Slow and steady is the pace at Waste Connections…

February 17, 2012

No one can accuse the directors at Waste Connections, Inc. (WCN) of acting rashly. Indeed, if the 8-K the company filed February 16 is indicative of how quickly the board makes its decisions, we’d wager that the speed of Ents, turtles, and glaciers is comparatively frenetic.

It seems that way back in 2010 – yes, two years ago – Institutional Shareholder Services (ISS) suggested that Waste Connections take another look at its compensation and benefits programs. Specifically, the filing states, ISS wanted the company to renegotiate the named executive officers’ (NEOs’) existing employment agreements to “remove certain single-trigger payments in connection with a change in control.” The single-trigger clause is mostly pass⟠these days; yet it’s important to understand the concept, because it means that if the company were acquired, the executives would get their change in control benefits (typically a lump-sum payment and/or the accelerated vesting of any unvested stock and options) regardless of whether or not they actually lost their jobs. (Of course, ISS wasn’t the only entity asking about Waste Connection’s single-trigger clause. In 2008, the SEC had asked for “the rationale providing a single trigger for payment in the event of a change in control” in a Comment Letter, eliciting what we would characterize as an unfocused explanation from Waste Connections that nevertheless apparently appeased the agency.)

Anyway, in response to ISS’s request, in an April, 2010 proxy filing Waste Connections promised the following:

“The Compensation Committee of the Company’s Board of Directors has determined that it will use its reasonable best efforts to negotiate with the named executive officers amendments or modifications to their existing agreements to remove the —single trigger provisions within the next 24 months.”

It’s the 24 months that gets us. We’ve seen other companies take a lot less time, to be sure. Yet yesterday’s 8-K makes it pretty clear that Waste Connections was stringing this out and that this was a topic of great deliberation that cost the shareholders a fair amount of money to resolve. Here’s how the filing describes it:

“As a result of the Committee’s review, and in recognition of the importance to the Company and its stockholders of avoiding the distraction and loss of key executive officers that may occur in connection with rumored or actual fundamental corporate changes, the Committee, at significant time and expense during 2011 and with the assistance of an outside compensation consultant and legal counsel, negotiated amendments to our NEOs— employment agreements and new separation benefit plans.”

As a result of the “significant time and expense,” the directors did what they would have done if they had wanted to accomplish the change much sooner. They threw more money at the executives to get them to amend their employment agreements and replace the single trigger clause with a double trigger clause. Thus, now the executives don’t get their change in control payments unless control of the company changes and the executives lose their jobs (though we’ve certainly seen plenty of companies revise their agreements post-deal).

The filing notes that the actual agreements won’t be filed until it files its next 10-Q, but the company does disclose that it gave one-time equity grants ranging from a high of 63,172 shares of stock to its Chairman and CEO, Ronald J. Mittelstaedt, down to 9,824 shares to Senior VP of People, Safety, and Development Eric M. Merrill. At this morning’s current stock price of $31.91 per share, that gives Mittelstaedt an extra $2 million worth of stock, Merrill nearly $313,500 worth of stock, and the other NEOs varying amounts in between.

And that is just for modifying the agreement. On top of that, Mittelstaedt would get – at a minimum – a $7.5 million lump sum payment for a “qualified termination,” which includes a change in control. The other NEOs would get between $3.9 million and $500,000, plus accelerated vesting of their equity interests, continued benefits for a while, and more.

Of course, shareholders may not mind. The stock has marched upward at a rather steady pace over the past few years. However, before they submit any proposals for the board’s consideration, they may want to think about whether they’ve really got the patience to wait for an answer.

Image source: Tortoise with a caution cone via Shutterstock

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