People walk past Tilray headquarters at its European site in Portugal in 2018. The Canadian medical cannabis producer filed an amended proxy circular on Oct. 10 after its Oct. 3 filing understated the magnitude of pay for its CEO Irwin Simon.PATRICIA DE MELO MOREIRA/AFP/Getty Images
There appeared to be great news at cannabis company Tilray Brands Inc. – it said its CEO, Irwin Simon, made a mere 52 times what the average worker at the company makes, a modest figure in the current era of inflated executive pay.
Unfortunately, Tilray TLRY-Q used some sleight of hand to arrive at the number in the Oct. 3 filing of its proxy circular – it left out the stock awards that make up 90 per cent of Mr. Simon’s US$19.46-million in compensation. Include those awards, and the chief executive officer makes 526 times the average Tilray worker’s US$36,989 in pay – more in line with the sky-high ratios we see at most corporations today.
Tilray’s math seemed to run afoul of the U.S. Securities and Exchange Commission’s disclosure rules, and the company also seems to now have realized the issue. On Monday, it filed an amended proxy circular to correct its disclosure and provide the bigger number.
Tilray’s initial filing was a curious attempt to understate the magnitude of the pay for Mr. Simon, the celebrity CEO of the cannabis sector.
Mr. Simon founded and spent a quarter century at health-foods company Hain Celestial Group Inc., years that included many appearances on market pundit Jim Cramer’s television show and which ended months before the SEC charged the company with failures in its internal controls over financial reporting. (The SEC did not name Mr. Simon personally.)
His “second act,” as it’s been called, was to serve as chairman of Aphria Inc., coming on as chairman of the board, and then CEO, as the company battled charges from a short seller that it had wildly overpaid for international cannabis assets. He has since become one of the industry’s best-paid executives, particularly after Aphria merged with Tilray Inc. in 2021.
Mr. Simon’s US$19.46-million in compensation for the year ended May 31 comes after a pay package of US$13.68-million in the prior year. That included a cash bonus of more than US$13-million in July, 2021, US$10-million of which was a “Tilray transformation bonus” paid because he agreed to stay with the merged company as CEO.
Mr. Simon made $18.63-million at Aphria in the year ended May 31, 2020.
By comparison, Canadian pot company Aurora Cannabis Inc. paid CEO Miguel Martin $4.86-million in the past year, and $4.47-million the year before. Canopy Growth Corp., a Tilray peer, paid CEO David Klein $4.54-million in the year ended March 31 (but paid him an eye-popping package of $33.77-million two years prior when he joined the company).
Why is Mr. Simon such an outlier? In part, Tilray considers itself more than just a cannabis company, as it operates in the snack foods, beverage-alcohol, distribution and pharmaceutical industries. It picked a group of 18 “high-revenue growth companies” as a basis for benchmarking pay, including the much-much-larger Constellation Brands Inc., Monster Beverage Corp. and drug and supplement maker Catalent Inc.
In addition, Tilray would love to note that Mr. Simon’s most recent pay package includes stock awards valued at US$17.6-million at the time of the July, 2021, grant, when the company’s shares traded around US$13. The company’s stock closed Tuesday at US$2.90, down more than 75 per cent from those levels. Tilray will only ultimately pay out a portion of those stock awards if its shares gain from the much-higher 2021 levels.
The Tilray board didn’t expect the company’s shares to tumble into the gutter, so it fully intended to give Mr. Simon a package that makes him one of Canada’s best-paid CEOs. Which gets us back to their now-kiboshed attempt to hide how gigantic it is in comparison to the typical Tilray employee.
Under SEC regulations, U.S. companies (which Tilray is, by the SEC’s standards) are required to calculate and disclose the total annual compensation paid to their median employee, as well as the ratio of the total compensation paid to the median employee as compared to the total compensation paid to the CEO.
Tilray says that in presenting its original figure, “we did not include any equity incentive awards in this calculation given that the median employee generally does not receive equity incentive awards.” So Tilray used the US$1,901,783 of salary and benefits for Mr. Simon, not the US$19.46-million total compensation figure, to arrive at the 52-to-1 ratio.
“The foregoing pay ratio represents the company’s estimate calculated in a manner the company believes to be consistent with the SEC rules and applicable guidance,” Tilray concluded in the Oct. 3 filing.
I concluded that it is not consistent. Item 402(u) of Regulation S-K says the ratio’s numerator, “Total compensation … shall be determined in accordance with” a paragraph that defines total compensation as “the sum of all amounts” reported in the columns in the summary compensation table – columns that include the estimated values of stock and option awards.
In an e-mail last week, I told Tilray I did not believe it followed the SEC rules. On Tuesday, subsequent to the revised filing, Mitchell Gendel, Tilray’s global general counsel, said in an e-mailed statement that the company “believes that our proxy filings are fully compliant with SEC disclosure requirements.”
The CEO-to-median-worker ratio is not yet a thing in Canada, but it will be in the future. While securities regulators here have so far opted not to require it, Vancouver’s Vancity Investment Management Ltd. has been pushing the big banks to disclose it.
Bank of Nova Scotia agreed to begin publishing its ratio in 2023, but at their annual meetings this year, Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce all beat back Vancity’s shareholder proposals to provide the disclosure. (The investment manager does not hold shares in other major banks.)
While critics of the pay ratios complain about their utility and whether they provide meaningful data, it’s one of the best ways to track how publicly traded companies, whose shares are held by individual investors or the institutions serving them, are contributing to growing income inequality.
“It isn’t just to get the ratio and we’re done – it’s about getting that data out there so that we can compare it” year after year, says Kelly Hirsch, head of environmental, social, and governance at Vancity. The ratio of CEO pay to their workers’ “is just diverging … and those sorts of divides, it’s just fundamentally not sustainable.”
As Canada slowly heads down the path to more CEO pay-ratio disclosure, Tilray’s failed attempt to chart a course in how to understate wealth inequality offers a lesson to Canadian regulators about what companies might do to avoid the scrutiny.