Canaccord is now offering an alternative that drops requirement to stay with the firm for a fixed period in order to receive bonus.Gloria Nie
Canaccord Genuity Group Inc. is asking its employees to cough up cash for equity in a move that will inch the firm a little closer to the old Bay Street partnership model.
Chief executive officer Dan Daviau says the move is designed to align employees with shareholders, who are concerned about the firm's profitability.
"When you have your employees going into their pocket and writing a cheque to subscribe for shares of our company, that changes people's attitudes," Mr. Daviau said during a conference call with analysts Thursday morning, following the release of the company's fiscal fourth-quarter results.
As a sweetener to buy into the stock issue, employees will be granted half a warrant to buy additional shares. Mr. Daviau said there will be restrictions put in place; employees will be unable to sell their shares, or exercise the warrant, for a number of years.
The stock issue, which is due to be completed via a private placement at market prices over the next few weeks, will dilute common shareholders to the tune of about seven million shares. Canaccord should raise around $30-million in capital from the offering, which the company intends to use mainly to fund future stock-based compensation plans for employees.
In another unusual move, Mr. Daviau and Pat Burke, president of Canaccord Genuity (Canada), are returning large quantities of stock granted to them last year. When he was appointed CEO, Mr. Daviau was granted 1.5 million restricted share units that were due to vest over a number of years.
"Pat and I felt it was the right thing to do. Period," Mr. Daviau said. "We felt that was a better way to align ourselves with shareholders than somebody handing us a bunch of free stock."
Returning the stock will result in an $8.1-million charge to the company. When asked by an analyst on the conference call why it was recognized as a charge, and not a gain, chief financial officer Brad Kotush replied: "I can't explain the origin of the accounting rules, and IFRS [International Financial Reporting Standards] required us to do that." Mr. Daviau said he intends to participate in the new employee stock purchase plan.
Compensation and share ownership have become a hot-button issue at the firm. As The Globe and Mail reported last month, the firm had asked some of its senior bankers to commit to staying with the firm for a year as a requisite for receiving their year-end cash bonus. Canaccord later backtracked, offering bankers the option to take a smaller cash bonus and receive the balance in stock – but with no stipulation to stay for a fixed time period.
Canaccord, like many other investment banks, is keen to keep its top performers. The firm has seen a number of key employees leave over the past 18 months.
In fiscal 2016, the firm dipped into the "house" to pay its bankers comparatively more than the revenue they brought in, which is seen as a gesture of goodwill toward its top performers. However, that decision resulted in incentive compensation expenses as a percentage of revenue creeping up to 57.8 per cent last year, three percentage points higher than in fiscal 2015.
The firm booked a loss of $358.6-million in 2016, its biggest yearly loss by far since going public in 2004. Most of that loss was due to a writedown in its capital markets business that was unveiled in February.
"Fiscal 2016 is a year I'm happy to see the end of," Mr. Daviau said.