thumbs-up by the courts, was the subject of “extensive” negotiations from the very beginning of the company’s efforts to extract itself from under its $4-billion debt load last December. Three directors, four top executives and 13 other senior members of management will receive two hefty cash payments—one at the end of this year, the other early next spring—in exchange for sticking around until the streamlined company emerges from the process. The details of just who is receiving the bonuses and how much have been sealed by the court at the company’s request to protect “sensitive personal and financial information.” But it’s clear at least some of the “retentions” will be decidedly short-term as the agreement calls for the three unnamed directors to resign from the Canwest board once the restructuring period ends. Leonard, David and Gail Asper, the children of the late Canwest founder Izzy Asper, are all currently directors, but are expected to have a much reduced role, and ownership stake, in the new company.

The agreement, under the Company Creditors Arrangement Act (CCAA), will see three hedge funds exchange billions in debt for controlling equity in Canwest’s national Global TV network, six cable channels, and the National Post newspaper. (The 13 specialty channels Canwest acquired when it took over Alliance Atlantis two years ago are not part of the deal.) A separate CCAA filing covering Canwest’s 12 daily and 22 community newspapers and their $1.3-billion debt is expected in the coming weeks. It’s not clear whether executives in that division are also in line to receive bonuses.

But the Canwest 20 are among the few winners in the company’s failure. Stockholders, who have seen share value plummet from more than $20 a few years ago to less than 25 cents (trading was halted Oct. 6), are in line to receive just 2.3 per cent of the new entity. Suppliers whose goods and services are not “essential” to day-to-day operations (pretty much everything outside of TV shows and newsprint) will find themselves at the back of the long line of creditors. Canwest pensioners are losing their company-funded medical and dental coverage—a net savings of $400,000 a year according to the court filing. And some 60 employees across the country who were laid off earlier this fall will no longer be receiving their severance.

“I’m finding it hard to wrap my head around,” says Pat Vanderburg, who has worked for CHBC TV in Kelowna, B.C., for the past 23 years. When he was given three months’ notice in early September, the program coordinator was told he was entitled to just over $95,000 in compensation and vacation pay. On the day of the CCAA filing, a company HR representative told Vanderburg that the new amount will be $0. “I’m still coming to work every day,” says the 45-year-old. “These management bonuses just add insult to injury.” Kirk Mitchell, 55, who is losing his job as a senior VTR editor after more than 33 years at the station, stands to lose more than $50,000 in promised severance. “You shake your head and ask, what the hell are they thinking? They won’t pay me what they owe me, but they’re asking for $9.8 million to pay bonuses to the people who got them into this mess.”

In a company-wide email last week, Leonard Asper wrote that “we sincerely regret the impact” the CCAA filing is having on laid-off employees and pensioners. In an interview, John Douglas, senior vice-president of public affairs for Canwest, said all efforts were made to limit the cutbacks and noted that the company will continue to pay all wages and benefits to its current employees, as well as any outstanding payments due to freelancers. The close to $10 million in retention bonuses are a necessary part of the restructuring process, says Douglas. “We’re doing it for the same reason that every company in this situation has a KERP. It’s straight business logic. It’s required,” he says. “These are people who are essential for driving the restructuring and  the operation of the business.”

The union that represents many of the affected workers, the Communications, Energy & Paperworkers, is vowing to take up the battle. CEP vice-president Peter Murdoch calls the management bonuses “immoral” and questions why it is necessary to squeeze out such relatively small savings—$2 million to $3 million—in what is a gargantuan restructuring. The union is also concerned about Canwest’s employee pension plans, which have a reported solvency deficit of $13.3 million, and is calling on Ottawa to step in and protect the rights of current and former employees. “I think the government has been asleep at the switch here,” says Murdoch. “We need someone to back the workers up.”

However, recent history suggests the federal Conservatives, who were considering a bailout of Canwest earlier this year, have little interest in involving themselves in such disputes. When Nortel Networks filed for bankruptcy protection last January, executives and senior managers divvied up more than $30 million in court-approved retention bonuses, despite the protests of 1,000 workers who were denied severance. In a nod to an anti-bonus backlash south of the border, Jim Flaherty, the finance minister, has since warned Canada’s banking sector to change the way it structures executive compensation. But Industry Minister Tony Clement, who oversees CCAA agreements, has not followed suit. In an email to Maclean’s his spokesperson refused to comment on the Canwest bonuses as the matter is before the courts, but pointed to new amendments to the process to increase “transparency and fairness.” Among the changes that came into effect last month, workers are now guaranteed up to $2,000 in back wages and $3,250 in lost severance.

The short end of the Canwest stick

  1. If people are being told they won't get vacation pay or severance that was written into their employment contract then they should sue. The company would very quickly decide that a series of expensive lawsuits ending in court-ordered payments is less in their best interest than making a good-faith effort to at least partially meet their obligations.

    • You do realize what "bankruptcy protection" means, right?
      It means employees need to get inline behind all the other creditors.

      • "It means employees need to get in line behind all the other creditors."

        Yes, and that includes high-ranking executives. In this case the company seems to be making a business decision that paying the execs to carry through the "streamlining process" is a worthwhile investment, while negotiating a partial compensation of lower-level employees is not. Numerous, costly lawsuits may change that calculation.

      • "It means employees need to get in line behind all the other creditors."

        Yes, and "employees" includes high-ranking executives. In this case the company seems to be making a business decision that paying the execs to carry through the "streamlining process" is a worthwhile investment, while negotiating a partial compensation of lower-level employees is not. Numerous, costly lawsuits may change that calculation.

        • Except employees aren't considered creditors until after they stop getting their pay. They've got nothing to sue for until the company violates their contract, but by the time that happens, the execs will all be paid off and all that will be left is the shell of the bankrupt company.

      • "It means employees need to get in line behind all the other creditors."

        Yes, and "employees" includes high-ranking executives. In this case the company seems to be making a business decision that paying the execs to carry through the "streamlining process" is a worthwhile investment, while negotiating a partial compensation of lower-level employees is not.
        The threat of numerous costly lawsuits may change that calculation.

      • "It means employees need to get in line behind all the other creditors."

        Yes, and "employees" includes high-ranking executives. In this case the company seems to be making a business decision that paying the execs to carry through the "streamlining process" is a worthwhile investment, while negotiating a partial compensation of lower-level employees is not. Numerous costly lawsuits may change that calculation.

        • Except employees aren't considered creditors until after they stop getting their pay. They've got nothing to sue for until the company violates their contract, but by the time that happens, the execs will all be paid off and all that will be left is the shell of the bankrupt company.

          I'm not saying this is right, but it is how it is. Basically, your suggestion of "take it to the courts" simply doesn't work because of bankruptcy protection.

          • Hmm. Maybe you're right. It hadn't occurred to me that the grievance only occurs on the final payday when vacation/severance are due. In that case the "take it to court" option only works if the company is going to be operational after restructuring.

          • Hmm. Maybe you're right. It hadn't occurred to me that the grievance only occurs on the final payday when vacation/severance are due. In that case the "take it to court" option only works if the company is going to be operational after restructuring. But isn't that Canwest's intention here? They're paying the execs to carry out the restructure so that the company can continue operations.

          • Except they won't, because then they'll become part of the bankruptcy proceedings, and that's when the employees have to get in line to get anything that's left of the old shell company. Meanwhile, the new company proceeds unencumbered. That's kind of the whole point of bankruptcy protection.

          • I see. Thanks for the correction.

          • I just want to point out that your preceding exchange was a civil, informative and well-reasoned discussion with one of the discussants actually recognizing he may have missed something (but also learned something new), and then went on to thank the other person in the conversation. (And I'm *not* being sarcastic).

            I salute you both – especially Gaunilon – for proving that these conversation threads don't have to be poorly informed, logically inconsistent, high-volume attacks on one another. (For the opposite, see the globe and mail or toronto star, or perhaps a few others, er, following below…).

          • I'm not sure how severance, etc. ties into this, but I know employee's wages are given a preferred creditor status (in there with rent owing and municipal taxes) so they are supposed to come before any unsecured creditors. I guess severance and benefits aren't covered as wages, or secured creditors already have claim to too much of the available cash.

          • Nice, isn't it?
            Most posts are informative and I greatly appreciate the general civility.
            Quite honestly, people here behave far better than our MP's in parliament.
            What does that tell you about the state of Canadian politics?

          • Nice, isn't it?
            Most posts are informative and I greatly appreciate the general civility.
            Quite honestly, people here behave far better than they do in parliament.
            What does that tell you about the state of Canadian politics?

          • Admittedly it hadn't occurred to me that the grievance only occurs on the final payday when vacation/severance are due. In that case the "take it to court" option only works if the company is going to be operational after restructuring.

            But isn't that Canwest's intention here? They're paying the execs to carry out the restructure so that the company can continue operations, in which case those lawsuits will impact Canwest's future.

        • The restructuring process means you can't bring lawsuits. It's what the "protection" in bankruptcy protection is.

      • "It means employees need to get in line behind all the other creditors."

        Yes, and "employees" includes high-ranking executives. In this case the company seems to be making a business decision that paying the execs to carry through the "streamlining process" is a worthwhile investment, while negotiating a partial compensation of lower-level employees is not.

        The threat of numerous costly lawsuits may change that calculation.

    • You do realize what "bankruptcy protection" means, right?
      It means employees need to get in line behind all the other creditors.

  2. If people are being told they won't get vacation pay or severance that was written into their employment contract then they should sue. The company would very quickly decide that a series of expensive lawsuits ending in court-ordered payments is less in their best interest than making a good-faith effort to make good on their obligations.

  3. Unbelievable! Where do top 'mis-mangement' got off with absolute theft to those who have dedicated years to 'the company' get off with these so called 'bonuses'? I am appalled. For years I worked with 'high end' corporate clients, most of whom were ethical, there were some that I had to fire because of their 'soap box' attitude to those who were working so hard to make their dreams come true.
    Where's the balance vs. greed? Let these guys live for just a day, or lets make that better, a month, in the shoes of those they've trampled on. Do they forget their roots? Or are they all hand fed spoiled, greedy, uncouthful & selfish people who really don't have a grasp on reality?
    I'm sick and tired of hearing about all of these supposed 'big wigs' getting money where they clearly don't deserve a dime!
    We work hard, we are ambassadors for our area and our province, we don't get any handouts, our winters are long and arduous trying to stay warm and keep things going until the next season. We have rather affluent guests from all over the world to our '5-Star Rustic' location ~ know what? ~ they all Love it! But that doesn't make things any easier or cushier for us. They don't have to go through the 'pioneering' lifestyle ~ we operate off of a diesel generator, we haul our own water from a mountain spring, we haul all the hay for the horses ~ now at $100/bale, business was down over 50% this year ~ we don't get any of these 'bonuses', we just get billed and billed for more taxes. We barely get by yet 1000's from all over the world have enjoyed our Western hospitality and have no idea how hard we struggle. Guess we're just 'the little guy' in one of the most beautiful places ~ the Canadian Rocky Mountains.
    That's all for now ~ the rest would take a book.

  4. Well, I guess it's just another shinning example for the neocons to point to in their bizarro upsidedown world of letting the "market" flourish and governments just get out of the way, privitize everything including prisons and I guess even the sidewalks and everything will be rosie…for the handful of corprate criminals and phycopaths at the top, for everyone else…not so much. Cheers

  5. Time to change the rules. Preferred creditors (1) employees minus executives and board members (2) suppliers (3) investors minus shares doles out to execuitves. Squat to executives and board members who have driven a company into the hole. Don't hold your breath expecting the conservatives or liberals having the intestinal fortitude to take the high road in changing the rules.

  6. Izzy Asper must be rolling over in his grave to think that the employees with decades of service, who were the backbone of the company he built, have essentially been laid off without severance. As a former Canwest employee, I can attest that the incompetence at mid-to-upper levels of management there was shocking.

  7. Here is a little logic the Asper clan may not have counted on..Organized retiree groups who are now fored to fight for their pensions and benefits are going to make your welcome exit from the
    broadcast scene a long drawn out legal apocalypse, and OFSI is standing behind us 100%. So mark your calendars accordingly, this battle of employees to get what is rightfully theirs is ging to be biblical.

    • I would love to hear more about this. Where is that info available? TY

  8. It's interesting how these execs get $9.8 million at the same time as Global is crying poor over local TV and the CRTC is imposing a tax on all cable/satellite customers to give them more money for local stations.

    Why don't we just take the $9.8 million and put it there instead? Ah, priorities.

    • Cable and Satellite providers want to have their cake and eat it too. They assume none of the costs of purchasing or creating content but take all the profits for Canadians to have access. They have overcharged for YEARS and have been allowed to price fix at unprecidented levels.

      If the CRTC does demand that they compensate the companies tha own the conent they profit from that cost should NOT be passed along to you. Believe me, you overpay for your service and have been doing so for a long time.

      The Government and CRTC need to permit more foreign ownership or investment in Canadian communications companies. More competition would drive down cable, satellite and mobile phone prices.

      • The irony, of course, is even more evident when the credits roll on most Canadian programming. Those content creators rely heavily on government subsidies/tax credits to get these productions made. As taxpayers and cable/satellite subscribers, we're getting hit from all sides.

    • its not a tax..if you wanna call it a tax, then the cable station taxes you like 4dollars a month for tsn etc,example they keep 2 of the dollars, give the other 2 to tsn(or whatever the number is) right now the cable station "taxes" you for cbc, global, ctv, yet they pay those compaines nothing in return…

  9. Foreign ownership rules need relaxed, yes. We need that in several areas.

    Coyne posted what we really need a few months ago, though. Fee for carriage (what this is really about) isn't a fix. What kind of system says "you MUST carry these stations, you MUST make all customers get them if they wan them or not, you MUST do simulcast program substition for them, you MUST put them at the best spot on the dial… oh, and you must pay them for the privilege." Now the TV networks want to regulate cable rates too. They want exactly the same thing you accuse the cable companies of wanting: to foist all their own problems on somebody else.

    Remove their must carry status. Then let them charge fee for carriage. Let people choose to subscribe or not, by mandating per-channel subscription options instead of these ridiculous packages. Then the market will dicate how many of these channels the public actually wants to pay for.

    Of course that won't happen, Canadian TV is all about spending huge money to piggyback on American shows while trying to claim you deserve special status for being Canadian.

  10. This is such a refreshing article from McLean's! As a labour lawyer representing many unions and individual workers who stand to lose everything while high-level execs get millions, I applaud you for echoing the growing frustration felt by the very people who helped build these companies while those who destroy them get the benefits.

  11. as always the can(t)west guys are sneeky and the ones that can do something bury their heads.

  12. Very impressive comment.

    If people are being told they won't get vacation pay or severance that was written into their employment contract then they should sue. The company would very quickly decide that a series of expensive lawsuits ending in court-ordered payments is less in their best interest than making a good-faith effort to at least partially meet their obligations.

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