EX-99.1 2 d283308dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

LOGO


 

2022 MANAGEMENT PROXY CIRCULAR

TABLE OF CONTENTS

 

    

 

PART I   
Notice of Annual and Special Meeting and Executive Summary      1  

Notice of 2022 Annual and Special Meeting of Shareholders

     1  

About the Information in this Proxy Circular

     2  

Message from the Chair of the Board

     4  

Message from the Chair of the Management Resources and Compensation Committee

     6  

Message from the Chair of the Risk and Sustainability Committee

     9  

Proxy Highlights

     11  

2022 Meeting details

     11  

Highlights (Board Governance, Compensation and Environmental, Social and Governance)

     12  

PART II

  

Business of the Shareholder Meeting

     15  

Business of the Shareholder Meeting

     15  

Communications and Engagement

     20  

About the Nominated Directors

     21  

2021 Director Compensation

     29  

Committee Reports

     31  

PART III

  

Executive Compensation

     34  

Compensation Discussion and Analysis Summary

     34  

Compensation Governance

     38  

Compensation Programs

     43  

2021 Executive Compensation

     44  

Named Executive Officer Profiles

     55  

Executive Compensation Details

     64  

Summary Compensation Table

     64  

Incentive Plan Awards

     67  

Retirement Plans

     71  

Termination and Change in Control

     74  

CEO Pay Ratio

     76  

PART IV

  

Corporate Governance

     77  

Governance at CP

     78  

About the Board

     78  

Diversity

     82  

Serving on Other Boards

     85  

Director Compensation

     88  

Serving as a Director

     91  

Integrity

     91  

Share Ownership

     92  

Attendance

     94  

Director Development

     95  

PART V

  

Environmental, Social and Governance

     98  

Climate Change

     98  

Sustainability Governance

     100  

Reporting and Disclosure

     101  

Sustainability Priorities

     101  

PART VI

  

Delivery of Meeting Materials and Voting Information

     104  

Notice and Access

     104  

Voting by Proxy

     106  

PART VII

  

Other Information

     109  

Internal Controls and Certification

     109  

Pre-Approval of Audit Services and Fees

     109  

Loans to Directors and Officers

     110  

Directors’ and Officers’ Insurance

     110  

About non-GAAP Measures

     110  

PART VIII

  

Board Terms of Reference

     112  

Appendix A - Auditor Change Notifications

     A-1  

Appendix B - Amended and Restated Management Stock Option Incentive Plan

     B-1  
 

 


 

NOTICE OF 2022 ANNUAL AND SPECIAL

MEETING OF SHAREHOLDERS

 

 

 

LOGO

 

 

To our Shareholders

You are invited to our 2022 annual and special meeting of shareholders if you held common shares of Canadian Pacific Railway Limited (CP) at the close of business on February 28, 2022.

 

 When

 

 Wednesday, April 27, 2022

 9:00 a.m. (Mountain Daylight Time)

 

Where

 

Virtual meeting via webcast online at

https://web.lumiagm.com/471059918

 

We will cover six items of business:

 

1.

Receive the audited consolidated financial statements for the year ended December 31, 2021;

2.

Appoint the auditor;

3.

Amend the Management Stock Option Incentive Plan;

4.

Have a say on executive pay at CP;

5.

Have a say on CP’s approach to climate change; and

6.

Elect directors.

We will also consider other business that may properly come before the meeting.

In our continuing effort to reduce environmental impacts and improve sustainability, we have adopted the “notice and access” procedures permitted under applicable Canadian securities laws for distribution of the proxy circular and other related meeting materials to shareholders. Under the notice and access procedures, instead of sending paper copies of the proxy circular and related meeting materials, shareholders who hold shares as of February 28, 2022 will be able to access and review the materials online. Shareholders will receive a package with a notice and instructions of how to access the materials electronically on a website. The notice will also explain how to obtain a paper copy of the meeting materials upon request. For additional information, see Delivery of Meeting Materials and Voting Information on page 104 of the proxy circular.

We look forward to your participation in our virtual meeting on April 27, 2022.

 

 

LOGO

Jeffrey Ellis

Corporate Secretary

Calgary, Alberta

March 14, 2022


About the information in this proxy circular

 

Note regarding presentation

Our shares are listed for trading on the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE). We are classified as a foreign private issuer pursuant to applicable U.S. securities laws and are therefore exempt from the proxy rules under the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act). This document is prepared in compliance with applicable Canadian securities laws and regulations. Additionally, as a foreign private issuer, we are permitted to follow home country practice instead of certain governance requirements set out in the NYSE rules, provided that we disclose any significant differences between our governance practices and those required by NYSE rules on our website at investor.cpr.ca/governance.

 

Non-GAAP measures

This proxy circular includes certain measures that do not have a standardized meaning and are not defined by generally accepted accounting principles (GAAP) in the United States and, therefore, may not be comparable to similar measures used by other companies. These non-GAAP measures include adjusted operating income, adjusted operating ratio, adjusted diluted earnings per share (adjusted diluted EPS), adjusted return on invested capital (adjusted ROIC), free cash, and adjusted net debt to adjusted EBITDA included in the compensation discussion and analysis beginning on page 34. You can find more information about non-GAAP measures and the definitions of these measures on page 110.

 

Forward-looking information

This proxy circular contains certain forward-looking information and forward-looking statements (collectively, “forward-looking information”) within the meaning of applicable securities laws relating to our compensation programs, operations, anticipated financial performance, business prospects, planned capital expenditures and strategies, and board and committee composition and roles, among other things. This forward-looking information also includes, but is not limited to, statements about our expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions and results of operations or performance. Forward-looking information may contain statements with words such as “anticipate”, “believe”, “expect”, “plan” or similar words suggesting future outcomes.

 

Forward-looking information is based on current assumptions about our business and our strategy as well as economic, political, regulatory, market and environmental conditions affecting them. Although we believe the assumptions reflected in the forward-looking information presented in this proxy circular are reasonable as of the date hereof, there can be no assurance that they may prove to be correct. You should not put undue reliance on forward-looking information, as it is not a guarantee of future performance. Forward-looking information involves many inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking information. This includes risks such as: changes in business strategies, general North American and global economic, credit and business conditions, changes in the availability and price of commodities, the effects of competition, industry capacity, shifts in demand, changes in laws and regulations, cost increases, claims and litigation, labour disputes, liabilities arising from derailments and the pandemic created by the outbreak of the novel strain of coronavirus (and the disease known as COVID-19) and its variants, among other things. The foregoing list of risks is not exhaustive.

 

These and other factors are detailed from time to time in reports we file with securities regulators in Canada and with the U.S. Securities and Exchange Commission (SEC) in the United States. You should refer to Item 1A – Risk Factors and Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations and Forward- Looking Information in our 2021 annual report on Form 10-K and to our risk factor and forward-looking information disclosure in our annual and interim reports filed on SEDAR (www.sedar.com) and EDGAR (www.sec.gov).

 

Forward-looking information is based on our current expectations, estimates and projections and it is possible we will not achieve these predictions, forecasts, projections and other forms of forward-looking information. We do not publicly update or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise, unless we are required to by applicable law.

 

 

 

2  CANADIAN PACIFIC


Explanatory notes

On April 21, 2021, the Company’s shareholders approved a five-for-one share split of the Company’s issued and outstanding shares (the share split). On May 13, 2021, the Company’s shareholders of record as of May 5, 2021 received four additional shares for every share held. Ex-distribution trading in the shares on a split-adjusted basis commenced on May 14, 2021. Proportional adjustments were also made to outstanding awards under the Company’s stock-based compensation plans in order to reflect the share split. All shares and notional units have been adjusted to reflect the share split, unless noted otherwise.

 

On September 15, 2021, CP entered into an Agreement and Plan of Merger (Merger Agreement) with Kansas City Southern (KCS) pursuant to which CP agreed to acquire KCS in a stock and cash transaction. On December 14, 2021, following approval of the transaction by the shareholders of both CP and KCS and satisfaction or waiver of all other conditions under the Merger Agreement, the acquisition of KCS was consummated and all outstanding stock of KCS was deposited into a voting trust and held by a single trustee as trust stock, pending final approval of the U.S. Surface Transportation Board (STB), expected in the fourth quarter of 2022. KCS’s management and Board of Directors will continue to steward KCS while it is in trust, pursuing its independent business plan and growth strategies. The trust is governed by a single trustee who is responsible to act in the interest of CP as the beneficial owner of the shares of KCS. As a result of KCS’s equity being held in trust, CP’s interest in KCS does not have the attributes of a typical equity holder as CP has no power to direct KCS’s activities during the trust period and therefore the trust is considered to be a variable interest entity for accounting purposes. For more information regarding the KCS acquisition, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and our Notice of Special Meeting and Management Proxy Circular dated November 1, 2021 in respect of the special meeting of shareholders held on December 8, 2021 in connection with the KCS acquisition.

 

 

 

In this document, unless indicated otherwise or the context otherwise requires:

•  you” and your” refer to shareholders of Canadian Pacific Railway Limited

•  we”, us”, our”, CP”, “Company” and “Corporation” refer to Canadian Pacific Railway Limited and, where applicable, its subsidiaries

•  shares” means common shares of CP

•  shareholders means holders of our shares

•  “Board” means the Board of Directors of CP

•  all amounts are in Canadian dollars

•  any 2021 amounts paid in United States dollars (US$) have been converted to Canadian dollars using the Bank of Canada average exchange rate for the year ended December 31, 2021 ($1.2535 = US$1.00)

•  information in this document is as of March 14, 2022 unless otherwise indicated

 

For more information

 

You can find more information about CP, including our 2021 annual report, on our website (investor.cpr.ca), on SEDAR (www.sedar.com) and on EDGAR (www.sec.gov).

 

You can also ask us for a free copy of the annual report by writing to:

 

Office of the Corporate Secretary

Canadian Pacific

7550 Ogden Dale Road S.E.

Calgary, Alberta T2C 4X9

 

 

2022 MANAGEMENT PROXY CIRCULAR  3


LOGO

 

MESSAGE FROM THE CHAIR OF THE BOARD

 

 

Fellow Shareholders,

 

On behalf of the Board of Directors, I am pleased to invite you to CP’s 2022 annual and special meeting of shareholders at 9:00 a.m. (Mountain Daylight Time) on Wednesday, April 27, 2022. Despite the progress that has been made in respect of the COVID-19 virus, out of an abundance of caution, CP has chosen to hold its 2022 annual and special meeting in a virtual only format this year, which will be conducted via live webcast over the internet at:
https://web.lumiagm.com/471059918. Shareholders will be able to vote on all business brought before the meeting and submit questions for consideration as they would at an in-person shareholders meeting. Shareholders who usually vote by proxy ahead of the meeting will be able to do so in the usual way. More details about voting can be found at page 104 of this proxy circular.

 

 

LOGO

Items at the meeting

At the meeting, you will vote on several items of business, including the election of directors, the “say on pay” non-binding advisory vote on executive compensation and a non-binding advisory vote on our approach to climate change. You will also be voting on replenishing our stock option pool, which we last did in 2011. We have also made a decision this year to change our registered public accounting firm. After 10 years with Deloitte LLP, we will be asking for shareholder approval to use Ernst & Young LLP as our auditors for the 2022 fiscal year. Your Board of Directors encourages you to vote in favour of all of the above resolutions.

A transformative year

Let me start by congratulating our President and CEO Keith Creel and the entire 12,000-strong CP family of railroaders for delivering a transformative year. CP reached a significant milestone when the acquisition of Kansas City Southern (KCS) was consummated and all outstanding shares were placed into a voting trust on December 14, 2021. The Board looks forward to supporting management with its efforts to move ahead with this opportunity to create the only single-line rail network connecting Canada, the U.S. and Mexico, a proposed combination that still requires regulatory approval from the U.S. Surface Transportation Board (STB). CP’s President and CEO, Keith Creel, was named 2021 CEO of the year and 2021 strategist of the year by the Globe and Mail’s Report on Business Magazine. He was also a co-recipient of Railway Age’s 2022 Railroader of the Year Award. Despite the many challenges this year that CP faced from floods and wildfires in Western Canada, the CP team continued to execute the precision scheduled railroading model to provide real, long-term value for customers, shareholders and employees alike.

CP’s 2021 full-year results increased its revenues to $8.0 billion from $7.7 billion in 2020. The operating ratio for the year was 59.9 percent, 57.6 percent on an adjusted basis and our diluted EPS increased to $4.18 from $3.59, while adjusted diluted EPS(1) increased to $3.76, from $3.53 in 2020(2). CP also continued to operate the safest railway in North America for the 16th consecutive year, as measured by Federal Railroad Administration (FRA)-reportable train accident frequency. This past year was also CP’s fifth consecutive year of improvement in personal injury rates; in 2021, FRA-reportable personal injuries declined by 17 percent to an all-time record-low of 0.92.

 

(1) 

Adjusted diluted EPS and Adjusted Operating ratio are non-GAAP measures. Non-GAAP measures are defined and reconciled on pages 94-104 of CP’s Annual Report on Form 10-K for the year ended December 31, 2021

(2) 

As a result of the five-for-one share split of the Company’s issued and outstanding common shares, which began trading on a post-split basis on May 14, 2021, per share amounts and all outstanding common shares have been retrospectively adjusted.

 

 

4  CANADIAN PACIFIC


 

Sustainability

In 2022, shareholders will also have an opportunity to provide feedback through CP’s first ever, non-binding advisory, “say on climate” vote, in which CP seeks shareholder approval of its approach to climate change as described in this proxy circular. We published our Climate Strategy in July 2021, which includes science-based greenhouse gas (GHG) emissions reduction targets. A copy of our Climate Strategy can be found at sustainability.cpr.ca. This past year, CP also introduced reporting aligned with the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) and our contributions towards the United Nations Sustainable Development Goals by identifying the goals which are most aligned with our business. CP’s focus on climate disclosure enhancements resulted in CP being named to the CDP A List for the first time and CP’s inclusion on the Dow Jones Sustainability North America Index (DJSI North America) for the second year in a row. CP’s approach to climate change has been meaningfully influenced by the discussions we have had with shareholders over the last number of years. This year’s “say on climate” vote will act as another mechanism by which shareholders can provide their feedback and prompt further dialogue on this important topic.

Governance

In the fourth quarter of 2021 and early 2022, as part of our annual shareholder engagement program, we met with a number of institutional shareholders representing over 35 percent of our outstanding shares. Among other things, we discussed climate change, executive compensation, diversity, corporate culture and the merger with KCS. We also reviewed with our shareholders, the previously announced terms of our amended CEO employment agreement, an agreement that will have him continue to lead CP until at least 2026. We appreciate the opportunity to engage with shareholders and to hear feedback on our performance, on executive compensation and other governance matters. Those engagement sessions helped us to solidify our path forward including changes to our long-term incentive program for management to ensure we are aligning incentives with performance while adapting to the unique circumstances of a transformational opportunity with KCS. More information on our shareholder engagement strategy is at page 20 of this proxy circular.

I encourage you to read about our nine director nominees, starting at page 21 of this proxy circular. Based on our collective director profiles you will see that we continue to be a board that values diversity of experience (including railway industry experience), gender and geography, with our directors coming from Canada and the United States. Upon final approval of our merger with KCS, which we expect to be in the fourth quarter of 2022, we will add four KCS directors to the CP Board.

This past year, the Corporate Governance and Nominating Committee changed its name to the Corporate Governance, Nominating and Social Responsibility Committee. The committee’s mandate now includes reviewing the corporation’s diversity and inclusion initiatives and reviewing reports from the corporation’s three diversity councils (Indigenous Relations, Gender and 2SLGBTQ+, and Racial Diversity). This year, the various committees held workplace educational sessions including on 2SLGBTQ+ issues, racial diversity issues and on Indigenous relations.

Directors Ed Monser and Rebecca MacDonald are stepping down from the Board. Both Ed and Rebecca have made significant contributions to the Board during their tenures and I want to thank each for their work on behalf of shareholders, including Ed’s service as our initial KCS Integration and Acquisition Committee Chair and Rebecca’s service as the Chair of the Corporate Governance, Nominating and Social Responsibility Committee since 2015.

I thank you for your ongoing commitment to CP and look forward to your participation in CP’s virtual shareholder meeting on April 27, 2022. In this proxy circular, you will find important information and instructions about how to participate at the virtual meeting. Please remember to vote your shares by proxy or online during the meeting. If you have any questions or require assistance voting, you can contact our strategic shareholder advisor and solicitation agent, Kingsdale Advisors at 1-866-879-7649 (toll free in North America) or at 416-867-2272 (for collect calls outside of North America and for banks and brokers) or by email at contactus@kingsdaleadvisors.com.

Sincerely,

 

 

LOGO

 

Isabelle Courville

Board Chair

 

 

 

2022 MANAGEMENT PROXY CIRCULAR  5


LOGO

 

MESSAGE FROM THE CHAIR OF THE MANAGEMENT RESOURCES AND COMPENSATION COMMITTEE

 

 

Fellow Shareholders,

 

CP’s Board of Directors and management team foster a culture of feedback and we work to reflect that culture with our shareholders by continuing to engage annually with institutional shareholders on topics including compensation and performance. In the fourth quarter of 2021 and early 2022, members of the Board met with institutional shareholders representing over 35 percent of CP’s shares outstanding to solicit feedback as we evolve our compensation practices to align with our changing circumstances.

    

         LOGO

Shareholder engagement

As we contemplate the KCS integration (subject to STB approval), it is important we consider the appropriate incentives and continue to pay for performance. Isabelle Courville, Chair of the Board, led our 2021 engagement program and I participated in every meeting. The table below is a summary of the feedback we received and actions we have taken:

 

 

  What we heard

 

 

Actions we have taken

  

 

Where to learn more

 

Shareholders want us to secure and retain our industry leading management team

 

•   Secured Keith Creel’s commitment to CP through 2026 with a contract amendment including an upfront option grant

•   In the future the Board may consider retention tools for other key executives as appropriate

   See Employment agreements on page 66 for more details

Shareholders understand our compensation plans need to evolve as we move through KCS integration

 

•  Replaced Return on Invested Capital (ROIC) with Free Cash Flow and Adjusted Net Debt to Adjusted EBITDA for the three-year performance share unit (PSU) performance period beginning in 2022(1)

•   Stated our intention to return to ROIC once significant headway has been made on the KCS integration

•   Replaced relative Total Shareholder Return (TSR) from Class I railroad ranking to the S&P 500 Industrials index

   See New for 2022 PSU awards on page 50 for more details
   

Shareholders want to ensure the Board is monitoring and measuring the delivery of KCS transaction synergies (upon STB approval)

 

•   The Board has created a KCS Integration and Acquisition Committee to monitor and measure management’s progress

•   Upon receipt of STB control authorization, the Board is likely to add a performance metric tied to synergies in a future PSU grant

   See Committee reports on page 31 for more details

 

(1) 

Adjusted ROIC, Free cash and Adjusted net debt to Adjusted EBITDA are non-GAAP measures. Non-GAAP measures are defined and reconciled on pages 94-104 of CP’s Annual Report on Form 10-K for the year ended December 31, 2021.

 

 

6  CANADIAN PACIFIC


CEO compensation changes

Keith Creel is highly regarded both as a railroader and as a leader in North America. Keith and his leadership team, along with the unique CP culture they created, have delivered remarkable results for CP shareholders in the last five years with approximately 150 percent growth in TSR, consistently outperforming the S&P/TSX Composite and the S&P 500 indices. On March 21, 2021, the Board took the critical step to retain Keith as we move through the KCS transaction by making amendments to his executive employment agreement with the intention of him continuing to lead CP until at least 2026. To maximize both retention and shareholder value creation as we embark on CP’s next chapter to create the first single-line rail network connecting North America, the Board implemented the following:

 

   Executive employment agreement amendment    Retention          Shareholder value    
creation
 

A special upfront long-term incentive award of stock options to Keith valued at US$8.4 million, granted on March 27, 2021, announced in connection with the KCS merger on March 21, 2021.

     LOGO                 LOGO       

Keith’s employment agreement has been amended to self-fund the March 27, 2021 upfront grant. We do not consider this grant to be additional compensation as his long-term incentive annual target has been and will be reduced by US$2.1M in each year of 2022, 2023, 2024 and 2025 to account for the upfront grant (an aggregate of US$8.4 million). While Keith’s annual long-term incentive grant value will be reduced, the composition will continue to align with CP’s executive long-term incentive program of 60 percent PSUs and 40 percent stock options.

              LOGO       

If Keith voluntarily resigns or retires prior to January 31, 2026, any PSUs granted after March 1, 2021 will not be deemed “retirement-eligible” and consequently will be forfeited.

     LOGO                    

The rail industry continues to see significant change at the executive level as other railroads look to recruit key operating talent. As the architect of the historic agreement with KCS, Keith has been an unwavering visionary and a strong proponent of the pro-competitive CP-KCS combination. Keith’s extensive railroad operating knowledge, along with his past acquisition experience, will be instrumental for a successful integration with KCS, ultimately creating value for customers, employees and shareholders. The Board wanted to ensure Keith had a compensation package that would retain him and through him, his leadership team, during this transformational opportunity for CP.

Through shareholder engagements, CP has received strong support for the rationale and structure of the amendments made to Keith’s executive employment agreement. We believe the amendments to Keith’s agreement are in the best interest of shareholders and will work effectively to retain CP’s industry leading CEO for the next several years. The Board determined not to apply incremental performance conditions to the upfront stock option grant. The factors that influenced this decision include: firstly, the time-based retention was the Board’s priority as we move through this critical time in CP’s history and secondly, the stock option award aligns Keith’s interest with those of shareholders as he will only realize value if the share price appreciates beyond the grant price. Lastly, the Board remains highly respectful of the STB’s regulatory review process and did not wish to create incentives that presuppose the STB’s decision-making or could be misconstrued as incenting the wrong behaviours prior to control approval being granted. You can read more about Keith’s compensation and his contract amendment on pages 64 and 66.

2022 Long-term compensation

While the KCS transaction represents a generational milestone for CP, the impacts of KCS closing into voting trust have resulted in a reassessment of how best to align CP’s compensation plans with performance as well as to retain and motivate CP’s talented team of railroaders during this exceptional opportunity. After careful consideration and engagement, the Board approved near-term changes to the 2022 PSU plan design while retaining the current structure of the long-term incentive compensation program. The transaction-related impacts of the KCS acquisition (which include items such as timing uncertainty and purchase accounting implications) make ROIC goal-setting and performance tracking a near-term challenge. For the 2022 PSU award with a performance period ending in 2024, ROIC was replaced by a three-year cumulative free cash flow metric with an adjusted net debt to adjusted EBITDA (earnings before interest, tax, depreciation and amortization)(1) modifier to incentivize deleveraging of the balance sheet following the KCS transaction – something we believe is important to regulators, rating agencies and other key stakeholders.

 

(1) 

Adjusted ROIC, Free cash and Adjusted net debt to Adjusted EBITDA are non-GAAP measures. Non-GAAP measures are defined and reconciled on pages 94-104 of CP’s Annual Report on Form 10-K for the year ended December 31, 2021.

 

 

2022 MANAGEMENT PROXY CIRCULAR  7


Shareholders have told us they like ROIC as a long-term performance measure, and we do too. Our intent is to revert to ROIC as a PSU measure once significant headway has been made on the KCS integration. All weightings and payout factor ranges from our 2021 PSU awards will remain the same. We have summarized the changes to 2022 PSU plan design and the rationale supporting the changes in the table below:

 

  Measure    2021 PSU  

New for

2022 PSU

  Why we are making the change
 

•  Three-year average return on invested capital (ROIC)(1)

Net operating profit after tax divided by average invested capital

   70%   0%  

•   While ROIC has been an excellent incentive for executives on the effective use of capital, transaction-related impacts make goal-setting and measuring ROIC performance a challenge

•   Expect to return to ROIC once significant headway has been made on the KCS integration

 

•  Free Cash Flow(1)

Cash from operating activities less cash used in investing activities(1)

 

and

 

•  Adjusted Net Debt to Adjusted EBITDA(1)

Adjusted net debt divided by Adjusted EBITDA modifier maximum of up to 1.5x

   0%
  70%
 

•   A well understood measure that is less impacted than ROIC by the KCS transaction

•   Free cash will be integral to achieving CP’s commitment to rapid deleveraging through the end of 2023

 

•   Supports deleveraging of the balance sheet following the KCS transaction

•   Deleveraging is important to numerous stakeholders including regulators and credit rating agencies. Deleveraging enables CP to revisit dividend increases, buybacks and other forms of shareholder returns.

 

•  TSR - Compound annual growth rate compared to S&P TSX 60

   15%   15%  

•   No change to Canadian TSR comparator group

 

•  TSR

Compound annual growth rate compared to Class I railroads

   15%   0%  

•   With KCS closing into trust in December of 2021, the TSR Class I comparator group has been reduced to four companies which is too small for meaningful evaluation of relative TSR performance

 

•  TSR

Compound annual growth rate compared to S&P 500 Industrials

   0%   15%  

•   The S&P 500 Industrials, which is comprised of a range of industrial companies with similar macroeconomic exposures is to replace the TSR Class I comparator group

 

(1) 

Adjusted ROIC, Free cash and Adjusted net debt to Adjusted EBITDA are non-GAAP measures. Non-GAAP measures are defined and reconciled on pages 94-104 of CP’s Annual Report on Form 10-K for the year ended December 31, 2021.

Annual “say on pay” vote

On behalf of the Management Resources and Compensation Committee, I encourage you to take some time to read the compensation discussion and analysis, which starts on page 34, and invite you to vote on our approach to executive compensation at this year’s annual meeting.

We will continue to actively engage with shareholders, and plan to hold a say on pay vote every year. If you have any questions about the changes to our compensation program for 2022, or the compensation decisions we have made for 2021, you can contact me through the office of the Corporate Secretary at CP, or by sending an email to shareholder@cpr.ca. Your comments and feedback are welcome at any time.

Sincerely,

LOGO

Matthew H. Paull

Chair, Management Resources and Compensation Committee

 

 

8  CANADIAN PACIFIC


LOGO

 

MESSAGE FROM THE CHAIR OF THE RISK AND SUSTAINABILITY COMMITTEE

 

 

Fellow Shareholders,

 

CP’s commitment to managing risk and operating sustainably remains a key priority. Management has demonstrated strong sustainability performance this past year and continues to embed sustainability through the organization. Examples of our progress on integrating sustainability into the business are described throughout this proxy circular and in particular in the section on environmental and social governance starting at page 98.

 

Advancing our approach on climate change was of particular focus for the Risk and Sustainability Committee in 2021. The Risk and Sustainability Committee was instrumental in the review and approval of CP’s Climate Strategy and overseeing the establishment of science-based greenhouse gas (GHG) emissions reduction targets to guide CP’s progress on climate action. In addition, CP’s management team has continued to implement innovative solutions to reduce GHG emissions, including investments in the industry-leading Hydrogen Locomotive Program described at page 99 of this proxy circular. The Risk and Sustainability Committee will continue to oversee CP’s climate-related risks and opportunities.

 

 

LOGO

This year, CP is asking shareholders to provide feedback through our first ever advisory “say on climate” vote approving the Company’s approach to climate change as disclosed in this proxy circular. I encourage you to vote in favour of the resolution, which is at page 18 of this proxy circular.(1)

 

 

  2021 Highlights

 

 

Actions we have taken

  

 

Where to learn more

 
Published CP Climate Strategy  

üCP published its Climate Strategy in July 2021 (which is available at sustainability.cpr.ca(2)). The Climate Strategy outlines CP’s approach to manage potential climate-related impacts across the business. The Climate Strategy is based upon a comprehensive scenario analysis and includes plans to reduce GHG emissions in line with science-based targets. These two targets address 100 percent of CP’s Scope 1 and Scope 2 emissions, and more than half of CP’s Scope 3 emissions. The targets are based on the most current approach available to the transportation sector through the Science Based Target Initiative (SBTi):

•    Locomotive target: reduce Scope 1, 2 and 3 GHG emissions intensity of locomotives in excess of 38 percent by 2030 against a 2019 baseline. This target has been validated by the SBTi.

•    Non-locomotive target: reduce absolute Scope 1 and Scope 2 GHG emissions from non-locomotive operations in excess of 27 percent by 2030 against a 2019 baseline.

   page 98
     
Reported in alignment with the Task Force on Climate-related Financial Disclosures (TCFD)  

ü CP expanded its sustainability disclosure to include reporting aligned with the recommendations of the TCFD. CP has reported on the relevant aspects of governance, strategy, risk management, metrics and targets to help stakeholders understand CP’s climate-related risks and opportunities.

   page 101

 

(1) 

For more information regarding the risks associated to achieving CP’s GHG emissions reduction targets and climate goals, see pages 28-29 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

(2) 

The Climate Strategy is available at sustainability.cpr.ca and is not incorporated by reference into this proxy circular.

 

 

2022 MANAGEMENT PROXY CIRCULAR  9


 

  2021 Highlights

 

 

Actions we have taken

  

 

Where to learn more

 
Expanded the Hydrogen Locomotive Program  

ü CP made substantial progress implementing its innovative Hydrogen Locomotive Program. CP is working to develop North America’s first hydrogen-powered line-haul freight locomotive by retrofitting a diesel-powered locomotive with a combination of hydrogen fuel cells and battery technology to drive the locomotive’s electric traction motors. In November 2021, CP announced plans to expand the scope of the Hydrogen Locomotive Program to increase the number of locomotive conversions in the project from one to three and to add hydrogen production and fueling facilities. CP conducted a successful movement test on its first hydrogen locomotive in December 2021. As these locomotives become operational, CP will conduct rail service trials and qualification testing to evaluate the technology’s readiness for the freight-rail sector.

   page 99
     
Completed the solar energy farm at Ogden campus  

ü In 2021, CP announced the completion of a solar energy farm installation at its Calgary headquarters. The project is one of the largest private solar farms in Alberta, Canada and generates more power than consumed annually by the main headquarters building. The solar energy farm generates up to five megawatts of electricity while avoiding an estimated 2,600 tonnes of carbon emissions a year, contributing to CP’s 2030 non-locomotive emissions reduction target.

   page 100
     
Released CP’s 2020 corporate sustainability report  

ü In 2021, CP published its biennial corporate sustainability report highlighting the Company’s achievements on its journey to being sustainably driven.

ü The report provides an overview of CP’s continued progress in three sustainability areas of focus: operating safety, maintaining operational excellence throughout the network, and managing the social impact of CP’s work. Further details can be found at page 103 of this circular.

ü Our report includes sustainability disclosures prepared in alignment with the Global Reporting Initiative (GRI) Standards – Core option and the Sustainability Accounting Standards Board (SASB) Rail Transportation framework. We also introduced reporting on our contributions towards the United Nations Sustainable Development Goals (SDGs) and identified throughout the report the goals which are most aligned with our business.

   page 100
     
Continued to receive positive ESG ratings and recognition  

ü Named to the CDP A List for Climate Change for the first time in 2021

ü Placed on the DJSI North America for the second consecutive year

ü Received an MSCI ESG rating of A for 2021

ü Named top freight transportation company on Corporate Knights Global 100

ü Received 2022 Industry Mover Status in S&P Global’s Sustainability Yearbook

ü Awarded 2021 World Finance Sustainability Award for Transportation industry

   page 14

I am proud of the achievements this past year as we continue to enhance our commitment to critical environmental, social and governance matters.

If you have any questions about sustainability or our “progress on climate” actions, you can contact me through the Office of the Corporate Secretary at CP, or by sending an email to shareholder@cpr.ca.

Yours Sincerely,

 

LOGO

Gordon T. Trafton

Chair, Risk and Sustainability Committee

 

 

10  CANADIAN PACIFIC


LOGO

 

PROXY HIGHLIGHTS

 

You have received this management proxy circular (proxy circular) because you owned shares of CP at the close of business on February 28, 2022 and are therefore entitled to participate in our 2022 annual and special meeting of shareholders and vote your shares.

To continue to mitigate the risks associated with COVID-19, CP will hold its 2022 annual and special meeting (the meeting) in a virtual format which will be conducted via live webcast online. Shareholders will not be able to attend the meeting in person. Shareholders will, however, be able to vote on all business brought before the meeting and submit questions for consideration as they would at an in-person shareholders meeting. Shareholders that usually vote by proxy ahead of the meeting will be able to do so in the usual way.

You will be able to participate in the virtual meeting regardless of where you are located. Registered shareholders and duly

appointed proxyholders will be able to participate in the meeting, participate in the question-and-answer session, and vote, all

in real time, provided they follow the instructions in our proxy circular and are connected to the internet during the meeting. Non-registered (or beneficial) shareholders that have not appointed themselves or another person as their proxyholder will not

be able to vote at the meeting, but will be able to participate in the meeting as guests.

In our continuing effort to reduce environmental impacts and improve sustainability, we have once again adopted the “notice and access” procedures permitted under applicable Canadian securities laws. Under the notice and access procedures, we can post electronic versions of the proxy circular and meeting materials online. Instructions for accessing these materials online will be mailed to shareholders in a notice. Shareholders can still obtain paper copies of the proxy circular and meeting materials upon request. For additional information, see Delivery of Meeting Materials and Voting Information beginning on page 104.

 

 

Management is soliciting your proxy for the meeting, to be held virtually via live webcast as outlined below.

 

We are soliciting proxies by mail, in person, by phone or by electronic communications and have retained Kingsdale Advisors (Kingsdale) as our strategic shareholder advisor and proxy solicitation agent in Canada and the United States. The fees paid to Kingsdale relating to their proxy solicitation services will be approximately $99,225. We will also reimburse them for disbursements and out-of-pocket expenses. We will also pay $8 for each shareholder call they make or receive and any other fees we agree to. You can find Kingsdale’s contact information inside the back cover of this proxy circular.

2022 Meeting details

 

  When

  Wednesday, April 27, 2022

  9:00 a.m. (Mountain

  Daylight Time)

 

  Where

  Virtual meeting

  via webcast online at

  https://web.lumiagm.com/
  471059918

 

  Method of Delivery

  Meeting materials are being
  delivered to shareholders
  under the “notice and
  access” provisions of
  applicable Canadian

  securities laws

       Business of the meeting   

Voting
Recommendation

 

    

For more
information

 

    

 

1. Receive the audited consolidated financial statements for the year ended December 31, 2021

 

The audited consolidated financial statements are included in our 2021 annual report, available under our corporate profile on SEDAR (www.sedar.com), EDGAR (www.sec.gov) and on our website (investor.cpr.ca).

      page 15
    

 

2. Appoint the auditor

 

The Board recommends you vote FOR the appointment of Ernst & Young LLP as CP’s new auditors.

    

 

LOGO

 

FOR

 

 

 

   page 15
    

 

3. Amendment to Management Stock Option Incentive Plan (MSOIP)

 

The Board recommends that you vote FOR an amendment to the MSOIP to increase the total number of shares available for issuance under the plan.

    

 

LOGO

 

FOR

 

 

 

   page 16
    

 

4. Have a say on executive pay (advisory vote)

 

We continue to engage with investors with respect to our compensation program. The Board recommends you vote FOR our approach to executive compensation.

    

 

LOGO

 

FOR

 

 

 

   page 17
    

 

5. Have a say on CP’s approach to climate change (advisory vote)

 

We continue to engage stakeholders including our shareholders, on our climate objectives and actions. The Board recommends that you vote FOR our approach to climate change.

    

 

LOGO

 

FOR

 

 

 

   page 18
    

 

6. Elect nine directors

 

You will be asked to elect nine directors to serve on our Board this year. Each director nominee is qualified, experienced and committed to serving on the Board. The Board recommends you vote FOR each nominee.

 

    

 

LOGO

 

FOR

 

 

 

   page 19

 

 

2022 MANAGEMENT PROXY CIRCULAR  11


Governance highlights

Our directors must have a mix of core skills and experience. Some the key skills our directors possess are below, along with our key governance policies and practices.

 

LOGO

   

 

industry

knowledge

 

   

 

accounting and financial

literacy

 

   

 

senior executive leadership and strategic oversight

 

    

Director nominee statistics

•  Average age: 61.7

•  Average tenure: 5.2 years

•  Diversity: 44% women, 56% men (including 11% visible minority)

 

Key governance policies

and practices

•   Code of business ethics

•   Code of ethics for Chief Executive Officer and senior financial officers

•   Business ethics reporting policy

•   Majority voting policy

•   Disclosure and insider trading policy

•   By-Law No. 2 (Advance notice by-law)

•   Board diversity policy

•   Clawback policy

•   Shareholder engagement program

•   Board orientation and continuing
education for the Board

•  Independent Board assessment process

           
 

 

human

resources

and executive

compensation experience

 

   

 

environmental, health and safety experience

 

   

 

risk

management

 

 

Our 2022 director nominees

 

Name   Age   Director since   Position   Independent  

Standing committee
memberships(1)

  2021 meeting
attendance
  2021
voting results
(in favour)
  Other public
company boards

John Baird

  52   May 2015  

Chair of the Board,

Canfor Corporation & Canfor Pulp Products Inc.

Senior Advisor Bennett Jones LLP

Former Minister Transport and Infrastructure, Canada

 

 

LOGO

 

Corporate Governance, Nominating & Social Responsibility

Risk and Sustainability

  100%   99.40%   3

Isabelle Courville

  59   May 2013   Chair, CP  

 

LOGO

  Ex-officio member of all Committees   100%   99.52%   2

Keith Creel

  53   May 2015  

President and CEO

CP

      N/A   100%   99.78%   -

Jill Denham

  61   Sep 2016  

Chair of the Board

LifeWorks Inc.

Lead Director,

Canaccord Genuity

 

 

LOGO

 

Audit and Finance

Management Resources and Compensation

  100%   95.62%   3

Edward Hamberger

  71   July 2019  

Former President and CEO

Association of American Railroads

 

 

LOGO

 

Audit and Finance

Risk and Sustainability

  100%   99.84%   -

Matthew Paull

  70   Jan 2016  

Former Senior Executive

Vice President and CFO

McDonald’s Corporation

 

 

LOGO

 

Management Resources and

Compensation (Chair)

Risk and Sustainability

  100%   99.43%   1

Jane Peverett

  63   Dec 2016  

Former President and

CEO BC Transmission

Corporation

 

 

LOGO

 

Audit and Finance (Chair)

Corporate Governance, Nominating & Social Responsibility

  100%   98.78%   3

Andrea Robertson

  58   July 2019  

President and CEO

Shock Trauma Air Rescue Service

 

 

LOGO

  Management Resources and Compensation   100%   99.79%   -

Gordon Trafton

  68   Jan 2017  

Former Senior Vice

President

Canadian National

Railway

 

 

LOGO

 

Corporate Governance, Nominating & Social Responsibility

Risk and Sustainability (Chair)

  100%   99.82%   -

You can read more about each nominated director in the profiles beginning on page 23 and the skills matrix on page 94.

 

 

(1) 

As of December 31, 2021.

 

 

12  CANADIAN PACIFIC


PROXY CIRCULAR

PROXY HIGHLIGHTS

 

 

 

Compensation highlights

Our executive compensation program is designed with a view to our commitment to align pay with performance, our business strategy and the interests of our shareholders.

 

LOGO

   

 

 

 

performance targets support our strategy

 

 

 

   

 

emphasis on financial, safety, operational measures and customer satisfaction

 

   

 

focus on

building shareholder

value

 

    

 

Key compensation governance policies and practices

•   Pay for performance philosophy

•   Align with shareholder interests

•   Share ownership requirements

•   Performance-based vesting

•   Caps on incentive plan payouts

•   Independent advice from external consultants for the Management Resources and Compensation Committee and management

•   Shareholder engagement program

•   Executive compensation clawback policy

           
 

 

direct link between

pay and performance

 

   

 

majority of executive pay

is at risk

 

   

 

executives are CP shareholders

 

 

The table below shows how we have aligned our Named Executive Officers’ (NEOs) pay to performance in 2021.

 

 

 Pay for performance alignment

 

  

How we do it

 

 At-risk compensation   

 

90 percent of CEO target compensation is at-risk
80 percent average of other NEO target compensation is at-risk

 

 NEO’s performance assessments and accomplishments   

 

Comprehensive review of NEO accomplishments starting on page 55

 

Incentive programs are tied to financial, operations, safety results and shareholder value creation:

•125 percent corporate performance factor for annual incentive

•200 percent payout for the 2019 PSUs

  

 

Explanation of how our target corporate performance results and relative total shareholder return (TSR) are tied to 2021 annual incentive and 2019 PSU payouts are on pages 46 and 54

 

 Incentive payouts are formulaically determined   

 

Descriptions of how we determine our short-term and long-term incentive awards are provided on pages 45 and 54

You can read more about executive compensation and the decisions made by the Management Resources and Compensation Committee and the Board in the compensation discussion and analysis beginning on page 34.

 

 

2022 MANAGEMENT PROXY CIRCULAR  13


  Environmental, Social and Governance highlights

 

 

LOGO

   

 

released CP’s first Climate Strategy

 

   

 

completed installation of a solar energy farm at our Calgary headquarters

 

   

 

helped raise over $29 million through the CP Has Heart program to improve heart health since 2014

 

   

 

Key environmental, social and governance policies and practices

•  Released CP’s first Climate Strategy, outlining CP’s approach to managing climate-related impacts across the business and establishing ambitious science-based greenhouse gas (GHG) emissions reduction targets that cover 100 percent of our Scope 1 and 2 emissions.

•   Advanced our Hydrogen Locomotive Program to design and build North America’s first line-haul hydrogen-powered locomotive.

•   Expanded our sustainability disclosure to include reporting aligned with the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) and identify contributions to the United Nations Sustainable Development Goals (SDGs).

•   Placed the “Every Child Matters” orange locomotive into service on Canada’s first National Day for Truth and Reconciliation.

 

 
 

 

achieved 16th consecutive year with the lowest train accident frequency rate among Class I railways in North America

 

   

 

mobilized three diversity councils focused on Indigenous, racial and gender diversity

 

   

 

improved locomotive fuel efficiency by 44% from 1990 - 2021

 

 

Awards and Recognitions

CP is proud to have received several high-profile awards, rankings and other notable recognitions over the last year, including the following:

 

 

 

LOGO

 

   

 

 

LOGO

 

 

   

LOGO

 

   

LOGO

 

   

LOGO

 

 

CP’s Solar Energy
Farm received the
2021 Environmental Award by the Railway Association of Canada

   

 

CP was added to
the Dow Jones Sustainability
North America
Index in 2021

   

 

CP was named to
the CDP A List for Climate
Change in 2021

   

 

CP was awarded
with the 2022
Alberta’s Top
Employer award

   

 

CP was named to
the Global 100 Most Sustainable Corporations
in 2022 by Corporate Knights

 

 

LOGO

 

   

 

LOGO

 

   

 

LOGO

 

   

LOGO

 

    LOGO

 

CP received an
MSCI ESG Rating of A

   

 

CP was named
Military Friendly
Gold Top 10
Employer

   

 

CP was awarded
ISS Prime Status
for Corporate
ESG Performance

   

 

CP received S&P Sustainability Yearbook Industry Mover Award

   

 

CP’s locomotive emissions reduction target
validated by the
Science Based Targets initiative (SBTi)

 

 

 

14  CANADIAN PACIFIC


LOGO

 

PART II – BUSINESS OF THE SHAREHOLDER MEETING

 

 

You will vote on five items of business at the Meeting (items 2 - 6 below). Except as disclosed in this proxy circular, none of the Company’s directors or officers since the beginning of the last financial year, or the nominated directors or their respective associates or affiliates, have a material interest in any of the items that are being voted on.

 

1. Receive the financial statements

Our audited consolidated financial statements for the year ended December 31, 2021 and the auditor’s report thereon will be presented at the Meeting.

The audited consolidated financial statements are included in our 2021 annual report which is being distributed to shareholders using the “notice and access” procedures under applicable Canadian securities laws. The annual report is available on our website (investor.cpr.ca/financials), on SEDAR (www.sedar.com) and EDGAR (www.sec.gov) or you can ask our Corporate Secretary to send you a copy.

2. Appointment of auditor

You will vote on appointing Ernst & Young LLP (EY) as the Company’s independent registered public accounting firm (auditor) for the fiscal year ending December 31, 2022. Deloitte LLP (Deloitte) served as CP’s auditor since 2011 and has audited our annual consolidated financial statements for the fiscal year ended December 31, 2021.

The Audit and Finance Committee of the Board conducted a review process to consider the selection of CP’s auditors for the fiscal year ending December 31, 2022. As a result of the various factors considered during the review process, the Audit and Finance Committee recommended to the Board that it was the appropriate time to change our auditor.

As a result of this review and recommendation of the Audit and Finance Committee, effective November 4, 2021, CP requested, upon recommendation and approval of the Audit and Finance Committee and the Board, that Deloitte resign as the Company’s auditor. This request is considered a “dismissal” (within the meaning given to that term in Item 304 of Regulation S-K). Deloitte’s resignation became effective upon the completion of its audit of CP’s financial statements for the fiscal year ended December 31, 2021.

On November 4, 2021, the Audit and Finance Committee approved the engagement of EY as CP’s auditor for the fiscal year ending December 31, 2022. In deciding to engage EY, the Audit and Finance Committee reviewed auditor independence and existing commercial relationships between CP and EY. The Audit and Finance Committee concluded that EY has no commercial relationship with CP that would impair EY’s independence as CP’s auditor. We expect representatives of EY to be present at the meeting, will be available to respond to appropriate questions at the meeting and will have an opportunity to make a statement if they desire to do so.

Deloitte’s independent audit reports on CP’s financial statements as of and for the fiscal years ended December 31, 2021, 2020 and 2019 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the fiscal years ended December 31, 2021, 2020 and 2019, there were no disagreements with Deloitte on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Deloitte, would have caused them to make reference thereto in their reports on the financial statements, and no reportable events occurred as set forth in Item 304(a)(1)(v) of Regulation S-K.

CP requested that Deloitte fully respond to the inquiries of EY and provided Deloitte with a copy of the disclosures required by Item 304(a) of Regulation S-K. In accordance with the requirements of applicable U.S. securities laws, Deloitte furnished a letter

 

 

2022 MANAGEMENT PROXY CIRCULAR  15


to the U.S. Securities and Exchange Commission on November 10, 2021 regarding statements made by CP in connection with the Company’s Current Report on Form 8-K filed on November 10, 2021. A copy of such Current Report on Form 8-K is attached as Appendix A to this proxy circular.

The appointment of EY as the Company’s independent registered public accounting firm may be approved by any one or more shareholders voting FOR the proposal.

You may vote FOR or WITHHOLD your vote with respect to the appointment of EY as CP’s independent registered accounting firm.

Deloitte’s audit and non-audit fees are approved by the Audit and Finance Committee. You can read more about the Audit and Finance Committee on pages 32 and 87.

The table below shows the fees we paid to Deloitte in 2021 and 2020 for audit and non-audit services. Representatives of Deloitte will participate at the Meeting and will have an opportunity to make a statement and respond to any questions from shareholders.

 

For the year ended December 31

 

  

2021

 

    

2020

 

 

Audit fees

for audit of our annual financial statements, reviews of quarterly reports and services relating to statutory and regulatory filings or engagements (including attestation services and audit or interim review of financial statements of certain subsidiaries and certain pension and benefits plans, and advice on accounting and/or disclosure matters)

   $ 3,834,200      $ 3,842,100  

Audit-related fees

for services related to the audit but not included in the audit fees above, including securities filings

   $ 545,700      $ 269,500  

Tax fees

for services relating to tax compliance, tax planning and tax advice

   $ 224,700      $ 5,800  

All other fees

   $      $  

Total

   $ 4,604,600      $ 4,117,400  

 

The Board recommends you vote LOGO FOR the appointment of EY as our auditor.

3. Amendment to Management Stock Option Incentive Plan

The management stock option incentive plan (option plan) is part of CP’s total compensation program for its key employees. It is intended to align the incentives of employees with the creation of value for shareholders over the long term. Details of the terms of the option plan are set out at page 51 of this proxy circular. The Board believes that it is appropriate to increase the number of shares available for issuance under the option plan to ensure that CP maintains a competitive total compensation program.

The Board, upon the recommendation of the Management Resources and Compensation Committee, has approved, subject to the approvals of the TSX and the shareholders at the Meeting, that the option plan be amended to increase the maximum number of shares available for issuance under the option plan, effective at and after April 27, 2022, by 20,000,000 shares.

At the meeting, the shareholders will be asked to consider and if deemed advisable, to approve, with or without variation, an ordinary resolution, the full text of which is set forth herein (the “Stock Option Plan Resolution”), to amend the option plan to increase the total number of shares available for issuance under the option plan by 20,000,000.

Other than the maximum number of shares available for issuance under the option plan, the terms of the option plan will remain unchanged upon the approval of the Stock Option Plan Resolution. Pursuant to applicable provisions of the TSX Company Manual and the terms of the option plan, shareholder approval is required to amend the option plan to increase the maximum number of shares available for issuance upon the exercise of options granted pursuant to the option plan. The TSX has conditionally approved the proposed amendment to the option plan, subject to approval of the Stock Option Plan Resolution by the shareholders and the satisfaction of other customary conditions.

 

 

16  CANADIAN PACIFIC


PROXY CIRCULAR

PART II – BUSINESS OF THE SHAREHOLDER MEETING

 

 

 

Shareholders initially approved the stock option plan on September 26, 2001 and have approved amendments on May 5, 2006, May 9, 2008 and May 12, 2011. The total number of shares available for issuance upon the exercise of options granted pursuant to the option plan was last approved by shareholders on May 12, 2011. At that time, the option plan was amended to increase the maximum number of shares reserved for issuance from 15,078,642 to 18,078,642 effective at and after May 12, 2011 (without making any adjustment to give effect to the share split). After giving effect to the share split completed on May 14, 2021, the total number of shares currently authorized for issuance under the option plan is 90,393,210.

Of the 90,393,210 shares currently authorized for issuance under the option plan, as at March 10, 2022, 79,839,911 shares have been issued as a result of the exercise of stock options and 8,045,667 shares are subject to outstanding stock options under the option plan. As of March 10, 2022, there were 2,507,632 shares which remained available for the grant of future stock option awards under the option plan.

The increase of the total number of shares available for issuance under the option plan will result in potential dilution of no more than 2.2% of the total number of issued and outstanding shares as of March 10, 2022.

You can read more about the option plan including information on the total number of shares available for issuance under the option plan as of December 31, 2021 beginning on page 51.

To be effective, the Stock Option Plan Resolution must be approved by a majority of the votes cast by shareholders in respect of the Stock Option Plan Resolution.

You can vote FOR or AGAINST on the following Stock Option Plan Resolution:

“RESOLVED that:

 

  1.

The amendment to the Amended and Restated Management Stock Option Incentive Plan (the “Plan”) of Canadian Pacific Railway Limited (the “Company”), as more particularly described in the management information circular and proxy statement of the Company dated March 14, 2022, to increase by 20,000,000 the maximum number of common shares in the capital of the Company (“Common Shares”) reserved for issuance under the Plan effective at and after April 27, 2022, from 90,393,210 to 110,393,210, is hereby authorized and approved.

 

  2.

Any director or officer of the Company is hereby authorized and directed to execute, whether under the corporate seal of the Company or otherwise, and to deliver all documents or instruments in writing and to do all such other acts and things as may be determined necessary or appropriate to carry out the terms of this resolution.”

 

 

 The Board recommends you vote LOGO FOR the approval of the Stock Option Plan Resolution.

 

If shareholders do not approve the Stock Option Plan Resolution, the option plan will remain in effect in accordance with its present terms and without an increase to the number of shares available for issuance under the option plan.

4. Have a say on executive pay

You will have an opportunity to vote on executive pay at CP at the Meeting. As this is an advisory vote, the results are non-binding but will give the Board important feedback on our approach to executive compensation.

Last year, at our 2021 annual meeting, we received a 96.65 percent vote FOR on our non-binding advisory resolution on executive compensation. The Management Resources and Compensation Committee (Compensation Committee) continues to work hard to make sure our compensation program pays for performance, aligns with sound principles, supports long-term sustainable value, is clear and transparent and aligns with shareholder interests.

 

 

2022 MANAGEMENT PROXY CIRCULAR  17


You can vote FOR or AGAINST the following non-binding resolution on executive pay at CP as described in this proxy circular:

“RESOLVED, on an advisory basis and not to diminish the role and responsibilities of the Board of Directors, that the shareholders accept the Company’s approach to the compensation of the named executive officers of Canadian Pacific Railway Limited as disclosed in the Company’s proxy circular (which includes the compensation discussion and analysis, the compensation tables and the discussion accompanying the compensation tables) delivered prior to the 2022 annual and special meeting of shareholders.”

 

The Board recommends you vote LOGO FOR the advisory resolution approving the Company’s approach to executive compensation.

The Board will consider this year’s results, other feedback it receives, as well as best practices in compensation and governance when reviewing our executive compensation in the future.

You can read about executive compensation in the compensation discussion and analysis beginning on page 34.

5. Have a say on our approach to climate change

We are asking shareholders to vote on an advisory “say on climate” resolution approving the Company’s approach to climate change. The Board agreed to hold an advisory “say on climate” vote at the Company’s 2021 Annual and Special Meeting of Shareholders. The 2021 resolution to hold such a vote annually starting in 2022 passed with 85.36 percent support from shareholders.

The Company recognizes that climate change presents both risks and opportunities to its business. The Company released its first Climate Strategy in July 2021(1), outlining CP’s approach to managing climate-related impacts across the business and establishing ambitious science-based greenhouse gas (GHG) emissions reduction targets. An update on the Company’s progress and actions in 2021 on climate change is included in Part V of this proxy circular.

The Climate Strategy outlines our current science-based targets and strategy for reducing our GHG emissions:

 

 

Reduce Scope 1, 2 and 3 GHG emissions intensity of its locomotives in excess of 38 percent by 2030 against a 2019 baseline. Locomotive operations represent CP’s largest source of emissions. This target has been validated by the Science Based Targets initiative (“SBTi”).

 

CP seeks to support decarbonization across all its operations. Accordingly, CP also seeks to reduce absolute Scope 1 and Scope 2 GHG emissions from non-locomotive operations in excess of 27 percent by 2030 against a 2019 baseline.

The Board is asking shareholders to vote at the Meeting on the following advisory “say on climate” resolution.

“RESOLVED, on an advisory basis and not to diminish the roles and responsibilities of the Board of Directors, that the shareholders of Canadian Pacific Railway Limited (the “Company”) approve the Company’s approach to climate change as disclosed in this proxy circular.”

Although the vote is non-binding, the Risk and Sustainability Committee will review and consider the voting results when evaluating CP’s approach to climate change in the future. CP expects to inform shareholders about the results of that process and any actions CP may take in response.

 

The Board recommends you vote LOGO FOR the advisory resolution approving the Company’s approach to climate change.

You can read about CP’s approach to climate change in Part V of this proxy circular beginning on page 98.

 

 

(1) 

A copy of the Climate Strategy is available on our website at sustainability.cpr.ca. You may also ask us for a copy of the Climate Strategy by writing to: Office of the Corporate Secretary, Canadian Pacific, 7550 Ogden Dale Road S.E., Calgary, Alberta T2C 4X9. The Climate Strategy and information on our website is not incorporated by reference and is not a part of this proxy circular.

 

 

18  CANADIAN PACIFIC


PROXY CIRCULAR

PART II – BUSINESS OF THE SHAREHOLDER MEETING

 

 

 

6. Elect directors

 

Our governing documents require us to have between five and 20 directors on our Board.

 

Mr. Edward Monser and Ms. Rebecca MacDonald, who are current directors, have informed the Board that they will not be standing for re-election to the Board at the Meeting. Mr. Monser and Ms. MacDonald will continue to serve as members of the Board until the 2022 Meeting, when their current term as directors will expire.

 

Directors are elected for a term of one year until the close of our next annual meeting of shareholders, unless a director resigns or is otherwise removed earlier.

    

About majority voting

 

Our majority voting policy requires a nominee who does not receive at least a majority of for votes to immediately tender their resignation to the Board.

 

The Board will review the matter and announce their decision to accept or reject the resignation within 90 days of the Meeting and explain the reasons why. The Board will accept the resignation absent exceptional circumstances.

 

Each nominated director has expressed his or her willingness to serve on our Board. If before the Meeting, however, we learn that a nominee is unable to serve, the people named on your proxy or voting instruction form may be able to use their discretion to vote for another qualified nominee.

You can vote FOR or WITHHOLD your vote for each nominated director.

You can read more about the proposed Board and each nominated director beginning on page 23.

 

The Board recommends you vote LOGO FOR each nominated director.

Other Business

As of the date of this proxy circular, neither management nor the Board is aware of any other items of business that may properly be brought before the Meeting.

 

 

  Shareholder proposals

 

  If you want to submit a shareholder proposal for our 2023 annual meeting, it must be mailed to the Office of the Corporate
  Secretary, Canadian Pacific, 7550 Ogden Dale Road S.E., Calgary, Alberta T2C 4X9, with a copy via email at
  shareholder@cpr.ca.

 

  The proposal must be submitted by no later than December 14, 2022. Note that under the Canada Business Corporations
  Act
(CBCA), submitting a shareholder proposal does not guarantee that it will be included in the proxy materials.

 

 

 

2022 MANAGEMENT PROXY CIRCULAR  19


Communications and engagement

 

The Board believes in the importance of having regular and constructive communication with shareholders and other stakeholders to create an open, candid and productive dialogue.

 

The Board communicates information about the Board, individual directors, executive compensation, and our ESG initiatives and practices including our corporate governance practices through our annual proxy circular. Shareholders can also contact the Board directly with any questions or concerns. Letters or emails should be marked confidential and addressed to the Chair of the Board at the following address:

 

Chair of the Board

c/o Office of the Corporate Secretary

Canadian Pacific

7550 Ogden Dale Road S.E., Calgary, Alberta T2C 4X9

 

 

    

Active shareholder engagement program

Since 2016, members of the Board have actively engaged with shareholders, proxy advisors and advocacy groups throughout the year. The meetings may cover a wide range of topics including executive compensation, Board composition and diversity, sustainability, executive retention and succession planning.

Or by email to: shareholder@cpr.ca or ocs@cpr.ca

You can communicate with the Chair of the Board anonymously, but we encourage you to identify yourself so we can acknowledge your communication.

The Board’s approach to shareholder engagement is summarized in the diagram below.

 

 

LOGO

Shareholder engagement

In the fourth quarter of 2021 and early 2022, we met with our top institutional shareholders, representing over 35 percent of public float, to participate in virtual meetings. The meetings were conducted via Zoom and were attended by CP’s Chair of the Board, the Chair of the Risk and Sustainability Committee, the Chair of the Management Resources and Compensation Committee and a representative from CP’s Investor Relations department.

The objective of the meetings was to provide shareholders an update on CP’s Climate Strategy and seek feedback on proposed changes to executive compensation. Other topics of interest raised by shareholders included succession planning, diversity, corporate culture and the KCS transaction.

 

 

20  CANADIAN PACIFIC


LOGO

 

ABOUT THE NOMINATED DIRECTORS

 

LOGO

 

The Board is elected by shareholders to oversee

management and act in the best interest of the Company.

 

Key to proper stewardship is assembling a Board that is qualified, experienced, diverse and operates independently of management.

 

Independence

 

Eight of the nine nominated directors, including the Chair of the Board and all committee members, are independent. Mr. Creel is not independent because he is CP’s President and Chief Executive Officer.

 

Qualified and experienced

 

Our directors must have a mix of core skills and experience. Our director nominees have skills in the following areas:

 

 

LOGO

   

 

industry

knowledge

 

   

 

accounting and financial literacy

 

   

 

senior executive leadership and strategic

oversight

 

 
 

 

 

human

resources & executive compensation

 

   

 

environment, health & safety

 

   

 

risk

management

 

 

 

For our detailed list of each director’s skills and qualifications and to learn more about their individual skills, see the skills matrix on page 94.

 

Diversity

 

The Governance Committee considers highly qualified candidates to be directors based on a balance of skills, background, experience and knowledge. The Committee also considers other factors such as age, gender, geographical representation from the regions in which we operate, cultural heritage (including Indigenous peoples and members of visible minorities) and different abilities (including persons with disabilities) of director candidates.

 

The director nominees have an average age of 61.7 years and an average tenure of 5.2 years. Four of the nine nominees (44%) are women. The Chair of the Board is a woman and at the end of 2021, half of our Board committees were chaired by women. In addition, one of our directors is a visible minority making the majority of the Board members of designated groups as defined in the Employment Equity Act (Canada).

 

For more information about Board diversity, see page 82. A copy of our Board of Directors Diversity Policy can be found at investor.cpr.ca/governance.

 

 

2022 MANAGEMENT PROXY CIRCULAR  21


Serving on other Boards

Canadian Pacific Railway Company is our principal operating entity in Canada and it directly or indirectly owns all of the voting shares of our other subsidiaries. Our directors serve as directors of Canadian Pacific Railway Limited and Canadian Pacific Railway Company (CPRC) and the two Boards meet concurrently. CPRC is a reporting issuer in Canada because of its outstanding public debt securities. None of the nominated directors serve on more than three other public company boards (see page 85 for more information on serving on other boards).

Meeting attendance

We expect directors to attend, in person, via telephone or videoconference, all Board meetings and all of their committee meetings.

Meeting materials are provided to directors in advance. If a director cannot attend a meeting, he or she can provide their comments to the Chair of the Board, committee chair or the Corporate Secretary beforehand and that person will ensure the comments and views are considered at the meeting.

2021 Board and standing committee attendance

Nominee directors attended 100 percent of the formally scheduled Board and standing committee meetings. The independent directors also met in camera without management present at each Board, Audit and Finance Committee and Compensation Committee meeting. Other committees also convened in camera from time to time.

In September 2021, directors approved minor changes to standing committee memberships to allow certain directors to become members of the special committee for the Kansas City Southern acquisition. Ms. Denham moved from the Risk and Sustainability Committee to the Management Resources and Compensation Committee while Ms. Robertson moved from the Risk and Sustainability Committee to the KCS Acquisition and Integration Committee (KCS Integration Committee). In September 2021, Mr. Monser left the Management Resources and Compensation Committee to become Chair of the KCS Integration Committee. Additional members of the KCS Integration Committee as of December 31, 2021 were the Chair of the Board, Mr. Trafton and Mr. Hamberger.

 

 

LOGO

(1) 

Ms. Courville is an ex-officio member of all standing Committees and may attend committee meetings at her discretion.

(2) 

Ms. Denham moved from the Risk and Sustainability Committee to the Management Resources and Compensation Committee on September 29, 2021.

(3) 

Ms. Robertson moved from the Corporate Governance, Nominating and Social Responsibility Committee to the KCS Acquisition and Integration Committee on September 29, 2021.

(4) 

Please note that the totals in this chart reflect attendance for all formal Board and committee sessions. The Board and committees also met informally from time to time during the year to discuss various matters of importance.

 

 

22  CANADIAN PACIFIC


PROXY CIRCULAR

ABOUT THE NOMINATED DIRECTORS

 

 

 

         Director Profile Highlights

 

 

 

  

 

All of the individuals nominated for election to the Board are current directors and were elected at the last annual and special meeting of shareholders on April 21, 2021.

 

The nominated directors are qualified and experienced, possessing a broad range of skills that facilitate strong oversight of CP’s management and strategy and have agreed to serve on our Board.

 

Share Ownership

All directors are CP shareholders and must meet our director share ownership requirements within five years of joining the Board.

 

Share ownership listed here is as at February 28, 2022 and includes shares directors beneficially own or control, or hold directly or indirectly. Share ownership includes holdings under the Directors’ Deferred Share Unit (DDSU) plan.

 

See page 93 for full details on share ownership by our directors.

 

 



















    

2021 Overall Attendance

 

               LOGO    The 2022 nominee directors attended all of their board and committee meetings in 2021.       

Senior Executive Leadership Experience

 

               LOGO    All of the nominee directors have senior executive leadership experience.       

Professional Affiliations

 

 

LOGO

All of the 2022 nominee directors are members of the Institute of Corporate Directors.

 

Isabelle Courville

Chair

 

 

LOGO  

Independent

Age: 59

Director since:

May 1, 2013

Residence: Rosemère, Québec, Canada

2021 voting results:

99.52% for

 

 

DIRECTOR SKILLS AND QUALIFICATIONS

 

Brings experience in the following areas: senior executive leadership, accounting & financial literacy, accounting & financial expertise, environment, health & safety, executive compensation/human resources, transportation industry knowledge, governance, government/regulatory affairs and legal, risk management, sales & marketing, and strategic oversight.

 

 

CURRENT PUBLIC COMPANY BOARD EXPERIENCE

SNC-Lavalin Group Inc. (2017 to present)

 

    Chair of Human Resources Committee  
    Member of Governance and Ethics Committee  

Veolia Environment S.A. (2015 to present)

 

    Chair Research, Innovation and Sustainable Development Committee  
    Member of Accounts and Audit Committee and the Nominations Committee  

 

OVERALL 2021 ATTENDANCE          100%  
Meeting Attendance(1)       
Board   14 of 14        100%  
Audit and Finance   5 of 5        100%  
Governance   3 of 3        100%  
Compensation   3 of 3        100%  
Risk and Sustainability   3 of 3        100%  

BUSINESS EXPERIENCE

 

  President of Hydro-Québec Distribution and Hydro-Québec TransÉnergie (2007 to 2013)
  20 years of experience in the Canadian telecommunications industry, including President of Bell Canada’s Enterprise Group (2003 to 2006) and President and Chief Executive Officer of Bell Nordiq Group (2002 to 2003)

PAST PUBLIC COMPANY BOARD EXPERIENCE

 

  Laurentian Bank of Canada (2007 to 2019) (Chair of the Board and member of Human Resources and Corporate Governance Committee)
  Gecina S.A. (2016 to April 2017) (member of Audit Committee)
  TVA Group (2013 to 2016) (member of Human Resources Committee)

OTHER EXPERIENCE

Other Boards - Current

 

  Institute for Governance of Private and Public Organizations (IGOPP) (2016 to present) (member of Human Resources Committee)

Other Boards - Past

 

  Institute of Corporate Directors (ICD) (2013 to 2017)

EDUCATION

 

  Bachelor’s degree in Engineering Physics, École Polytechnique de Montréal
  Bachelor’s degree in Civil Law, McGill University
  Doctorate Honoris Causa, Université de Montréal
  Fellow of the Institute of Corporate Directors

SHARE OWNERSHIP

Shares: 4,500

DDSUs: 56,719

Meets share ownership requirements

 

 

(1) 

Ms. Courville is an ex-officio member of all standing committees and may attend committee meetings at her discretion.

 

 

2022 MANAGEMENT PROXY CIRCULAR  23


 

The Hon. John Baird, P.C.

 

LOGO  

Independent
Age:
52

Director since:

May 14, 2015

Residence: Toronto, Ontario, Canada

2021 voting results:

99.40% for

 

 

DIRECTOR SKILLS AND QUALIFICATIONS

 

Brings experience in the following areas: senior executive leadership, accounting & financial literacy, environment, health & safety, transportation industry knowledge, governance, government/regulatory affairs and legal, risk management, and strategic oversight.

 

 

CURRENT PUBLIC COMPANY BOARD EXPERIENCE

Osisko Gold Royalties Ltd. (2020 to present)

 

    Chair of Governance and Nomination Committee  
    Member of Environmental and Sustainability Committee  

Canfor/Canfor Pulp (CPPI) (2016 to present)

 

    Chair of the Board  

 

OVERALL 2021 ATTENDANCE          100%  
Meeting Attendance       
Board   14 of 14        100%  
Governance   3 of 3        100%  
Risk and Sustainability   3 of 3        100%  

BUSINESS EXPERIENCE

 

  Senior Advisor at the law firm of Bennett Jones LLP and Eurasia Group (a geopolitical risk consultancy) (2015 to present)
  Member of the International Advisory Board, Barrick Gold Corporation (2015 to present)

OTHER EXPERIENCE

Other Boards - Current

  FWD Group Ltd./FWD Ltd. (2015 to present) (member of Audit Committee and Risk Management and Actuarial Committee)
  PineBridge Investments (2015 to present)

Other experience

  Served as Canadian Foreign Minister, Minister of Transport and Infrastructure, Minister of the Environment, and President of the Treasury Board during his three terms as a Member of the Canadian Parliament (2006 to 2015)
  Appointed to the Privy Council in 2006
  Former Minister of Community and Social Services and Minister of Energy in Ontario provincial legislature
  Senior Advisor to Community Living Ontario, an organization that supports individuals with developmental disabilities
  Advisory Board member to Prince’s Charities Canada, the charitable office of His Royal Highness, The Prince of Wales

EDUCATION

 

  Honours Bachelor of Arts (Political Studies), Queen’s University

SHARE OWNERSHIP

Shares: 0

DDSUs: 33,603

Meets share ownership requirements

 

Keith E. Creel

 

LOGO  

Not Independent

Age: 53

Director since:

May 14, 2015

Residence: Wellington, Florida, U.S.A.

2021 voting results:

99.78% for

 

 

DIRECTOR SKILLS AND QUALIFICATIONS

 

President and Chief Executive Officer of CP since January 31, 2017. Brings experience in the following areas: senior executive leadership, accounting & financial literacy, environment, health & safety, executive compensation/human resources, transportation industry knowledge, governance, government/regulatory affairs and legal, risk management, sales & marketing and strategic oversight.

 

 

OVERALL 2021 ATTENDANCE          100%  
Meeting Attendance       
Board   14 of 14        100%  

BUSINESS EXPERIENCE

 

  President and Chief Executive Officer of CP (2017 to present)
  President and Chief Operating Officer of CP (February 2013 to January 2017)
  Executive Vice-President and Chief Operating Officer of Canadian National Railway Company (CN) (2010 to 2013)
  Other positions at CN included Executive Vice-President, Operations, Senior Vice-President Eastern Region, Senior Vice-President Western Region, and Vice-President of CN’s Prairie division (2002 to 2010)
  Superintendent and general manager at Grand Trunk Western Railroad (1999 to 2002)
  Trainmaster and director of corridor operations at Illinois Central Railway prior to its merger with CN in 1999
  Began his railroad career in 1992 as an intermodal ramp manager at Burlington Northern Railway in Birmingham, Alabama

INDUSTRY RECOGNITIONS

 

  Named “2021 CEO of the Year and Strategist of the Year” by The Globe and Mail’s Report on Business magazine
  Named “Railroader of the Year” for 2022 & 2021 by Railway Age magazine
  Named “Railroad Innovator” for 2014 by Progressive Railroading in recognition of his leadership at CP

OTHER EXPERIENCE

Other Boards - Current

  Member of the Board of TTX Company (a private company) (2014 to present)
  Representative on American Association of Railroads

Other experience

  Commissioned officer in the U.S. Army and served in the Persian Gulf War in Saudi Arabia

EDUCATION

 

  Bachelor of Science in Marketing, Jacksonville State University
  Advanced Management Program, Harvard Business School

SHARE OWNERSHIP

Shares: 72,960

DSUs: 162,447

Options: 3,474,287

Meets executive share ownership requirements (see page 37)

 

 

 

24  CANADIAN PACIFIC


PROXY CIRCULAR

ABOUT THE NOMINATED DIRECTORS

 

 

 

 

Gillian (Jill) H. Denham

 

LOGO  

Independent

Age: 61

Director since:

September 6, 2016

Residence: Toronto, Ontario, Canada

2021 voting results:

95.62% for

 

 

DIRECTOR SKILLS AND QUALIFICATIONS

 

Brings experience in the following areas: senior executive leadership, accounting & financial literacy, executive compensation/human resources, investment management, governance, government/regulatory affairs and legal, risk management, sales & marketing and strategic oversight.

 

 

CURRENT PUBLIC COMPANY BOARD EXPERIENCE

Lifeworks Inc. (2008 to present)

 

    Chair of the Board  

Kinaxis Inc. (2016 to present)

 

    Chair of Compensation Committee  
    Member of the Audit Committee and the Nominating and Governance Committee  

Canaccord Genuity (2020 to present)

 

    Lead Director  

 

OVERALL 2021 ATTENDANCE          100%  
Meeting Attendance       
Board   14 of 14        100%  
Audit and Finance   6 of 6        100%  
Compensation(1)   1 of 1        100%  
Risk and Sustainability(1)   2 of 2        100%  

BUSINESS EXPERIENCE

 

  Vice-Chair, Retail Markets for Canadian Imperial Bank of Commerce (CIBC) (2001 to 2005)
  Previously held senior positions at CIBC Wood Gundy and CIBC, including: Managing Director, Head of Commercial Banking and E-Commerce
  President of Merchant Banking/Private Equity and Managing Director, Head responsible for CIBC’s European Operations

PAST PUBLIC COMPANY BOARD EXPERIENCE

 

  National Bank of Canada (2010 to 2020)
  IHS Markit Ltd. (2014 to 2016)
  Penn West Petroleum Ltd. (2012 to 2016)
  Calloway Real Estate Investment Trust (2011 to 2012)

OTHER EXPERIENCE

Other Boards - Past

 

  Centre for Addiction and Mental Health (CAMH) (2015 to 2019)
  Ontario Teachers’ Pension Plan (2007 to 2010)

EDUCATION

 

  Honours Business Administration (HBA) degree, Ivey Business School, Western University
  MBA, Harvard Business School

SHARE OWNERSHIP

Shares: 0

DDSUs: 24,499

Meets share ownership requirements

 

Edward R. Hamberger

 

LOGO  

Independent

Age: 71

Director since:

July 15, 2019

Residence: Delray Beach, Florida, U.S.A.

2021 voting results:

99.84% for    

 

 

DIRECTOR SKILLS AND QUALIFICATIONS

 

Brings experience in the following areas: senior executive leadership, accounting & financial literacy, environment, health & safety, executive compensation/human resources transportation industry knowledge, governance, government/regulatory affairs and legal, risk management and strategic oversight.

 

 

OVERALL 2021 ATTENDANCE          100%  
Meeting Attendance       
Board   14 of 14        100%  
Audit and Finance   6 of 6        100%  
Risk and Sustainability   3 of 3        100%  

BUSINESS EXPERIENCE

 

  President and Chief Executive Officer, Association of American Railroads (1998 to 2019)
  Served as Assistant Secretary for governmental affairs at the U.S. Department of Transportation (1987 to 1989)

OTHER EXPERIENCE

Other Boards - Current

  Transportation Institute, University of Denver (2002 to present)

Other Boards - Past

 

  Business Advisory Committee, Kellogg School of Management, Northwestern University (2000 to 2019)
  TTCI (Chair of the Board) (1998 to 2019)
  Railinc Corporation (1998 to 2019)
  Mineta Transportation Institute, San Jose State University (2005 to 2019)
  Baker Donelson, Management Committee (1989 to 1998)

EDUCATION

 

  Juris Doctor, Georgetown University
  Master of Science, Foreign Service, Georgetown University
  Bachelor of Science, Foreign Service, Georgetown University

SHARE OWNERSHIP

Shares: 0

DDSUs: 8,587

Has until July 2025 to meet share ownership requirements

 
   

 

(1) 

Ms. Denham moved from the Risk and Sustainability Committee to the Management Resources and Compensation Committee on September 29, 2021.

 

 

2022 MANAGEMENT PROXY CIRCULAR  25


 

Matthew H. Paull

 

LOGO  

Independent

Age: 70

Director since:

January 26, 2016

Residence: Wilmette, Illinois, U.S.A.

2021 voting results:

99.43% for

 

 

DIRECTOR SKILLS AND QUALIFICATIONS

 

Brings experience in the following areas: senior executive leadership, accounting & financial literacy, accounting & financial expertise, executive compensation/human resources, investment management, governance, government/regulatory affairs and legal, risk management and strategic oversight.

 

 

CURRENT PUBLIC COMPANY BOARD EXPERIENCE

Air Products & Chemicals Corporation (2013 to Present)

 

    Chair of Audit and Finance Committee  
    Member of Corporate Governance and Nominating Committee and Executive Committee  

 

OVERALL 2021 ATTENDANCE

         100%  

Meeting Attendance

      

Board

  14 of 14        100%  

Compensation (Chair)

  3 of 3        100%  

Risk and Sustainability

  3 of 3        100%  

BUSINESS EXPERIENCE

 

  Senior Executive Vice-President and Chief Financial Officer of McDonald’s Corporation (2001 until his retirement in 2008)
  Before joining McDonald’s in 1993, was a partner at Ernst & Young where he managed a variety of financial practices during his 18-year career and consulted with many leading multinational corporations

PAST PUBLIC COMPANY BOARD EXPERIENCE

 

  Chipotle Mexican Grill Inc. (2016 to 2020) (member of Compensation Committee)
  Best Buy Co. (2003 to 2013) (Lead independent director and chair of Finance Committee)
  WMS Industries Inc. (2012 to 2013)
  KapStone Paper and Packaging Corporation (2010 to 2018)

OTHER EXPERIENCE

Other Boards - Current

  Pershing Square Capital Management, L.P. (2008 to present) (member of Advisory Board)

EDUCATION

 

  Master’s degree in Accounting, University of Illinois
  Bachelor’s degree, University of Illinois

SHARE OWNERSHIP

Shares: 15,190

DDSUs: 36,713

Meets share ownership requirements

 

Jane L. Peverett

 

LOGO  

Independent

Age: 63

Director since:

December 13, 2016

Residence: West Vancouver, British Columbia, Canada

2021 voting results:

98.78% for

 

 

DIRECTOR SKILLS AND QUALIFICATIONS

 

Brings experience in the following areas: senior executive leadership, accounting & financial literacy, accounting & financial expertise, environment, health & safety, executive compensation/human resources, governance, government/regulatory affairs and legal, risk management and strategic oversight.

 

 

CURRENT PUBLIC COMPANY BOARD EXPERIENCE

CIBC (2009 to present)

 

    Chair of the Corporate Governance Committee  
    Member of Audit Committee  

Northwest Natural Gas Company (2007 to present)

 

    Chair of Audit Committee  
    Member of Governance, Organization and Executive Compensation Committee  

Capital Power Corporation (2019 to present)

 

    Member of People, Culture and Governance Committee and the Health, Safety and Environment Committee  

 

OVERALL 2021 ATTENDANCE

         100%  

Meeting Attendance

      

Board

  14 of 14        100%  

Audit and Finance (Chair)

  6 of 6        100%  

Governance

  3 of 3        100%  

BUSINESS EXPERIENCE

 

  President & Chief Executive Officer of BC Transmission Corporation (electrical transmission) (2005 to 2009)
  Vice-President, Corporate Services and Chief Financial Officer of BC Transmission Corporation (2003 to 2005)
  President of Union Gas Limited (a natural gas storage, transmission and distribution company) (2002 to 2003)
  Other positions at Union Gas Limited: President & Chief Executive Officer (2001 to 2002); Senior Vice-President Sales & Marketing (2000 to 2001) and Chief Financial Officer (1999 to 2000)

PAST PUBLIC COMPANY BOARD EXPERIENCE

 

  Encana Corp. (2003 to 2017)
  Postmedia Network Canada Corp. (2013 to 2016)
  Hydro One Limited (2015 to 2018)

OTHER EXPERIENCE

Other Boards - Current

 

  CSA Group (2019 to present) (Chair of the Board)
  British Columbia Institute of Corporate Directors Advisory Board

EDUCATION

 

  Bachelor of Commerce degree, McMaster University
  Master of Business Administration degree, Queen’s University
  Certified Management Accountant
  A Fellow of the Society of Management Accountants
  Holds the ICD.D designation from the Institute of Corporate Directors

SHARE OWNERSHIP

Shares: 0

DDSUs: 25,759

Meets share ownership requirements

 

 

 

26  CANADIAN PACIFIC


PROXY CIRCULAR

ABOUT THE NOMINATED DIRECTORS

 

 

 

 

Andrea Robertson

 

LOGO  

Independent

Age: 58

Director since:

July 15, 2019

Residence: Calgary, Alberta, Canada

2021 voting results:

99.79% for

 

 

DIRECTOR SKILLS AND QUALIFICATIONS

 

Brings experience in the following areas: senior executive leadership, accounting & financial literacy, environment, health & safety, executive compensation/human resources, transportation industry knowledge, governance, government/regulatory affairs and legal, risk management, and strategic oversight.

 

 

OVERALL 2021 ATTENDANCE

         100%  

Meeting Attendance

      

Board

  14 of 14        100%  

Governance(1)

  2 of 2        100%  

Compensation

  3 of 3        100%  

BUSINESS EXPERIENCE

 

  President & Chief Executive Officer, Shock Trauma Air Rescue Service (STARS) (2012 to present)
  President & Chief Operating Officer, STARS (2011 to 2012)

OTHER EXPERIENCE

Other Boards - Current

 

  The Calgary Airport Authority (2017 to present)
  University of Alberta, Faculty of Medicine & Dentistry (2021 to present)

Other Boards - Past

 

  Bow Valley College (2015 to 2018)
  United Way (2007 to 2013)

EDUCATION

 

  Executive Leadership, Harvard University
  ICD.D Rotman School of Business
  Masters in Health-Care Administration, Central Michigan University
  Baccalaureate of Nursing, University of Calgary
  Executive Fellowship, Wharton University

SHARE OWNERSHIP

Shares: 0

DDSUs: 8,563

Has until July 2025 to meet share ownership requirements

 

Gordon T. Trafton

 

LOGO  

Independent

Age: 68

Director since:

January 1, 2017

Residence: Naperville, Illinois, U.S.A.

2021 voting results:

99.82% for

 

 

DIRECTOR SKILLS AND QUALIFICATIONS

 

Brings experience in the following areas: senior executive leadership, accounting & financial literacy, environment, health & safety, executive compensation/human resources, transportation industry knowledge, governance, government/regulatory affairs and legal, risk management, sales & marketing and strategic oversight.

 

 

OVERALL 2021 ATTENDANCE

         100%  

Meeting Attendance

      

Board

  14 of 14        100%  

Governance

  3 of 3        100%  

Risk and Sustainability (Chair)

  3 of 3        100%  

BUSINESS EXPERIENCE

 

  Consultant, Brigadier Consulting (2014 to 2015)
  Consultant, CP (2013)
  Special Advisor to the Canadian National Railway (CN) leadership team (2009 to his retirement in 2010)
  Senior Vice-President Strategic Acquisitions and Integration, CN (2009 to 2010)
  Senior Vice-President, Southern Region, CN (2003 to 2009)
  Vice-President, Operations Integration, CN (2001 to 2003)
  Vice-President, Transportation and IT Services, Illinois Central Railroad (1999 to 2001)
  Held a number of leadership positions with Illinois Central Railroad and Burlington Northern Railroad

OTHER EXPERIENCE

Other Boards - Current

 

  Leeds School of Business Advisory Board, University of Colorado Boulder (2012 to present)
  Sacred Cow Consulting, Inc., Advisory Board (2020 to present)

EDUCATION

 

  Bachelor of Science, Transportation Management from the Leeds School of Business, University of Colorado Boulder

SHARE OWNERSHIP

Shares: 0

DDSUs: 25,550

Meets share ownership requirements

 

 

(1) 

Ms. Robertson moved from the Corporate Governance, Nominating and Social Responsibility Committee to the KCS Acquisition and Integration Committee on September 29, 2021.

 

 

2022 MANAGEMENT PROXY CIRCULAR  27


 

Other than as disclosed below, none of the nominated directors is, or has been in the last 10 years:

 

(a)  a director, chief executive officer or chief financial officer of a company that:

 

•  was subject to a cease trade or similar order or an order that denied the issuer access to any exemptions under securities legislation for over 30 consecutive days, that was issued while the proposed director was acting in that capacity, or

 

•  was subject to a cease trade or similar order or an order that denied the issuer access to an exemption under securities legislation for over 30 consecutive days, that was issued after the proposed director ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in that capacity

 

(b)  a director or executive officer of a company that, while that proposed director was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets,

 

(c) become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold their assets, or

 

(d)  subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities commission.

 

Ms. Denham served as a director of Penn West Petroleum Ltd. (now Obsidian Energy Ltd.) from June 2012 to June 2016, which was subject to cease trade orders on its securities following the July 2014 announcement of the review of its accounting practices and restatement of certain of its financial statements. Those cease trade orders ended on September 23, 2014.

 

Ms. Peverett was a director of Postmedia Network Canada Corp. (Postmedia) from April 2013 to January 2016. On October 5, 2016, Postmedia completed a recapitalization transaction under a court-approved plan of arrangement under the CBCA. Approximately US$268.6 million of debt was exchanged for shares that represented approximately 98% of the outstanding shares of Postmedia at that time. Postmedia repaid, extended and amended the terms of its outstanding debt obligations.

 

 

 

 

Additional information about current directors not standing for election

On January 28, 2022, Ed Monser, who had served as a director since December 2018, informed the Board that he would not be standing for re-election at the Meeting. On February 17, 2022, Rebecca MacDonald who had served as a director since May 2012, informed CP that she would not be standing for re-election at the Meeting. Both Mr. Monser and Ms. MacDonald will continue to serve as members of the Board until the 2022 Meeting, when their current terms will expire.

 

 

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ABOUT THE NOMINATED DIRECTORS

 

 

 

2021 Director compensation and changes to director compensation in 2022

The Governance Committee reviews director compensation every two to three years based on the directors’ responsibilities, time commitment and the compensation provided by comparable companies. Each director is paid an annual retainer of US$200,000. Committee chairs receive an additional US$30,000 per year and the Board Chair receives an additional annual retainer of US$195,000(1). No changes were made to the director compensation program in 2021.

In January 2022, the Governance Committee reviewed director compensation levels, including compensation levels for directors at other similarly situated peers. Based on the recommendations from the Board’s compensation consultant, the Governance Committee recommended that the Board increase the annual director retainer from US$200,000 to US$280,000. The annual committee chair retainers for the Compensation Committee and the Audit and Finance Committee were increased from US$30,000 to US$40,000. No changes were made to the additional annual Board Chair retainer or the retainers for other committee chairs.

We paid directors a total of $2,921,886 in 2021 as detailed in the table below. Directors receive a flat fee retainer to cover their ongoing oversight and responsibilities throughout the year and their attendance at Board and committee meetings.

Directors receive 100 percent of their annual retainer in director deferred share units (DDSUs) until they have met their share ownership requirements. After that, directors are required to receive at least 50 percent of their compensation in DDSUs. The total represents the approximate dollar value of DDSUs credited to each director’s DDSU account in 2021, based on the closing fair market value of our shares on the grant date plus the cash portion paid if a director elected to receive a portion of compensation in cash.

As of January 1, 2022, the directors now are required to hold five times the new annual retainer (totaling US$1.4 million) in shares prior to being able to elect to take a portion of their annual retainer in cash (up to 50%) and in shares.

Mr. Creel does not receive director compensation because he is compensated in his role as President and CEO (see pages 55 and 64 for details).

All figures in the chart below are in Canadian dollars.

 

  Name   

Share-based
awards
(1),(3)

($)

    

All other
compensation
(2),(3)

($)

     Total
($)
 

  John Baird

     251,940        1,000        252,940  

  Isabelle Courville

     497,582        1,000        498,582  

  Jill Denham

     251,940        1,000        252,940  

  Edward Hamberger

     250,700        1,253        251,953  

  Rebecca MacDonald

     289,731        1,000        290,731  

  Edward Monser

     250,700        1,253        251,953  

  Matthew Paull

     288,305        1,253        289,558  

  Jane Peverett

     289,731        1,000        290,731  

  Andrea Robertson

     251,940        1,000        252,940  

  Gordon Trafton

     288,305        1,253        289,558  

 

(1) 

The value of the share-based awards has been calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (FASB ASC 718) using the grant date fair value, which is prescribed by the DDSU Plan.

(2) 

Each director was provided with a $1,000 donation, in local currency, to the charity of their choice in December 2021 in gratitude for their year of service. This amount appears under All other compensation.

(3) 

All directors were paid in U.S. dollars and the value of their share-based awards, and cash and other payments, as applicable, have been converted to Canadian dollars using the 2021 average exchange rate of $1.2535.

You can read more about our director compensation program beginning on page 88.

 

 

(1) 

Board Chair compensation for 2021 is an aggregate total of the Director retainer fee of US$200,000 plus the Chair of the Board retainer fee of US$195,000 totaling US$395,000.

 

 

2022 MANAGEMENT PROXY CIRCULAR  29


Incentive plan awards

Outstanding share-based awards and option-based awards

The table below shows all vested and unvested equity incentive awards that are outstanding as of December 31, 2021.

On July 21, 2003, the Board suspended any additional grants of options under the director stock option plan and there are no outstanding options under that plan.

Non-employee directors are not granted stock options under the stock option plan.

 

    Share-based awards  
  Name  

Number of
shares or units
of shares that
have not
vested

(#)

    Market or
payout value of
share-based
awards that
have not vested
($)
   

Market or payout
value of vested
share-based
awards not paid
out or distributed

($)(1)

 

  John Baird

 

 

-

 

 

 

-

 

 

 

3,051,014

 

  Isabelle Courville

 

 

-

 

 

 

-

 

 

 

5,149,923

 

  Jill Denham

 

 

-

 

 

 

-

 

 

 

2,224,461

 

  Edward Hamberger

 

 

-

 

 

 

-

 

 

 

781,631

 

  Rebecca MacDonald

 

 

-

 

 

 

-

 

 

 

6,116,040

 

  Edward Monser

 

 

-

 

 

 

-

 

 

 

1,032,355

 

  Matthew Paull

 

 

-

 

 

 

-

 

 

 

3,341,679

 

  Jane Peverett

 

 

-

 

 

 

-

 

 

 

2,338,823

 

  Andrea Robertson

 

 

-

 

 

 

-

 

 

 

777,515

 

  Gordon Trafton

 

 

-

 

 

 

-

 

 

 

2,325,620

 

 

(1) 

Calculated based on the closing price of our shares on December 31, 2021 on the TSX ($90.98), in the case of directors resident in Canada, and on the NYSE (US$71.94) which was converted to Canadian dollars using the year-end exchange rate of $1.2678, in the case of the directors resident in the U.S.

 

 

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ABOUT THE NOMINATED DIRECTORS

 

 

 

 

 

Board and Committee reports overview

 

The Board has four standing committees to assist it in fulfilling its duties and responsibilities:

•  Audit and Finance Committee

•  Corporate Governance, Nominating and Social Responsibility Committee (Governance Committee)

•  Management Resources and Compensation Committee (Compensation Committee)

•  Risk and Sustainability Committee

 

Each committee has terms of reference approved by the Board that set out the committee’s responsibilities. Each committee is satisfied that it has fulfilled all of its responsibilities in 2021. All committee memberships are as of December 31, 2021.

 

Independence

 

Each committee is made up solely of independent directors, according to the independence criteria of the NYSE corporate governance rules and applicable Canadian securities laws.

 

Meeting in camera

 

Each committee has the opportunity to meet in camera, without management present. In camera sessions are required at the end of each meeting of the Audit and Finance Committee, the Compensation Committee and the Board.

 

You can read about each director in the profiles beginning on page 23. Copies of the terms of reference for the Board and committees are available on our website (investor.cpr.ca/governance).

 

Board of Directors 2021

 

•  The Board had 14 formal meetings this year and numerous informal discussions via conference call and zoom over the course of the year.

•  Our Board of directors approved all quarterly results (as recommended by the Audit and Finance Committee) and our annual results.

•  The Board also approved our 2021 operating and capital budget and multi-year plan.

•  The Board unanimously approved our historic merger with Kansas City Southern. The Board also approved all committee resolutions where applicable as well as capital projects

• The Board recommended a share split on a 5:1 basis. Such change was subsequently approved at the 2021 Annual and Special Shareholders meeting

•  The Board continuously reviewed our response to the COVID-19 pandemic throughout 2021

 

KCS Acquisition and Integration Committee

 

In September 2021, the Board established a special committee of the Board of Directors for the purpose of overseeing the acquisition and integration of Kansas City Southern. The members as of December 31, 2021 were as follows:

 

2021 MEMBERS

 

Edward Monser (Chair)

Isabelle Courville

Edward Hamberger

Andrea Robertson

Gordon Trafton

 

The KCS Integration Committee had one formal meeting in 2021 and additional informal meetings to discuss matters before the Committee.

 

  

 

Corporate Governance, Nominating and Social Responsibility Committee

Responsible for monitoring and assessing the functioning of the Board and committees and for developing and implementing good corporate governance practices, identifying qualified director candidates and recommending director nominees for election to the Board. Also has oversight responsibility in respect of major issues of public policy relevant to our business and reviews and assesses initiatives of the Corporation related to social responsibility and diversity and inclusion.

MEMBERS

Rebecca MacDonald (Chair)

John Baird

Isabelle Courville (ex-officio)

Jane Peverett

Gordon Trafton

2021 HIGHLIGHTS

Three formal meetings in 2021 in addition to a number of informal meetings to discuss the matters before the Committee.

Corporate governance

  Reviewed and updated the terms of reference for the Board and committees
  Updated committee name
  Updated committee mandate to review diversity and inclusion initiatives and to review social responsibility initiatives.
  Reviewed and confirmed the position descriptions for the Board Chair, CEO and committee chairs
  Reviewed and approved updates to the directors travel expense reimbursement policy
  Received regular updates on Diversity and Inclusion from management
  Reviewed compensation for directors, committee chairs and the Board Chair.

Board performance

  Set Board goals for 2021 relating to strategic planning, Board succession, shareholder engagement, director education and mentorship
  Engaged external consultant to evaluate the performance of the Board and directors
  Engaged in a peer review process as part of the director evaluation process

Board composition for 2021

  Reviewed the director skills matrix to make sure that the current directors have the integrity, skills and experience to meet the Board’s needs
  Updated the Board on the process for identifying potential new director candidates who meet our needs

Director development

  Renewed our membership in the Institute of Corporate Directors for all directors
 

 

 

2022 MANAGEMENT PROXY CIRCULAR  31


 

Audit and Finance Committee

Responsible for fulfilling all public company audit committee legal obligations and assists the Board in fulfilling its oversight responsibilities in relation to the disclosure of financial statements and information derived from them, including the review and integrity of the financial statements, the integrity and quality of our financial reporting and internal controls, our compliance with applicable legal and regulatory requirements, the qualifications, independence, engagement, compensation and performance of the external auditor, and the performance of our internal audit function. The Audit and Finance Committee is also responsible for assisting the Board with oversight of additional matters including financing plans and programs, financial risks and contingent exposures, and the pension plans sponsored by the Company. The Audit and Finance Committee has in camera meetings with the external auditor, internal Audit and the Chief Financial officer at each meeting. In addition, the Audit and Finance Committee holds in camera sessions at each meeting.

The Audit and Finance Committee has been established in accordance with the Exchange Act, NYSE standards and National Instrument 52-110 Audit Committees.

MEMBERS

Jane Peverett (Chair)

Isabelle Courville (ex-officio)

Jill Denham

Edward Hamberger

Edward Monser

All members of the Audit and Finance Committee are ”financially literate” as required by the NYSE and applicable Canadian securities laws. Of the current Audit and Finance Committee members, Ms. Peverett, Mr. Monser and Ms. Courville have been determined to be “audit committee financial experts” as defined by the SEC.

2021 HIGHLIGHTS

Six formal meetings in 2021 in addition to a number of informal meetings to discuss the matters before the Committee.

External auditor

  Oversaw the pre-approval of audit and non-audit services provided by the external auditor, including a discussion on which non-audit services the external auditor is prohibited from providing
  Reviewed the performance of the external auditor and recommended to the Board the appointment of the company’s new external auditor for fiscal year 2022
  Overseeing process to change external auditors from Deloitte LLP to Ernst & Young LLP
  Reviewed the non-audit review reports of the auditor of our interim financial statements each quarter
  Received assurance from the external auditor that the annual audit was performed in a manner consistent with accepted standards
  Met with the external auditor to discuss independence and other required matters under the Public Company Accounting Oversight Board (PCAOB) standards governing communications with audit committees
  Received the external auditor’s written disclosure required by the PCAOB about its communication regarding independence
  Reviewed the formal statement from the external auditor confirming its independence and the policies regarding hiring of the external auditor’s employees or former employees
  Reviewed the external auditor’s annual audit plan
  Approved the external auditor’s annual compensation
  Reviewed accounting and disclosures impacts specific to the acquisition of KCS

Risk oversight

  Reviewed and monitored our material financial disclosure
  Confirmed our audit committee financial experts
  Met with the Chief Legal Officer to review all legal and regulatory matters and claims that could have a material impact on our financial position

Financial disclosure review and internal controls

  Met with management, internal auditor and the external auditor to review the adequacy and effectiveness of the financial reporting process, the internal control procedures and the disclosure controls
  Reviewed our procedures for receiving and addressing complaints on accounting, internal accounting controls or auditing matters
  Reviewed and recommended for Board approval the interim financial reports on Form 10-Q and quarterly earnings releases
  Reviewed management methodologies for critical accounting estimates
  Reviewed management progress on adoption of future accounting standards
  Met with management and external auditor to review our annual audited consolidated financial statements and then recommended them to the Board for approval and to be included in our annual report on Form 10-K

Internal audit

  Reviewed and approved the internal auditor’s annual audit plan
  Reviewed reports and recommendations on internal audit issues, and monitored how management responded to any issues identified by the internal auditor
  Received updates from the internal auditor quarterly
  Reviewed process for receiving, retaining and resolving complaints received on the Company’s alert line
  Reviewed the effectiveness of select cybersecurity controls
  Directly oversaw the internal audit function, its performance, activities, organizational structure, leadership and the skills and experience of the group

Pension plans

  Reviewed 2020 pension plan financial statements and external auditor’s reports
  Approved appointment of auditor for the defined benefit, defined contribution and secondary pension plans
  Reviewed pension plan performance for the Canadian defined benefit and the U.S. defined benefit pension plans
  Reviewed and approved changes to the Statement of Investment Policies and Procedures

On January 25, 2021, the Audit and Finance Committee updated the written policy for pre-approving audit and non-audit services by the external auditor. See page 109 to read more about the policy. In October 2021, the Audit and Finance Committee updated its mandate to clarify its role in appointing, compensating and overseeing the work of the Corporation’s public accounting firm.

 

 

 

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ABOUT THE NOMINATED DIRECTORS

 

 

 

 

Management Resources and Compensation Committee

Responsible for fulfilling public company compensation committee legal obligations and assisting the Board with the appointment and compensation of executive officers, overseeing our compensation philosophy and programs including incentive and retirement plans, establishing performance objectives and evaluating performance of certain senior officers, reviewing our organizational health and the succession plans for senior officers.

MEMBERS

Matthew Paull (Chair)

Isabelle Courville (ex-officio)

Jill Denham

Rebecca MacDonald

Andrea Robertson

2021 HIGHLIGHTS

Three formal meetings in 2021 in addition to a number of informal meetings to discuss the matters before the Committee.

CEO performance and compensation

  Reviewed the assessment process and established performance objectives for the year
  Evaluated the CEO’s performance and recommended his compensation to the Board

Executive compensation

  Compensation comparator peer group in 2021 remains the same with the exception of KCS which is no longer part of the comparator group with the close of the KCS transaction into voting trust on December 14, 2021
  In early 2021, reviewed the compensation programs and recommended the Board approve:
    the 2020 short-term incentive plan payout
    the 2018 performance share unit (PSU) payout which vested on December 31, 2020
    the 2018 special retention grant
    the short-term incentive plan metrics for 2021
    the 2021 long-term incentive plan grants
  Assessed CEO and other management retention risks
  Reviewed CEO and NEO 2021 performance objectives and goals
  Reviewed the CEO’s assessment of the NEOs and other direct reports of the CEO and recommended their 2021 compensation to the Board
  Reviewed executive share ownership guidelines and monitored compliance
  Reviewed progress to promote diversity and inclusion

Succession planning

  Reviewed the succession plans for the CEO and other management roles, including the process for identifying, developing and retaining executive talent

Risk oversight

  Continued oversight of comprehensive compensation risk with the review of the executive compensation program, incentive plan design and policies to reward performance and align management interests with shareholders’ interests

You can read about compensation governance on page 38 and executive compensation generally beginning on page 34.

 

Risk and Sustainability Committee

Responsible for assisting the Board in its oversight responsibilities with respect to our strategic and integrated risk practices, the robustness of our safety and environmental processes and systems and the long-term sustainability model for the conduct of our business.

MEMBERS

Gordon Trafton (Chair)

John Baird

Isabelle Courville (ex-officio)

Edward Hamberger

Matthew Paull

2021 HIGHLIGHTS

Three formal meetings in 2021 including a number of informal meetings to discuss the matters before the Committee.

Oversight of risk and safety

  Reviewed management’s approach on safety matters, including safety management systems, disability management, technical training and operating practices and rules
  Reviewed management’s risk structure and its ability to manage and respond to risk
  Reviewed risk mitigation matters including risk management, casualty management, security and damage prevention
  Reviewed the Company’s insurance strategy to mitigate and transfer risks
  Reviewed emergency response processes
  Reviewed rail technology and innovations and their role in managing risk and enhancing safety
  Received updates from management on transportation of hazardous materials
  Reviewed summary of Safety Management Systems (SMS)/Risk Reduction Program in Canada and the U.S.

Oversight of sustainability

  Committee Chair engaged top shareholders in discussions, including on Environmental, Social and Governance matters
  Received regular sustainability updates from management
  Reviewed entry onto the Dow Jones Sustainability Index (DJSI)
  Reviewed CP alignment to the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)
  Reviewed ESG ratings and management’s ESG related plans
  Reviewed scenario analysis to improve awareness of climate-related risks and opportunities facing CP
  Reviewed and approved CP’s Climate Strategy including science-based emissions reduction targets to guide decarbonization activities through 2030
  Received updates from management on CP’s Hydrogen Locomotive Program
  Received updates on management initiatives to reduce greenhouse gas emissions, including management’s installation of a solar field to power CP’s corporate head office in Calgary, Alberta
 

 

 

2022 MANAGEMENT PROXY CIRCULAR  33


LOGO

 

PART III – EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy circular.

Our executive compensation program is designed to pay for performance, to align management interests with our business strategy and the interests of our shareholders, and to engage and retain our executives. This section of our proxy circular provides shareholders with descriptions of our compensation programs and 2021 compensation decisions for our Named Executive Officers (NEOs), listed below.

 

 

2021 NAMED EXECUTIVE OFFICERS

 

 

Keith E. Creel

President and Chief Executive Officer

 

Nadeem S. Velani

Executive Vice-President and Chief Financial Officer

 

John K. Brooks

Executive Vice-President and Chief Marketing Officer

 

Mark A. Redd

Executive Vice-President Operations

 

Jeffrey J. Ellis

Chief Legal Officer and Corporate Secretary

 

Where to find it

 

 

 

 

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PART III – EXECUTIVE COMPENSATION

 

 

 

Our approach to executive compensation

Our executive compensation program supports our operations-focused culture, is linked to the critical metrics that drive the achievement of our strategic plan without taking on undue risk, and is designed to create long-term sustainable value for our shareholders. The key elements of our approach to executive compensation include:

 

competitive market pay practices to attract and retain talent

 

a compensation mix that is incentive-driven with a large proportion of total direct compensation that is variable or “at-risk” to support our pay for performance culture

 

compensation components paying out over multiple performance periods to link to our short and long-term business strategy

 

aligning management’s interests with those of our shareholders through equity-based compensation and share ownership guidelines

We have five key foundations designed to focus us on our goal of being the best railroad company in North America:

 

 

LOGO

The Compensation Committee reviewed and approved changes to our executive compensation programs in 2016 for the 2017 program year in response to shareholder feedback. Since that time we have continued to monitor the effectiveness of our executive compensation programs in supporting our pay for performance philosophy and commitment to create long-term value for our shareholders. Our unwavering commitment to safety is also at the forefront of design considerations as evident in our short-term incentive plan where 20 percent of the target opportunity is based on our performance against rigorous safety goals.

Compensation mix

Attracting and retaining high performing executives is key to our long-term sustainable growth and success. Built into our compensation pay mix is a significant emphasis on incentive-driven pay where the proportion of at-risk pay increases by level. Executives earn more if we perform well, and less when performance is not as strong. A significant component of executive at-risk pay is equity-based compensation, which links directly to the value of our shares, ensuring alignment with the interest of our shareholders. We also require our executives to own CP equity and our share ownership guidelines increase by executive level (see page 37).

 

 

2021 total target direct

compensation mix

for our NEOs are

shown in the graph.

 

For 2021, 90 percent of

our CEO’s total target

direct compensation

and an average of

80 percent for our

other NEOs was at risk.

   LOGO

 

 

2022 MANAGEMENT PROXY CIRCULAR  35


Benchmarking

Our comparator group in 2021 remains the same, however with the close of the KCS transaction into voting trust on December 14, 2021, KCS has been removed from the comparator group going forward. Our comparator group consists of companies we compete with for talent. It includes Class I railroad peers as well as 11 capital-intensive Canadian companies. For certain positions within the organization, we apply a heavier weighting to Class I railroad peers; however, we consistently review alignment and compensation practices against our comparator group.

Our 2021 compensation comparator group is as follows:

 

 

Class I railroads

 

  

 

Capital Intensive Companies in Canada

 

     

 

BNSF Railway Company

  

 

Barrick Gold Corporation

  

 

Kinross Gold Corporation

     
Canadian National Railway Company    BCE Inc.    Rogers Communications Inc.
     
CSX Corporation    Cenovus Energy Inc.    Suncor Energy Inc.
     
Kansas City Southern    Enbridge Inc.    TC Energy Corporation
     
Norfolk Southern Corporation    Fortis Inc.    TELUS Corporation
     
Union Pacific Corporation   

Imperial Oil Limited

 

    

Compensation pays out over time

 

 

LOGO

 

 

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PART III – EXECUTIVE COMPENSATION

 

 

Executives are CP shareholders

We require executives and senior management employees to own equity in the Company so they have a stake in our future success. Share ownership requirements are set as a multiple of base salary and increases by level. The ownership requirement must be achieved within five years of being appointed to their position and can be met by holding shares or deferred share units (DSUs). Notional shares in the form of performance share units (PSUs), restricted share units (RSUs), and stock options are not considered for ownership requirement. The CEO must maintain the ownership level of six times his base salary for one year after he retires or leaves CP. Once executives have met their initial shareholding requirements, they are required to maintain compliance, which is reported annually to the Compensation Committee.

Executives have the opportunity to participate in the Senior Executives’ DSU Plan (see page 72 for further plan details). DSUs are redeemed for cash after the executive retires or leaves the Company, with (i) Canadian-resident executives being entitled to elect a date of payment between the date that is six months following their departure from the Company and December 15th of the following calendar year, in compliance with Canadian tax rules; and (ii) U.S. resident executives being paid six months after their departure from the Company, in compliance with U.S. tax regulations.

The table below shows the ownership requirement by executive level, applicable to 105 executives and senior management employees in 2021. In support of our commitment to align executive compensation with shareholder interests and market competitive practices, the Board approved a change in share ownership requirement for the Executive Vice-President level from three times to four times annual base salary in 2021.

 

Executive Level

  

Ownership requirement 

(as a multiple of base salary) 

   

 

Our NEOs are compliant with ownership guidelines:

 

•  Mr. Creel, Mr. Velani, Mr. Redd and Mr. Ellis have achieved their ownership requirements.

•  Mr. Brooks is expected to meet his ownership requirement within the specified period.

 

 

 CEO

 

  

 

6x 

 

 

 

 Executive Vice-President

 

  

 

4x 

 

 

 

 Senior Vice-President

 

  

 

2x 

 

 

 

 Vice-President

 

  

 

1.5 to 2x 

 

 

 

 Senior management

 

  

 

1x 

 

 

Equity ownership (at February 28, 2022)

 

           

Executive

   

Requirement
(as a multiple
of salary)
 
 
 
   


Minimum
    ownership
value
($)(1)
 
 

 
   
        Shares
($)
 
 
   

Deferred
    share units
($)
 

 
   


Total
    ownership
value
($)(2)
 
 

 
    


Total 
ownership 
(as a multiple 
of salary) 
 
 
 
 

Keith Creel

    6x       9,142,560       8,357,306       14,497,050       22,854,356        15.00x  

Nadeem Velani

    4x       3,330,624       255,757       3,239,889       3,495,646        4.20x  

John Brooks

    4x       3,098,312       1,063,168       1,495,529       2,558,697        3.30x  

Mark Redd

    4x       2,996,728       1,979,420       1,466,240       3,445,660        4.60x  

Jeffrey Ellis

    2x       1,210,000       516,323       1,466,295       1,982,618        3.28x  

 

(1) 

Minimum ownership values for Mr. Creel, Mr. Brooks and Mr. Redd have been converted to Canadian dollars using an exchange rate of 1.2698.

(2) 

Total ownership values for Mr. Creel, Mr. Brooks and Mr. Redd are based on US$70.28, the closing price of our shares on the NYSE on February 28, 2022 and have been converted to Canadian dollars using an exchange rate of $1.2698. Values for Mr. Velani and Mr. Ellis are based on $89.25, the closing price of our shares on the TSX on February 28, 2022.

 

 

2022 MANAGEMENT PROXY CIRCULAR  37


Compensation governance

Disciplined decision-making process

Executive compensation decisions involve management, the Compensation Committee and the Board. The Compensation Committee also receives advice and support from external consultants from time to time, including their advisor Frederic W. Cook & Co., Inc. (FW Cook). Management receives advice and support from Willis Towers Watson, external consultants.    

 

 

LOGO

 

 

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PART III – EXECUTIVE COMPENSATION

 

 

Qualified and experienced 2021 Compensation Committee

The Compensation Committee is responsible for our compensation philosophy, strategy and program design. The Compensation Committee consists of five independent directors. The Compensation Committee has the relevant skills, background and experience to carry out its duties. The table below shows the key skills and experience of each member:

 

 

LOGO

 

(1) 

Ms. Denham joined the Compensation Committee on September 29, 2021.

(2) 

Mr. Monser ceased to be a member of the Compensation Committee on September 29, 2021.

Compensation Committee members also have specific human resources and compensation-related experience, including:

 

direct responsibility for executive compensation matters

 

membership on human resources committees

 

compensation plan design, administration, compensation decision-making, risk management and understanding the Board’s role in the oversight of these practices

 

understanding the principles and practices related to leadership development, talent management, succession planning and employment contracts

 

engagement with investors on compensation issues

 

financial literacy, oversight of financial analysis related to compensation plan design and practices

 

pension benefit oversight, investment management

 

recruitment of senior executives

The Compensation Committee has no interlocks or insider participation. None of the members were employed by or had any relationship with CP during 2021 requiring disclosure under Item 404 or Item 407(e)(4) of Regulation S-K of the Exchange Act. You can read about the background and experience of each member in the director profiles beginning on page 23.

All of the Compensation Committee members other than Mr. Paull and Ms. Denham are members of the Governance Committee. In addition, Ms. Courville and Ms. Denham are also members of the Audit and Finance Committee, and Ms. Courville, Ms. Denham and Mr. Paull are also members of the Risk and Sustainability Committee. This cross-membership provides directors with a broader perspective of risk oversight and a deeper understanding of our enterprise risks, ultimately strengthening overall risk management.

 

 

2022 MANAGEMENT PROXY CIRCULAR  39


Independent advice

The Compensation Committee and management retain separate independent executive compensation advisors to provide advice on compensation-related matters and to avoid any conflicts of interest:

 

   

Compensation Committee advisor

FW Cook

 

Management Compensation advisor

Willis Towers Watson

•  Compensation Committee retains FW Cook to act as an independent compensation advisor, attending committee meetings (unless otherwise requested by the Committee Chair)

•  the Compensation Committee approves all compensation-related fees and work performed by FW Cook

 

 

•  management engages Willis Towers Watson to provide market survey data, analysis and advice to management related to compensation matters

The next table below shows the fees paid to FW Cook and Willis Towers Watson in 2020 and 2021 for compensation advisory services.

 

   
     

2021

    

2020

 
       
     

Committee advisor

    

Management advisor

    

Committee advisor

    

Management advisor

 
       

 Fees

 

  

FW Cook(1)

 

    

Willis Towers Watson

 

    

FW Cook(1)

 

    

Willis Towers Watson

 

 

 Executive compensation-related fees

  

$

226,608

 

  

$

88,394

 

  

$

 188,473

 

  

$

67,743

 

 Other fees

  

$

0

 

  

$

1,525,184

 

  

$

0

 

  

$

2,882,009

 

 Total fees

  

$

226,608

 

  

$

1,613,578

 

  

$

188,473

 

  

$

2,949,752

 

 

(1)

FW Cook fees have been converted to Canadian dollars using the average exchange rate for 2021 of $1.2535

Fees paid

In 2021, $88,394 was paid to Willis Towers Watson for compensation advisory services provided to management. Fees paid to Willis Towers Watson for all services provided to management, including actuarial and pension consulting, corporate risk and insurance brokering services were $1,613,578. The total executive compensation fees represent 5 percent of the total fees in 2021.

Compensation risk

Effective risk management is integral to achieving our business strategies and to our long-term success. The Board believes that our executive compensation program should not increase our risk profile. The Compensation Committee is responsible for overseeing compensation risk. It reviews the executive compensation program, incentive plan design and our policies and practices to ensure they encourage the right decisions and actions to reward performance and align management interests with shareholder interests.

Incentive plan targets are linked to our corporate objectives and our corporate risk profile. The Compensation Committee believes that our approach to goal setting, establishing performance measures and targets and evaluating performance results helps mitigate risk-taking that could reward poor judgment by executives or have a negative effect on shareholder value.

Regular risk review

The Compensation Committee conducts a comprehensive compensation risk review approximately every two years to ensure that we have identified the compensation risks and have appropriate measures in place to mitigate those risks. An independent consultant assists the Compensation Committee with the review, which includes oversight of:

 

the targets for the short-term incentive plan (STIP) and PSU plan, anticipated payout levels and the risks associated with achieving targeted performance

 

the design of the long-term incentive awards, which reward sustainable financial and operating performance

 

the compensation program, policies and practices to ensure alignment with our enterprise risk management practices

 

 

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A detailed risk assessment of our compensation plans, programs and practices was conducted in 2019 by Willis Towers Watson. The Committee reviewed Willis Towers Watson’s findings and agreed that our compensation policies and programs did not encourage excessive risk-taking that could have material adverse effects on CP. A subsequent risk assessment was expected to be completed in 2021, however in light of the Merger Agreement between CP and KCS, and after consultation with Willis Towers Watson, management determined that a risk assessment would be more pertinent to be completed in 2022.

Managing compensation risk

We mitigate risk in three ways:

 

   
1. Plan Design   

•  we use a mix of fixed and variable (at-risk) compensation and a significant proportion is at-risk pay

•  short and long-term incentive plans have specific performance measures that are closely aligned with the achievement of our business strategy and performance required to achieve results in accordance with guidance provided to the market

•  STIP payout is capped and not guaranteed, and the Compensation Committee has discretion to adjust the amount of the awards

•  the payout for the STIP is designed to reflect the stretch targets for the achievement of exceptional performance

•  the long-term incentive plan has overlapping vesting periods to address longer term risks and maintain executives’ exposure to the risks of their decision-making through unvested share-based awards

2. Policies   

•  we promote an ethical culture and everyone is subject to a code of business ethics, and any violations of our code of business ethics can be reported under our business ethics reporting policy

•  we have share ownership requirements for executives and senior management so they have a stake in our future success

•  we have a disclosure and insider trading/reporting policy to protect our interests and ensure high business standards and appropriate conduct

•  our disclosure and insider trading policy contains within it, an anti-hedging policy which prohibits directors, executive officers and employees from buying financial instruments that are designed to hedge or offset a decrease in the market value of equity awards or shares or share based awards

•  our anti-pledging policy prohibits directors and senior officers from holding our shares in a margin account or otherwise pledging the securities as collateral for a loan

•  we also have a policy that prohibits employees from forward selling shares that may be delivered on the future exercise of stock options, or otherwise monetizing their option awards, other than through exercising the options and subsequently selling the shares through a public venue or the Company’s cashless exercise option

•  our clawback policy allows the Board to recoup short and long-term incentive compensation paid to a current or former senior executive if the incentive compensation was calculated on the basis of financial results that were subsequently restated or corrected in whole or in part and/or, the senior executive engaged in gross negligence, fraud or intentional misconduct that caused or contributed to the need for restatement or correction, as admitted by the senior executive or as reasonably determined by the Board, which has sole discretion to determine whether it is in our best interests to pursue reimbursement of all or part of the incentive compensation in these circumstances and the Board's actions would be separate from actions that may be taken by law enforcement agencies, regulators or other authorities

•  DSUs held by the President and CEO, executives, and senior management are not settled for cash until at least six months after leaving the Company

•  our whistleblower policy applies to all employees and prohibits retaliation against anyone who makes a complaint acting in good faith

 

 

2022 MANAGEMENT PROXY CIRCULAR  41


   
3. Mitigation     Measures   

•  senior executives have a significant portion of their compensation deferred

•  we must achieve a specific threshold of operating income, otherwise no short-term incentive awards are granted

•  financial performance is verified by our external auditor (completion of annual financial statement audit) before the Board makes any decisions about short-term incentives

•  the Compensation Committee adopts principles for adjusting payout under the STIP, and provides them to the Board as part of their review of the Compensation Committee’s recommendations and performance overall

•  the Compensation Committee takes the business landscape and any external factors into account when exercising discretion and determining incentive awards

•  we regularly benchmark executive compensation against our compensation comparator group

•  safety is part of individual performance under the STIP for the President and CEO and executives in operations roles in addition to being a specific STIP measure which applies to all employees

•  all long-term incentive eligible employees are subject to two-year non-compete and non-solicit covenants should they leave CP

•  different performance scenarios are stress-tested and back-tested to understand possible outcomes

•  we review and consider risks associated with retention-related compensation

 

LOGO

Key policies

In addition to CP’s code of business ethics and the business ethics reporting policy, a number of other policies act to mitigate compensation risk. You can read more about ethical behaviour at CP and our code of business ethics and other policies beginning on page 91.

Clawbacks

Our clawback policy allows the Board to recoup short- and long-term incentive compensation paid to a current or former senior

executive if:

 

the incentive compensation received was calculated based on financial results that were subsequently restated or corrected, in whole or in part; and/or

 

the senior executive engaged in gross negligence, fraud or intentional misconduct that caused or contributed to the need for the restatement or correction, as admitted by the senior executive or as reasonably determined by the Board.

The Board has sole discretion to determine whether it is in our best interests to pursue reimbursement of all or part of the incentive compensation and these actions would be separate from any actions by law enforcement agencies, regulators or other authorities.

Anti-hedging

Our disclosure and insider trading and reporting policy prohibits directors, executive officers and employees from buying financial instruments that are designed to hedge or offset a decrease in the market value of equity awards or shares they hold directly or indirectly.

Anti-pledging

Our anti-pledging policy prohibits directors and executive officers from holding any CP securities in a margin account or otherwise pledging the securities as collateral for a loan.

Non-compete and Non-solicitation

We are mindful of the demand for experienced and talented railroaders, particularly those with backgrounds in precision scheduled railroading. To manage near-term retention risk, our long-term incentive award agreements contain non-compete, non-solicitation and other restrictive clauses, including non-disclosure restrictions.

 

 

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Compensation program

Total direct compensation consists of salary, annual short-term incentive and a long-term incentive award. Executives also receive pension benefits and perquisites as part of their overall compensation.

 

  Element    Purpose    Risk mitigating features   

 

Link to business and
talent strategies

Salary

Fixed cash

(see page 44)

  

•  competitive level of fixed pay to reflect scope of responsibilities and market data

•  reviewed annually

  

•  benchmarked against our comparator group to ensure market competitiveness

  

•  attract and retain talent

•  no automatic or guaranteed increases to promote a performance culture

       

Short-term

incentive

Variable cash bonus

(see page 44)

  

•  performance-based incentive to reward achievement of annual corporate and individual objectives to attract and retain highly qualified leaders

•  established target awards based on level of employee

  

•  year-end performance is measured against predetermined, approved targets

•  actual payouts are based on the achievement of predetermined corporate and individual objectives

•  payouts range from 0% to a maximum of 200% of target awards

  

•  motivate high corporate and individual performance

•  performance metrics are aligned to the strategic plan and approved annually

•  align personal objectives with area of responsibility and role in achieving financial, safety and operating results

       

Deferred

compensation

Deferred share

units

(see page 72)

  

•  encourages share ownership while aligning management interests with growth in shareholder value

•  executives and senior management can elect to receive their short-term incentive and their annual PSU grant in DSUs if they have not yet met their share ownership requirement

•  company provides a 25% match of the deferral amount in DSUs

  

•  deferral limited to the amount required to meet the executive’s share ownership guidelines

•  helps retain key executive talent

•  matching DSUs vest after three years

  

•  sustained alignment of executive and shareholder interests because the value of DSUs is tied directly to our share price

•  cannot be redeemed for cash until a minimum of six months after the executive leaves CP

       

Long-term incentive

Performance

share units

(see page 50)

  

•  equity-based incentive to align with shareholder interests and focuses on three-year performance

•  accounts for 60% of an executive’s long-term incentive award

•  vest after three years

  

•  use predefined market and financial metrics

•  the number of units that vest is based on a performance modifier that is capped

•  no guarantee of a minimum payout

  

•  focuses the leadership team on achieving challenging medium-term performance goals

•  payout based on share price and company performance

•  attract and retain highly qualified leaders

       

Long-term incentive

Stock options

(see page 51)

  

•  equity-based incentive to align with long term performance and growth in share price

•  accounts for 40% of an executive’s long-term incentive award

•  vests over four years, term is seven years

  

•  focuses on appreciation in our share price, aligning with shareholder interests

•  only granted to senior management and executives

  

•  focuses the leadership team on creating sustainable long-term value

       

Pension

Defined

contribution and defined benefit pension plans

(see page 71)

  

•  pension benefit based on pay, age and service and is competitive with the market

•  supplemental plan for senior management and executives

  

•  balances risk management of pay packages that have a high percentage of variable pay

  

•  attract and retain highly qualified leaders

       

Perquisites

Flexible

spending

account

(see page 65)

  

•  market competitive benefit to support health and well-being

  

•  capped perquisites for the CEO and executives

  

•  attract and retain highly qualified leaders

 

 

2022 MANAGEMENT PROXY CIRCULAR  43


2021 Executive compensation

Salary

We review salaries every year based on the executive’s performance, leadership abilities, responsibilities and experience as well as succession and retention considerations. The Compensation Committee also considers the economic outlook and competitive pay practices of the comparator group before recommending the salary increases for Board approval. The table below outlines base salaries of all NEOs set in U.S. dollars consistent with industry practice.

 

  Executive   

2021  

(in USD)  

   percent change from 2020     

2020

(in USD)

  Keith Creel

   1,193,513      0.0%     

1,193,513

  Nadeem Velani

   640,000      6.3%     

602,000

  John Brooks

   580,000      5.2%     

551,250

  Mark Redd(1)

   525,000      17.6%     

446,250

  Jeffrey Ellis(1)

   446,869      12.8%     

396,160

 

(1) 

Increases for Mr. Redd and Mr. Ellis were approved to progressively align their tenure, scope of responsibility and performance with the competitive market

Short-term incentive plan (STIP)

The short-term incentive award is an annual incentive that focuses executives on achieving strong financial, safety, operational and customer satisfaction results. The table below summarizes the terms of our current short-term incentive plan.

 

  Purpose   

 

•  performance-based incentive to achieve predefined annual corporate and individual performance goals that are tied directly to our strategy and operational objectives

 

 

  Term

  

 

•  measure performance over a one-year period

 

  Payout   

 

•  corporate performance is assessed against financial, safety and operational measures

•  individual performance is assessed based on individual performance objectives

•  awards are pro-rated for eligibility in calendar performance year and can range from 0 to 200 percent of base salary

•  cash awards are paid out in February following the performance year

 

  Restrictions   

 

•  must meet minimum level of corporate and individual performance

•  must achieve corporate operating income hurdle for any payout on individual or corporate performance to occur

•  performance modifier for each metric is capped at 2x target for exceptional performance

•  actual award is capped as a maximum of 200 percent of target award to limit payout and excessive risk-taking

 

The table below outlines the target STIP opportunities for our NEOs:

 

 

Our STIP target is based on a
percentage of base salary

and reviewed annually for market
competitiveness.

 

Our 2021 market review resulted
in STIP adjustments for
Mr. Velani, Mr. Brooks, Mr. Redd
and Mr. Ellis to maintain their
target total direct compensation
positioning relative to the
competitive market.

           STIP target as a percent of base salary
      Executive   Minimum   Target   Maximum
    Keith Creel   0%   125%   250%
    Nadeem Velani   0%   100%   200%
    John Brooks   0%   100%   200%
    Mark Redd   0%   90%   180%
    Jeffrey Ellis   0%   80%   160%

For executives, the STIP target is weighted at 75 percent for corporate results and 25 percent for individual performance, whereas most other employees have greater emphasis placed on individual and departmental goals with their corporate and individual performance weighted at 50 percent each. This supports our view that the annual bonus should be tied to overall corporate performance and the areas of our business that each employee can influence directly.

 

 

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We calculate each award by multiplying the executive base salary by their short-term incentive target as well as the corporate and individual performance factors as shown below:

 

LOGO

The corporate performance factor consists of financial, operating and safety measures of varying weights that total 100 percent. The year end result of each measure is assessed against predefined targets that are set at the beginning of the year (see page 46 for a complete review of the targets and results for the 2021 STIP).

The individual performance factor is based on the executive’s performance against annual objectives and additional predefined quantitative and qualitative goals that reflect the strategic and operational priorities critical to each executive’s role, including operational management, safety, financial and other objectives such as customer satisfaction.

2021 STIP awards

The table below shows the calculation of the 2021 STIP awarded to each NEO. The salaries of Mr. Creel, Mr. Brooks and

Mr. Redd have been converted to Canadian dollars using an average exchange rate of $1.2535 for 2021.

 

 

LOGO

 

(1)

Mr. Brooks and Mr. Redd elected to defer a portion of their 2021 STIP award to DSUs.

Assessing individual performance

Individual performance objectives are set at the start of every financial year. The individual performance factor ranges from 0 to 200 percent.

 

 
  Executive    2021 individual performance factor            

The individual performance factor

for the CEO cannot exceed the

STIP corporate performance factor.

 

This ensures the payout factor

for the CEO aligns with

CP’s overall performance.

  Keith Creel    125%   
  Nadeem Velani    175%   
  John Brooks    175%   
  Mark Redd    175%   
  Jeffrey Ellis                                                                 175%   
                           

The Compensation Committee sets the individual performance factor for the CEO. The CEO reviews the performance of his direct reports against their objectives, and recommends their individual performance factors to the Compensation Committee.

  

See the profiles beginning on page 55 to read about each executive’s individual performance in 2021.

 

 

2022 MANAGEMENT PROXY CIRCULAR  45


Assessing corporate performance

In 2021, we demonstrated resiliency and tenacity to deliver strong results in one of the most challenging operating years we have faced. By relying on our precision scheduled railroading operating model and with a dedication to safety, we overcame network outages in British Columbia and extreme cold temperatures to achieve a 4 percent increase in 2021 revenue to $8.0 billion from $7.7 billion in 2020 and a 17 percent decrease year over year in FRA-reportable personal injuries frequency to a record-low 0.92 from the previous record-low of 1.11 in 2020. Our adjusted diluted earnings per share(1) increased to $3.76, from $3.53 in 2020, while our adjusted operating ratio(1) was 57.6 percent, a 50 basis point increase from 57.1 percent.

In spite of the adversity we faced in 2021, we ended the year with a historic milestone in our journey to create the first single-line rail network linking the U.S., Mexico and Canada, with the KCS transaction closing into voting trust on December 14, 2021. This transaction represents tremendous growth opportunities for our Company to continue to create long-term shareholder value by expanding the market reach for CP and KCS customers, providing new competitive transportation options, and supporting the North American economy.

2021 Scorecard results

The table below shows the 2021 scorecard and results. The targets were set with stretch goals to motivate strong performance and create shareholder value as we continue to focus on our multi-year plan and remain a leader in safety.

The Board sets a corporate hurdle for operating income at $2 billion. There is no payout if we do not achieve that corporate hurdle. If we achieve the hurdle but corporate performance is below threshold for all measures, then only the individual performance factor is used to calculate the awards. Corporate results between 50 and 200 percent of target are interpolated.

 

  Performance measure (Weighting)

 

 

Why the measure is

important

 

 

  Threshold  

(50%)

 

   

  Target  
(100%)

 

   

  Maximum  
(200%)

 

   

 

2021
  Reported  

Result

 

   

 

2021

STIP
  Result  

 

   

    Score    

 

 

 

 Financial measures

 

             

 

 STIP Operating ratio (35%)

 Operating expenses divided by total
 revenues based on an assumed fuel
 price and foreign exchange rate

 

 

Continues our focus on

driving down costs while

focusing on growth strategy

    57.1%       56.8%       56.4%       57.6%(1)       56.3%(2)       200%  

 

 STIP Operating income (35%)

 

 ($ millions)

 Total revenues less total

 operating expenses based on an
 assumed foreign exchange rate

 

 

Highlights the importance of

revenue growth to our corporate strategy

    3,426       3,517       3,616       3,389(1)       3,461(2)       69%  

 

 Safety measures

 

             

 

 FRA Train Accident Frequency  (10%)

 Number of FRA-reportable train
 accidents which meet FRA
 reporting thresholds per million
 train miles

 

 

CP has long been an industry leader in rail safety and we are more focused on it than ever, committed to protecting our people, our communities, our environment and our customers’ goods

 

    1.10       1.01       0.96       1.10       1.10       50%  

 

 FRA Personal Injury Frequency  (10%)

 Number of FRA reportable injuries  per 200,000  employee hours

 

 

As safety is our top priority, we introduced FRA Personal Injury as an additional safety metric under our STIP beginning 2020

 

    1.15       1.10       1.05       0.92       0.92       200%  

 

 Operating measure

 

             

 

 Trip Plan Compliance (10%)

 Calculated as the number of
 shipments completed on time
 (less than 12 hours late vs. baseline
 plan),  divided by the total number  of shipments  completed

 

Trip plan compliance is a detailed schedule of performance and the core of CP’s product offering. It balances between customer needs and what we are capable of delivering

 

It is critical to the service we provide customers and to our growth strategy

 

    75%       80%       85%       76%       76%       60%  

Corporate performance factor

 

                                             

 

 

125

 

 

 

(1)

Adjusted diluted EPS, Adjusted operating income and Adjusted operating ratio are non-GAAP measures. Non-GAAP measures are defined and reconciled on pages 94-104 of CP’s Annual Report on Form 10-K for the year ended December 31, 2021.

 

 

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(2) 

The Compensation Committee may adjust the results for unusual or non-recurring items that are outside our normal business and do not accurately reflect our ongoing operating results or business trends and affect the comparability of our financial performance year over year. Results used under the STIP could therefore differ from our reported GAAP results. Significant items that were adjusted so that they do not impact, either favourably or unfavourably, the assumptions made when the STIP targets were planned include: foreign exchange rates, fuel price and land sales, all of which were adjusted to reflect the original assumptions made in our 2021 budget. Consequently, operating ratio and operating income were adjusted downwards and upwards, respectively compared to our reported results, increasing the bonus payment.

Compensation committee discretion

The Compensation Committee has developed principles for the use of discretion. Adjustments should not relieve management from the consequences of their decision-making. Adjustments should also neither reward nor penalize management for decisions on discretionary transactions, events outside their control (such as foreign exchange rates and fuel prices that are beyond the assumptions used in the planning process) or transactions outside normal corporate planning and budgeting.

This means that the Compensation Committee can reduce the corporate performance factor for any executive officer, as it deems appropriate, as long as it follows the principles. The Board can also use its discretion to adjust the targets, vesting factors and payouts up or down, following the principles set out by the Compensation Committee. The Compensation Committee did not exercise any discretion for short-term incentive plan and annual long-term incentive plan in 2021.

In 2021, the only use of positive discretion was related to the payout and vesting performance factors of a 2018 special retention grant in which one NEO was impacted (Mark Redd was awarded this grant prior to him becoming an NEO). As previously disclosed in the 2021 proxy, the grant, consisting of PSUs and performance stock options (PSOs), had exceeded the diluted EPS target and missed the revenue target by less than one percent due to COVID-19 impacts on our volumes. After a thorough review and discussion of overall company performance and shareholder return, the Board approved the application of positive discretion. See Outstanding share-based awards and option-based awards on page 67 for more details.(1)

 

(1) 

Although the recommendation to exercise discretion with respect to payout and vesting performance factors were made following the conclusion of the performance period ending December 31, 2020, the July 2018 special retention grants did not vest until July 20, 2021 and were settled based on the average closing price per share on the applicable stock exchange during the immediately preceding 30 days prior to July 20, 2021.

 

 

2022 MANAGEMENT PROXY CIRCULAR  47


Long-term incentive plan (LTIP)

Our long-term incentive awards focus executives on medium and longer term performance to create sustainable shareholder value.

The table below summarizes the terms of our current long-term incentive plans.

 

   

 

Performance share units (60%)

 

      

 

Stock options (40%)

 

Purpose  

•  notional share units to align compensation with medium-term financial and market objectives

 

    

•  equity-based compensation to align executives with long-term performance of our shares and business

Term  

•  three years

 

    

•  seven years

Vesting  

•  the number of units that vest is based on performance over a three-year period

 

•  cliff vest at the end of three years to the extent performance vesting conditions are met and Board approval

 

    

•  vest 25% every year beginning on the first anniversary of the grant date

Payout  

•  paid out in cash based on units earned and the average closing share price for the 30 trading days prior to the end of the performance period on the TSX or NYSE

 

•  may be paid out in shares at the discretion of the CEO

 

•  accumulates quarterly dividends

 

•  no guarantee of a minimum payout

 

•  if performance is exceptional on all measures the Board may approve a payout of up to 249%

 

    

•  right to buy CP shares at a specified price after vesting

 

•  does not attract dividends

 

•  only have value if our share price increases above the exercise price

Restrictions  

•  must achieve threshold performance level on a measure otherwise the payout factor for that measure is zero and a portion of the award is forfeited

 

    

•  no exercises can be made during a blackout period

 

•  financial assistance is not provided to facilitate the purchase of shares under the stock option plan

 

Assignment  

•  not permitted other than by operation of law

    

•  options will continue to vest and expire on the scheduled expiry date if the holder’s employment ends due to permanent disability. If an option holder dies, the options will expire 12 months following the date of death and may be exercised by the holder’s estate.

 

•  can only be assigned to the holder’s family trust, holding corporation or retirement trust, or a legal representative of a holder’s estate or a person who acquires the holder’s rights by bequest or inheritance

 

 

Termination Provisions

 

 

 

      
Resignation  

•  all units cancelled

 

    

•  30 days to exercise any vested options; unvested options are cancelled

 

Retirement(1)  

•  units continue to vest providing the unit holder meets the retirement age and service requirements and has a minimum participation period of six months during a performance period

 

    

•  options continue to vest and expire on the earlier of five years from retirement or the original expiry date

 

Termination without Cause

 

 

•  pro-rated to termination date as long as unit holder has a minimum of six months of service in the performance period

 

    

•  six months to exercise vested options; unvested options continue to vest for six months following termination date

 

Termination with Cause

 

 

•  all units cancelled

 

    

•  all options cancelled

 

Change of Control

 

 

•  pro-rated to change of control date

 

•  if unit holder is terminated without cause - pro-rated to termination date

 

    

•  all options vest immediately(2)

 

 

(1)

Retirement notice of six months is required starting in 2021 to allow for business continuity and knowledge transfer.

(2) 

Stock options have a double trigger clause requiring a change of control and the option holder to be terminated without cause.

 

 

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PART III – EXECUTIVE COMPENSATION

 

 

Stock options and PSUs are approved and granted annually in January immediately after the fourth quarter financial statement blackout period, and after the Compensation Committee has reviewed the year-end financial results.

Grants are also made during the year for special situations such as retention or new hires. Special grants can include PSUs, stock options, RSUs or DSUs. These grants are made following CEO approval on the first Tuesday of the month, when there is no blackout in effect. If the Company is in a blackout period, the grant is made after the blackout has been lifted.

In addition, the CEO, the Chair of the Board and the Chair of the Compensation Committee have authority to grant options to certain employees based on defined parameters, such as the position of the employee and the expected value of the option award. In 2021, the Compensation Committee authorized a pool of 250,000 options for allocation by the CEO, who granted 28,423 options to nine employees for retention and to recognize performance.

2021 Long-term incentive awards

To determine the appropriate value of long-term incentive grants provided to the NEOs, the Compensation Committee considers the practices of our comparator group and internal factors, including executive retention, dilutive impact and long-term value creation.

Long-term incentive awards are typically granted annually to NEOs and eligible employees. In 2021, Mr. Creel received two stock option grants, the first consisting of the regular annual grant on January 29, 2021 and the second, a special upfront grant on March 27, 2021. In respect of the announcement of the merger with KCS on March 21, 2021, CP and Mr. Creel agreed to amend his employment agreement to retain him until at least 2026. These amendments were approved by the Board and were made to secure Mr. Creel’s role in leading the successful integration of CP with KCS as well as retaining his experience and skills to achieve continued success.

The special stock option grant will vest ratably in equal portions over a four year period and will expire seven years from the grant date, consistent with the provisions of our stock option plan. To self-fund this award, Mr. Creel’s employment agreement was amended to reduce the value of his annual long-term incentive plan by US$2.1 million in each year of 2022, 2023, 2024 and 2025 (an aggregate of US$8.4 million).

The table below shows the 2021 long-term incentives awards for the NEOs as of December 31, 2021:

 

Executive

  

2021  

long-term  

incentive award  

(grant value)  

($)(1)  

    

Allocation

 

 
  

Performance share units

 

    

Stock options

 

 
  

($)

 

    

(#)

 

    

($)

 

    

(#)

 

 

    Keith Creel (2), (3)

     22,049,529        7,138,547        84,695        14,910,982        754,530  

    Nadeem Velani

     2,682,113        1,684,658        19,605        997,455        57,790  

    John Brooks (2)

     2,420,435        1,500,279        17,800        920,156        49,835  

    Mark Redd (2), (4)

     2,008,552        1,245,063        14,772        763,489        41,350  

    Jeffrey Ellis

     1,383,789        869,182        10,115        514,607        29,815  

 

(1)

See the Summary compensation table on page 64 for details on how we calculate the grant date fair values of the PSUs and stock options. Both were calculated in accordance with FASB ASC Topic 718.

(2)

The grant value of the awards based on the NYSE trading price has been converted to Canadian dollars using a 2021 average exchange rate of $1.2535.

(3) 

Mr. Creel’s 2021 stock option value reflects the annual grant of 237,145 stock options on January 29, 2021 and the special upfront grant of 517,385 stock options received on March 27, 2021, in conjunction with amendments to his executive employment agreement on March 21, 2021.

(4) 

Mr. Redd elected to defer a proportion of his 2021 PSU award to DSUs.

 

 

2022 MANAGEMENT PROXY CIRCULAR  49


Performance share units (PSUs)

PSUs focus executives on achieving medium-term goals within a three-year performance period. The Board sets performance measures, thresholds and targets at the beginning of the performance period.

2021 PSU awards

As we continue to focus on growth and the effective use of capital investments, the Board has approved increasing the maximum payout opportunity for the PSU measure, Return on Invested Capital (ROIC)(1) from 200 percent to 270 percent. The targets for ROIC have been set with stretch and exceptional goals that are more difficult to achieve than the prior year to motivate strong performance over the next three years. This will result in an overall maximum payout opportunity of 249 percent for the 2021 PSU awards for all eligible employees. The total shareholder return metrics and weightings remain the same.

The performance period for the 2021 PSU awards is January 1, 2021 to December 31, 2023. Performance will be assessed against the measures in the table below.

 

2021 PSU performance measures

 

  

  Why the measure is important

 

 

Threshold   

(50%)   

 

 

Target   

(100%)   

 

 

Stretch   

(200%)   

 

 

Exceptional   

(270%)   

 

 

Weighting   

 

  PSU three-year average return on invested capital   (ROIC)(1)

  Net operating profit after tax divided by average invested   capital

 

  

Focuses executives on the effective use of capital as we grow

 

Ensures shareholders’ capital is employed in a value-accretive manner

 

  15.5%   16.3%   16.7%   17.1%   70%

  Total shareholder return (TSR)

  Measured over three years. The percentile ranking of CP’s   TSX Compound Annual Growth Rate (CAGR) relative to the   companies that make up the S&P/TSX 60

  

Compares our TSR on the TSX to the broader S&P/TSX 60 to reflect our progress relative to the Canadian market

 

Aligns long-term incentive compensation with long-term shareholder interests

 

  25th
percentile
  50th
percentile
  75th
percentile
  n/a   15%

  Total shareholder return (TSR)

  Measured over three years. The ordinal ranking of CP’s   NYSE   CAGR relative to the Class I railroads

  

Compares our TSR on the NYSE to the publicly traded Class I railroads to ensure we are competitive against our primary competitors.

 

Aligns long-term incentive compensation with long-term shareholder interests

 

  4th   3rd   1st   n/a   15%

 

(1) 

Adjusted ROIC is a non-GAAP measure. Non-GAAP measures are defined and reconciled on pages 94-104 of CP’s Annual Report on Form 10-K for the year ended December 31, 2021.

At the end of the three-year performance period, the starting point for determining relative TSR will be the 10-day average closing share price of our shares on the appropriate index prior to January 1, 2021 and the ending point will be the 10-day average closing share price of our shares on the appropriate index prior to January 1, 2024. TSR is adjusted over the period to reflect dividends paid. Awards will be interpolated if results fall between threshold and exceptional. If results are below the threshold level for any of the performance measures, units for that specific measure will be forfeited.

The table below shows the details of the 2021 annual PSU award, granted on January 29, 2021.

 

     

Executive

 

  

Grant value ($)(1)

 

      

Number of PSUs

 

      

Grant price

 

 

    Keith Creel

 

  

 

 

7,138,547

 

 

 

    

 

 

84,695

 

 

 

    

 

 

US$67.24 (NYSE)

 

 

 

    Nadeem Velani

 

  

 

 

1,684,658

 

 

 

    

 

 

19,605

 

 

 

    

 

 

$85.93 (TSX)

 

 

 

    John Brooks

 

  

 

 

1,500,279

 

 

 

    

 

 

17,800

 

 

 

    

 

 

US$67.24 (NYSE)

 

 

 

    Mark Redd(2)

 

  

 

 

1,245,063

 

 

 

    

 

 

14,772

 

 

 

    

 

 

US$67.24 (NYSE)

 

 

 

    Jeffrey Ellis

 

  

 

 

869,182

 

 

 

    

 

 

10,115

 

 

 

    

 

 

$85.93 (TSX)

 

 

 

 

(1)

See the Summary compensation table on page 64 for details on how we calculate the grant date fair values of the PSUs. The grant values of the PSU awards based on the NYSE trading price have been converted to Canadian dollars using a 2021 average exchange rate of $1.2535.

(2) 

Mr. Redd elected to defer a proportion of his 2021 PSU award to DSUs.

New for 2022 PSU awards

The close of the KCS transaction into voting trust on December 14, 2021 marks a significant milestone for CP. The impacts of the accelerated timing of the trust closing have made it necessary for us to re-evaluate how to most effectively align our

 

 

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compensation plans with performance as well as to retain and motivate our talented railroaders during this transformative time for CP. After careful consideration and review, the Board has decided that because of the KCS transaction it is prudent to make near-term changes to the PSU plan design. To further strengthen the link between pay and performance, the Board has approved two performance metric changes to the 2022 PSU plan design. For the performance period covering January 1, 2022 to December 31, 2024, a three-year cumulative free cash flow metric with an adjusted net debt to adjusted EBITDA (earnings before interest, tax, depreciation and amortization)(1) modifier (maximum of up to 1.5x) to incentivize deleveraging of the balance sheet following the KCS transaction was introduced. This will replace ROIC(1) as the KCS transaction-related impacts such as timing uncertainty and purchase accounting implications make goal setting and measuring ROIC performance challenging. The Board will ensure continued rigour in target setting as the metrics are changing in 2022 from ROIC to free cash flow with an adjusted net debt to adjusted EBITDA modifier.

In addition, our relative TSR on the NYSE will be compared to constituents of the S&P 500 Industrials index. This replaces our current Class I railroad peer group that has been reduced to four companies following the close of KCS into voting trust, which is too small for meaningful evaluation of relative TSR performance. All weightings and payout factor ranges from our 2021 PSU awards will remain the same.

Stock options

Stock options focus executives on long-term performance. The management stock option incentive plan was introduced in October 2001. Stock options granted before 2017 expire 10 years from the date of grant and generally vest 25 percent each year over four years, beginning on the first anniversary of the grant date. Options awarded on or after January 1, 2017 have a seven-year term and vest 25 percent each year beginning on the first anniversary date of the grant. The grant price is the closing price of our shares on the TSX or the NYSE on the applicable grant date. Options only have value for the holder if our current share price increases above the grant price before the expiry of the option.

For all grants, if the expiry date falls within a blackout period, the expiry date will be extended to 10 business days following the last date of the blackout period. If a further blackout period is imposed before the end of the extension, the term will be extended another 10 days after the end of the additional blackout period.

Options may be granted by the Board, the Compensation Committee, the Chief Executive Officer, the Chair of the Board or the Chair of the Compensation Committee, as the case may be, as administrator of the option plan, as determined from time to time (the Administrator), to any officer, employee or consultant of CP or any subsidiary, including a family trust, personal holding corporation and retirement trust (together, Eligible Persons).

The exercise price of shares subject to an option will be determined or ratified by the Administrator and will not be less than the market price of the shares at the date on which an option is granted, calculated as the closing price of a board lot of the shares on the TSX (if the option is granted in Canadian dollars) or on the NYSE (if the option is granted in United States dollars) on (i) the last trading day preceding the grant date, if the option is granted before the close of trading on the grant date or (ii) the grant date, if the option is granted after the close of trading on the grant date. The exercise price may also be as permitted or required by the TSX or NYSE, as applicable.

CP is also entitled to issue share appreciation rights (SARs) pursuant to the terms of the option plan to Eligible Persons at the same time as the grant of an option.

SARs, if granted, will have the following terms (or such other terms as are consistent with the related options):

 

  a.

the number of SARs to be granted shall, in the sole discretion of the Administrator, be:

 

  i.

one SAR for every two optioned shares, or

 

  ii.

one SAR for each optioned share;

 

  b.

the reference price for a SAR will be same as the exercise price of the related option

 

  c.

SARs may be exercise from time to time by an optionholder as follows:

 

  i.

on and after the second anniversary of the grant date, as to 50% of the SARs or any part thereof;

 

  ii.

on and after the third anniversary of the grant date, as to the remaining 50% of the SARs or any part thereof;

 

(1) 

Free cash, Adjusted net debt to Adjusted EBITDA, and Adjusted ROIC are non-GAAP measures. Non-GAAP measures are defined and reconciled on pages 94-104 of CP’s Annual Report on Form 10-K for the year ended December 31, 2021.

 

 

2022 MANAGEMENT PROXY CIRCULAR  51


  d.

exercise of SARs will result in a reduction in the number of option shares on the basis of one optioned share for each exercised SAR; and

 

  e.

exercise of an option will result in a reduction in the number of SARs on the basis of:

 

  i.

one SAR for each optioned share purchased in excess of 50% of the number of optioned shares, where one SAR was granted for every two optioned shares; and

 

  ii.

one SAR for each optioned share purchased, where one SAR was granted for each optioned share.

 

  f.

The expiry date of a SAR will be ten years after the grant date.

CP did not grant any SARs in 2021 and as of March 10, 2022, CP does not have any SARs outstanding.

2021 Stock option awards

The table below shows the details of the 2021 stock option award grants.

 

       
Executive   

Grant Date

 

    

Grant value ($)(1)

 

      

# of options

 

      

Grant price

 

 

    Keith Creel(2)

 

    

 

29-Jan-21

 

 

 

    

 

4,378,658

 

 

 

      

 

237,145

 

 

 

      

 

US$67.24 (NYSE)

 

 

 

    

 

27-Mar-21

 

 

 

    

 

10,532,324

 

 

 

      

 

517,385

 

 

 

      

 

US$71.64 (NYSE)

 

 

 

    Nadeem Velani

 

    

 

29-Jan-21

 

 

 

    

 

997,455

 

 

 

      

 

57,790

 

 

 

      

 

$85.93 (TSX)

 

 

 

    John Brooks

 

    

 

29-Jan-21

 

 

 

    

 

920,156

 

 

 

      

 

49,835

 

 

 

      

 

US$67.24 (NYSE)

 

 

 

    Mark Redd

 

    

 

29-Jan-21

 

 

 

    

 

763,489

 

 

 

      

 

41,350

 

 

 

      

 

US$67.24 (NYSE)

 

 

 

    Jeffrey Ellis

 

    

 

29-Jan-21

 

 

 

    

 

514,607

 

 

 

      

 

29,815

 

 

 

      

 

$85.93 (TSX)

 

 

 

 

(1) 

See the Summary compensation table on page 64 for details on how we calculate the grant date fair values of the stock options. The grant value of the stock option awards based on the NYSE trading price have been converted to Canadian dollars using a 2021 average exchange rate of $1.2535.

(2) 

As discussed in the 2021 Long-term incentive awards on page 49, Mr. Creel received the regular annual stock option grant and a second, special upfront grant in relation to the announcement of the merger with KCS on March 21, 2021.

About the stock option plan

The table below sets out the limits for issuing options under the plan:

 

     

As a percent of the number of shares outstanding

 

Maximum number of shares that, together with any other share compensation arrangement, may be reserved for issuance to insiders as options

 

  

10%

 

Maximum number of shares that may be issued under the option plan and any other share compensation arrangements to insiders in a one-year period

 

  

10%

 

Maximum number of shares that may be issued under the option plan and any other share compensation arrangements to any insider in a one-year period

 

  

5%

 

     

As a percent of the number of shares outstanding at

the time the shares were reserved

 

Maximum number of shares that may be reserved for issuance to any person as options

 

  

5%

 

 

 

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We measure dilution by determining the number of options available for issuance and the number of options outstanding as a percentage of outstanding shares. Our dilution at the end of 2021 was 1.15 percent. Notwithstanding the limits noted above, the dilution level, measured by the number of options available for issuance as a percentage of outstanding shares continues to be capped, at the discretion of the Board, at 7 percent.

The table below shows the burn rate for the last three fiscal years, calculated by dividing the number of stock options granted in the fiscal year by the weighted average number of outstanding shares for the year.

 

as at December 31

 

    

 

2019

 

      

 

2020

 

      

2021

 

 

    Number of options granted

 

      

 

1,123,650

 

 

 

      

 

1,086,200

 

 

 

      

 

1,346,358

 

 

 

    Weighted number of shares outstanding

 

      

 

693,859,695

 

 

 

      

 

677,193,050

 

 

 

      

 

679,709,375

 

 

 

    Burn rate

 

      

 

0.16%

 

 

 

      

 

0.16%

 

 

 

      

 

0.20%

 

 

 

The table below shows the options outstanding and available for grant from the Stock Option Plan as at December 31, 2021.

 

      

Number of options/shares

 

      

Percent of outstanding shares

 

 

Options outstanding (as at December 31, 2021)

 

      

 

7,392,188

 

 

 

      

 

0.80%

 

 

 

Options available to grant (as at December 31, 2021)

 

      

 

3,312,565

 

 

 

      

 

0.36%

 

 

 

Shares issued on exercise of options in 2021

 

      

 

711,922

 

 

 

      

 

0.08%

 

 

 

Options granted in 2021

 

      

 

1,346,358

 

 

 

      

 

0.14%

 

 

 

Since the launch of the stock option plan in October 2001, a total of 90,393,210 shares have been available for issuance under the plan and 79,688,457 shares have been issued through the exercise of options as at December 31, 2021.

Making changes to the stock option plan

The Board can make the following changes to the stock option plan without shareholder approval:

 

changes to clarify information or to correct an error or omission

 

changes of an administrative or a housekeeping nature

 

changes to eligibility to participate in the stock option plan

 

terms, conditions and mechanics of granting stock option awards

 

changes to vesting, exercise, early expiry or cancellation

 

amendments that are designed to comply with the law or regulatory requirements

The Board must receive shareholder approval to make other changes, including the following, among other things:

 

an increase to the maximum number of shares that may be issued under the plan

 

a decrease in the exercise price

 

a grant of options in exchange for, or related to, options being cancelled or surrendered

The Board has made two amendments to the stock option plan since it was introduced in 2001:

 

on February 28, 2012, the stock option plan was amended so that a change of control would not trigger accelerated vesting of options held by a participant, unless the person is terminated without cause or constructively dismissed; and

 

on November 19, 2015, the stock option plan was amended to provide net stock settlement as a method of exercise, which allows an option holder to exercise options without the need for us to sell the securities on the open market, resulting in less dilution.

 

 

2022 MANAGEMENT PROXY CIRCULAR  53


Payout of 2019 PSU award

On December 31, 2021, the 2019 PSU grant for the performance period of January 1, 2019 to December 31, 2021 vested and was paid out on February 8, 2022. The NEOs and all other eligible employees received a performance payout factor of 200 percent on the award. The table below shows the difference between the actual payout value and the target grant value for each NEO.

 

LOGO

 

(1)

The grant value for Mr. Creel, Mr. Brooks and Mr. Redd was converted to Canadian dollars using an exchange rate of $1.3269 for 2019.

(2) 

Reflects the 30-day average closing share price prior to December 31, 2021 on the TSX ($92.51) and NYSE (US$72.56) when both markets were open.

(3) 

The PSU payout value for Mr. Creel, Mr. Brooks and Mr. Redd was converted using a 2021 year-end exchange rate of $1.2678.

(4) 

Mr. Redd’s 2019 PSU award reflects his annual grant on February 14, 2019 as well as an additional grant on September 3, 2019 in relation to his appointment to Executive Vice President, Operations. Both 2019 PSU awards had the same performance period, performance measures and payout factor of 200%.

How we calculated the 2019 PSU performance factor

The payout value has been calculated in accordance with the terms of the PSU plan and the 2019 award agreement.

 

  PSU performance measures

 

  

Threshold

(50%)

 

    

Target

(100%)

 

    

Maximum

(200%)

 

    

PSU

result

 

    

Weighting

 

    

PSU

performance

factor

 

 

  3-Year Average Adjusted Return on Invested Capital(1)

 

    

 

15.3%

 

 

 

    

 

16.0%

 

 

 

    

 

16.4%

 

 

 

  

 

 

16.5%

 

 

 

    

 

70%

 

 

 

    

 

200%

 

 

 

  TSR to S&P/TSX 60 Index(2)

 

    

 

25th

percentile

 


 

 

    

 

50th
percentile

 

 
 

 

    

 

75th
percentile

 

 
 

 

    

 

88th
percentile

 

 
 

 

    

 

15%

 

 

 

    

 

200%

 

 

 

  TSR to Class I railroads(2)

 

    

 

4th

 

 

 

    

 

3rd

 

 

 

    

 

1st

 

 

 

    

 

1st

 

 

 

    

 

15%

 

 

 

    

 

200%

 

 

 

 

  PSU performance factor

                                               

 

 

 

 

200%

 

 

 

 

 

(1) 

Adjusted Return on Invested Capital is a non-GAAP measure. Non-GAAP measures are defined and reconciled on pages 94-104 of CP’s Annual Report on Form 10-K for the year ended December 31, 2021. Results for Adjusted Return on Invested Capital for PSU purposes have been adjusted in 2021 to remove the impacts of the KCS acquisition in order to more accurately reflect the operating performance of our core business from 2019-2021.

(2) 

TSR performance was rated against companies in the respective indices at the beginning and end of performance periods in accordance with the terms of the PSU plan and the 2019 award agreement.

 

 

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KEITH E. CREEL  PRESIDENT AND CHIEF EXECUTIVE OFFICER

 

LOGO

 

Mr. Creel has been President and Chief Executive Officer (CEO) since his appointment on January 31, 2017. He joined CP in February 2013 as President and Chief Operating Officer (COO). Prior to joining CP, Mr. Creel had a very successful operating career that began in 1992 at Burlington Northern as a management trainee in operations, which later led to his appointment to EVP and COO at CN in 2010. Mr. Creel obtained a Bachelor of Science in marketing from Jacksonville State University and completed the Advanced Management Program at the Harvard Business School. He served as a commissioned officer in the U.S. Army and is a Persian Gulf War veteran.

 

At CP, our purpose is to deliver transportation solutions that connect North America to the world. By doing this safely and efficiently, we create long-term, sustainable value for our employees, shareholders

and the broader economy. From our multi-year strategic business plans to our daily operations and sales and marketing playbooks, everything we do is driven by, and tested against, our purpose and our values of accountability, diversity and pride.

Accomplishments in 2021

As the COVID-19 pandemic continues to be a unique and challenging situation for all of us, we focus on controlling what we can control. We pursue measures to protect our employees so that we can deliver excellent service to our customers, manage our resources in lockstep with our business, create innovative supply chain solutions, serve the communities we operate in and create compelling value for our shareholders. By leveraging our comprehensive preparedness framework and contingency action plan, we have been able to sustain the safe, efficient and productive railroad operations vital to the economy. We remain focused on our five foundations of providing service, controlling costs, optimizing assets, operating safely and developing people.

Despite the pandemic, we have many successes to celebrate including the historic agreement to combine CP and KCS to create the first U.S.-Mexico-Canada rail network. The combination of the two fastest growing Class I railroads will be subject to STB approval, which will create a network with expanded reach that brings new competitive options to customers, while creating jobs and bringing environmental benefits to the public. We have achieved significant milestones including the STB authorization of CP to use a voting trust for this transaction, and the engagement and support of over 700 customers/shippers. In addition, we received Mexican regulatory approvals, CP shareholders overwhelmingly supported this transformative combination and we successfully closed the CP-KCS transaction into the voting trust, a critical milestone in the journey to make Canadian Pacific Kansas City Limited (CPKC) a reality. The STB’s review is expected to be completed in the fourth quarter of 2022. Furthermore, it was over a year ago that CP officially acquired the Central Maine and Québec Railway (CMQ) and we are proud to share it has been a seamless operational integration which has provided expanded economic opportunities across New Brunswick and Atlantic Canada.

Our operating ratio was 59.9 percent in 2021, a 280 basis point increase from 57.1 percent in 2020. The increase was primarily due to acquisition-related costs associated with the KCS acquisition, the unfavourable impact of changes in fuel prices and lower volumes as measured by RTMs. Adjusted operating ratio(1) was 57.6 percent, a 50 basis point increase from 57.1 percent. The increase is due to the same factors discussed above, except adjusted operating ratio in 2021 excludes the acquisition-related costs. This is a result of the company’s disciplined approach to precision scheduled railroading. Despite challenging macroeconomic conditions, including the COVID-19 pandemic and natural disasters (wildfires and flooding), revenues increased 4 percent to $8.0 billion from $7.7 billion in 2020. Diluted earnings per share (EPS) increased 16.4 percent to $4.18 from $3.59 and adjusted diluted EPS(1) rose 6.5 percent to $3.76 from $3.53.

Our journey to being Sustainably Driven has continued to progress in 2021, with a particular focus on one of our core values: diversity. We recognize that fostering an inclusive environment where all employees feel empowered to strive for and achieve success supports our high-performance culture and is integral to our growth and success as an organization. Mr. Creel continues to champion the work of our Indigenous, racial and gender diversity councils. In 2021, the diversity councils launched a women’s mentorship program, Indigenous liaison network and provided awareness and education opportunities to employees. Our efforts to create a more diverse and inclusive workplace, including our veterans program and work placements for new Canadians, were recognized as CP was named to Canada’s Best Diversity Employers® of 2021 and a top 10 Military Friendly® employer in the United States for 2021.

Our employees’ commitment to the Home Safe program supports mutual respect, partnership and compliance to be vigilant about personal safety and the safety of co-workers. This program facilitates CP remaining an industry leader in train accident statistics for the 16th consecutive year with a FRA-reportable train accident frequency of 1.10 and 2021 saw FRA-reportable

 

(1) 

Adjusted diluted EPS and Adjusted operating ratio are non-GAAP measures. Non-GAAP measures are defined and reconciled on pages 94-104 of CP’s Annual Report on Form 10-K for the year ended December 31, 2021.

 

 

2022 MANAGEMENT PROXY CIRCULAR  55


personal injuries down 17 percent from 2020 with a frequency of 0.92, which is tied for second best frequency of all Class I railroads. Operating safely is a constant journey and we are proud to celebrate outstanding employee safety leadership through our annual Safety Awards for Excellence.

We continue to build on our legacy of innovation, leadership and precision scheduled railroading, by taking an industry-leading approach to managing the challenges and addressing the opportunities related to climate change. We released our first Climate Strategy in 2021 outlining the company’s approach to drive innovative climate action and manage climate-related risks through actions across five strategic pillars. To guide implementation of the Climate Strategy, we have established two science-based emissions reduction targets that address 100 percent of CP’s Scope 1 and Scope 2 emissions, and more than half of Scope 3 emissions. Our Climate Strategy and supporting science-based emissions reduction targets have been developed in alignment with the goals of the Paris Agreement and the Pan-Canadian Framework on Clean Growth and Climate Change, which seek to limit global temperature increases to well below 2°C.

As part of our overall approach to transparent Environmental, Social and Governance (ESG) reporting, we participate in leading sustainability disclosure frameworks. In 2021, CP was named to the Dow Jones Sustainability North America Index (DJSI North America) for the second consecutive year. In addition, CP is proud to once again be recognized by CDP, an internationally recognized non-profit organization, for leadership on climate action and transparent reporting. CP was named to the CDP A List for the first time in 2021 for climate-related disclosure. CP was also recognized by Corporate Knights as one of Canada’s Best 50 Corporate Citizens for 2021 and as one of the 2022 Global 100 Most Sustainable Corporations in the World for our industry leading approach to sustainability.

Mr. Creel has led the strategy and built our momentum to provide a superior level of service, create capacity by optimizing assets (longer train lengths) and leveraging technology to help our customers, the environment and the economy. We increased our terminal network capacity and reduced operating costs. Nearly half of the locomotives in service are equipped with Fuel Trip Optimizer (FTO), which is an on-board software designed for the safe automated movement of freight trains, resulting in improved fuel efficiency and a reduction in overall emissions. As part of CP’s Climate Strategy, our investment in the innovative Hydrogen Locomotive Program reinforces our commitment to sustainable growth and greenhouse gas emission reductions. This aligns with our commitment to customers to create efficiencies in the supply chain and we are proud to have entered into multi-year agreements with Canadian Tire, Canpotex and Loblaws.

We are proud to share Mr. Creel was named the 2021 CEO of the Year and Strategist of the Year by The Globe and Mail’s Report on Business Magazine, which credited Mr. Creel with orchestrating the biggest merger and acquisition deal of 2021. For the second year in a row, Mr. Creel was named Railway Age magazine’s Railroader of the Year, an honour shared in 2022 with KCS President and Chief Executive Officer Patrick J. Ottensmeyer. The magazine described Mr. Creel and Mr. Ottensmeyer as exemplary and visionary leaders who are reconfiguring the North American railway landscape. Mr. Creel was also named to the 2022 All-Canada Executive team by Institutional Investor magazine and awarded Best Investor Relations (IR) by a Senior Management team (large cap) at the 2021 IR Magazine awards.

2021 compensation

The table below shows the compensation awarded to Mr. Creel for 2021. The assessment was reviewed by the Compensation Committee, and approved by the Board.

 

LOGO

 

 

Compensation (in CAD $‘000)

 

  

2021

 

 
 

Fixed

 

  
 

Salary

 

    

 

1,496

 

 

 

 

At-risk

 

  
 

Short-term incentive

 

    

 

2,338

 

 

 

 

Long-term incentive

 

  
 

- PSUs

 

    

 

7,139

 

 

 

 

- Stock options - annual

 

    

 

4,379

 

 

 

 

- Stock options - upfront

 

    

 

10,532

 

 

 

 

Total direct compensation

 

    

 

25,884

 

 

 

Note:

All values above are from the Summary Compensation Table on page 64. Total direct compensation includes base salary, actual short-term paid and actual long-term incentive grants.

 

 

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PART III – EXECUTIVE COMPENSATION

 

 

2022 compensation

The Compensation Committee, with guidance and advice from FW Cook, conducted a comprehensive review of Mr. Creel’s compensation in conjunction with competitive market information as well as corporate and individual performance. Based on the findings of this review, the Committee increased Mr. Creel’s 2022 total direct compensation by US$900,000 (C$1.12 million).    

Realized and realizable pay

The value of Mr. Creel’s incentive compensation is based on our performance over the period and, for the long-term incentive, our share price when the awards vest. The graph below shows the three-year average of Mr. Creel’s granted and realized and realizable pay from 2019 to 2021.

 

LOGO

 

 

    

 

 

Summary compensation table. Reflects average of salary earned, actual cash bonus and long-term incentives granted as disclosed in the summary compensation table on page 64

 

Realized and realizable. Reflects average of salary earned, actual cash bonus, the value of long-term incentive awards that have vested or been exercised and the estimated current value of unvested long-term incentive awards granted from 2019 to 2021

•  the value of vested 2019 PSUs paid in February 2022 was calculated using the 30-day average trading price of our shares prior to December 31, 2021 of US$72.56 on the NYSE with a performance multiplier of 2.0 and includes reinvested dividends up to the payment date

•  the value of unvested 2020 and 2021 PSUs are based on the closing price of our shares on December 31, 2021 of US$71.94 on the NYSE with a performance multiplier of 1.0 and includes reinvested dividends

•  the value of unvested/unexercised stock options is based on the closing price of our shares on December 31, 2021 of US$71.94 on the NYSE

•  the values for salary earned and actual cash bonus are as disclosed in the summary compensation table on page 64

•  the value of any realized and realizable PSUs and stock options have been converted into Canadian dollars using the 2021 year-end exchange rate of $1.2678

 

Pay linked to shareholder value

The table below shows Mr. Creel’s total direct compensation in Canadian dollars in each of the last three years, compared to its realized and realizable value as at December 31, 2021. We also compare the realized and realizable value of $100 awarded in total direct compensation to Mr. Creel in each year to the value of $100 invested in shares on the first trading day of the period, assuming reinvestment of dividends, to show a meaningful comparison of shareholder value.

 

  

 

  

Compensation

awarded

($)

 

   

Realized and realizable value

of compensation as at

            Value of $100  
     December 31, 2021            

Keith Creel

    

Shareholder

 

(in CAD $‘000)

 

  ($)      Period      ($)      ($)  

2019

     14,029,129       35,835,646        Jan 1, 2019 to Dec 31, 2021        255        193  

2020

     16,026,481       20,745,748        Jan 1, 2020 to Dec 31, 2021        129        140  

2021(1)

     25,883,203       13,215,773        Jan 1, 2021 to Dec 31, 2021        51        104  
(1) 

Compensation awarded in 2021 is higher than 2019 and 2020 as a result of the special upfront grant of stock options in March 2021 and is expected to normalize in 2022.

Mr. Creel’s compensation awarded values are as disclosed in the summary compensation table. Mr. Creel’s realized and realizable value for salary earned and actual bonus received have been converted to Canadian dollars using the following average exchange rates: $1.3269 for 2019, $1.3415 for 2020 and for $1.2535 for 2021. The value of any realized and realizable long-term incentive is converted into Canadian dollars using the 2021 year-end exchange rate of $1.2678.

 

 

2022 MANAGEMENT PROXY CIRCULAR  57


NADEEM S. VELANI   EXECUTIVE VICE-PRESIDENT AND CHIEF FINANCIAL OFFICER

 

 

LOGO

  

Mr. Velani has been Executive Vice-President and Chief Financial Officer since October 17, 2017. Mr. Velani joined CP in March 2013 after spending approximately 15 years with CN where he held a variety of leadership positions in financial planning, sales and marketing, investor relations and the Office of the President and CEO.

 

Mr. Velani is a key member of the CP senior management team responsible for the long-term strategic direction of the Company. Responsibilities include financial planning, investor relations, reporting and accounting systems, as well as pension, tax, treasury and internal audit functions. Mr. Velani obtained a Bachelor of Economics from Western University and an MBA in Finance/International Business from McGill.

Accomplishments in 2021

Mr. Velani’s commitment to generate sustainable profitable growth is unwavering even during a challenging economic environment. Mr. Velani continues to execute the Company’s strategic multi-year plan and make capital investments creating efficiencies within our business. Capital investments include locomotive modernization and covered hoppers that in combination with our High Efficiency Product (HEP) trains will enable CP to move 40 percent more grain per train. By leveraging the foundations of precision scheduled railroading, we are able to respond quickly and effectively to changing environments enabling us to adjust to the market while continuing to drive long-term shareholder return. Our operating ratio was 59.9 percent in 2021, a 280 basis point increase from 57.1 percent in 2020. The increase was primarily due to acquisition-related costs associated with the KCS acquisition, the unfavourable impact of changes in fuel prices and lower volumes as measured by RTMs. Adjusted operating ratio(1) was 57.6 percent, a 50 basis point increase from 57.1 percent. The increase is due to the same factors discussed above, except adjusted operating ratio in 2021 excludes the acquisition-related costs. Despite challenging macroeconomic conditions, revenues increased by 4 percent to $8.0 billion from $7.7 billion in 2020. Diluted earnings per share (EPS) increased 16.4 percent to $4.18 from $3.59 and adjusted diluted EPS(1) rose 6.5 percent to $3.76 from $3.53.

With strong shareholder support, we have closed KCS into the voting trust effective December 14, 2021. CP issued $6.7 billion of debt in the U.S. and $2.2 billion of debt in Canada to fund, in part, the cash consideration required for the acquisition of KCS, which, subject to receipt of control approval from the STB, would create North America’s first single-line rail network connecting Canada, the U.S. and Mexico. We experienced the largest demand for Canadian debt issuance with very favourable coupon rates.

With Mr. Velani’s leadership, CP was named to the 2021 Dow Jones Sustainability North America Index (DJSI North America) for the second consecutive year. The index comprises sustainability leaders representing the top 20 percent of the largest 600 North American companies evaluated by S&P Global, selected from a record number of participants in 2021. CP’s continued inclusion on the index is the result of a long-term organizational commitment to continuous improvement and reporting sustainability practices. CP’s recent sustainability efforts have focused on improving fuel efficiency, evaluating innovative zero-emissions technology, creating a more sustainable supply chain, establishing a diverse and inclusive workplace and investing in the health and safety of our employees and the communities in which we operate. In addition, CP is proud to be recognized by World Finance’s 2021 Sustainability Awards as a leader in the transportation industry for the second year in a row for strong sustainability performance. Mr. Velani is a member of the advisory board for the Institute for Sustainable Finance (ISF). ISF is the first-ever multi-disciplinary and collaborative hub in Canada that brings together academia, the private sector and government with the singular focus of increasing Canada’s sustainable finance capacity. Its mission is to align mainstream financial markets with Canada’s transition to a prosperous sustainable economy, including long-term environmental sustainability.

As co-chair of CP’s Diversity and Leadership Development Steering Committee, Mr. Velani champions company-wide leadership programs including the women’s leadership network and mentoring program. Mr. Velani was named to the 2022 All-Canada Executive team by Institutional Investor magazine and awarded Best Investor Relations (IR) by a Senior Management team (large cap) at the 2021 IR Magazine awards.

 

(1)

Adjusted diluted EPS and Adjusted operating ratio are non-GAAP measures. Non-GAAP measures are defined and reconciled on pages 94-104 of CP’s Annual Report on Form 10-K for the year ended December 31, 2021.

 

 

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PART III – EXECUTIVE COMPENSATION

 

 

2021 compensation

The table below is a summary of the compensation awarded to Mr. Velani for 2021. The assessment was reviewed by the Compensation Committee, and approved by the Board.

 

 

LOGO

 

Compensation (in CAD $‘000)

 

  

2021

 

 
 

Fixed

 

  
 

Salary

 

    

 

807

 

 

 

 

At-risk

 

  
 

Short-term incentive

 

    

 

1,103

 

 

 

 

Long-term incentive

 

  
 

- PSUs

 

    

 

1,685

 

 

 

 

- Stock options

 

    

 

997

 

 

 

 

Total direct compensation

 

    

 

4,592

 

 

 

    

Note:

All values above are from the Summary Compensation Table on page 64. Total direct compensation includes base salary, actual short-term paid and actual long-term incentive grants.

 

 

2022 MANAGEMENT PROXY CIRCULAR  59


JOHN K. BROOKS  EXECUTIVE VICE-PRESIDENT AND CHIEF MARKETING OFFICER

 

LOGO

 

Mr. Brooks has been Executive Vice-President and Chief Marketing Officer (CMO) since February 14, 2019. Mr. Brooks started his railroading career with Union Pacific and later helped start I&M Rail Link, LLC, which was purchased by the Dakota, Minnesota and Eastern Railroad (DM&E) in 2002. When CP acquired the DM&E in 2007, Mr. Brooks was Vice-President of Marketing.

 

With more than 27 years in the railroading business, Mr. Brooks has held senior responsibilities in all lines of business, including coal, chemicals, merchandise products, grain and intermodal. Mr. Brooks is responsible for strengthening relationships with existing customers, generating new opportunities for growth, enhancing the value of the Company’s service offerings and developing strategies to optimize CP’s business.

Accomplishments in 2021

Mr. Brooks remains committed to engaging with customers and collaborating to support an effective supply chain. Our Canadian franchise has the shortest length of haul for all the key markets we serve, with access to major ports on the West and East coasts allowing us to provide a superior level of service to our customers, as evidenced by our best ever customer satisfaction scores and net promoter scores.

The proposed historic combination of CP and KCS requires the right set of circumstances, leadership and customer support. Over 700 customers/shippers wrote to provide their support of the CP-KCS transaction recognizing this unique combination will bring together a combined CP-KCS network (subject to STB approval), that has zero overlap, which means not a single shipper will lose options. As a result of the transaction, we will be able to provide new markets, new routes and new alternatives to reach consumers across North America for all lines of business. The supply chain challenges brought on by the pandemic have proven how important capacity, fluidity and competitive shipping options are to provide solutions to a congested supply chain.

Our precision scheduled railroading operating model and disciplined planning and execution allows for faster train speeds and reduced dwell resulting in better asset utilization and reduced costs for CP and our customers. Our 8,500-foot High Efficiency Product (HEP) trains increase capacity and efficiency in the grain supply chain for customers and stakeholders. Our Intermodal business unit with CP’s unique landholdings in Vancouver, Calgary, Toronto, Montreal and Chicago enables us to grow and create solutions for our customers. Inside our Vancouver terminal we created the first-of-its-kind transload facility by partnering with A.P. Moller-Maersk.

Other successes include our domestic intermodal business growth of 10 percent year over year, demand management, and the equipment guarantee program. We are proud to continue our near-century-long commercial relationship with Canadian Tire with a multi-year agreement. In addition, we entered into long-term agreements with Canpotex and Loblaws while Hapag-Lloyd added the port of Saint John, New Brunswick, Canada to the westbound rotation of their service. This aligns with our commitment to sustainability, and these initiatives will help reduce carbon emissions as a result of traffic being diverted to rail instead of trucks. Our values of accountability, diversity and pride drive the CP team to develop and implement solutions that facilitate providing safe, reliable and efficient service.

2021 compensation

The table below is a summary of the compensation awarded to Mr. Brooks for 2021. The assessment was reviewed by the Compensation Committee, and approved by the Board.

 

 

LOGO

 

Compensation (in CAD $‘000)

 

  

2021

 

 
 

Fixed

 

  
 

Salary

 

    

 

723

 

 

 

 

At-risk

 

  
 

Short-term incentive

 

    

 

1,000

 

 

 

 

Long-term incentive

 

  
 

- PSUs

 

    

 

1,500

 

 

 

 

- DSUs

 

    

 

66

 

 

 

 

- Stock options

 

    

 

920

 

 

 

 

Total direct compensation

 

    

 

4,209

 

 

 

Note:

All values above are from the Summary Compensation Table on page 64. Total direct compensation includes base salary, actual short-term paid and actual long-term incentive grants.

 

 

60  CANADIAN PACIFIC


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PART III – EXECUTIVE COMPENSATION

 

 

MARK A. REDD  EXECUTIVE VICE-PRESIDENT OPERATIONS

 

 

LOGO

  

Mr. Redd has been Executive Vice-President Operations since September 1, 2019, bringing to his role considerable leadership experience in rail operations and safety excellence. He joined CP in October 2013 as General Manager Operations U.S. West and has held various leadership positions. In February 2017, he became Senior Vice-President Operations Western Region.

 

Mr. Redd was proudly named CP’s 2016 Railroader of the Year. He leads the 24/7 operations of our network, which includes responsibility for network transportation, operations, mechanical, engineering, procurement, operations technology and labour relations. Mr. Redd began his railroading career at Midsouth Rail in Jackson, Mississippi, and then moved to KCS as a locomotive engineer and then appointed Vice-President Transportation. He is also a former Chairman of the operating board for the Port Terminal Railroad Association in Houston, Texas. Mr. Redd holds a Bachelor and Master of Science in Management from University of Phoenix and Executive MBA from the University of Missouri – Kansas City.

Accomplishments in 2021

We have an obligation to deliver safe and reliable service, which is part of our success platform, and this is accomplished through the strength and character of our incredible team of railroaders. Under Mr. Redd’s leadership, we remained resilient throughout 2021. Even when facing extreme and changing conditions such as natural disasters and the ongoing pandemic, the CP network kept running to deliver for our customers, the economy and the environment. Our unwavering focus on progressing safety excellence continues as CP remains an industry leader in train accident statistics for the 16th consecutive year with a FRA-reportable train accident frequency of 1.10 and 2021 saw FRA-reportable personal injuries down 17 percent from 2020 with a frequency of 0.92, which is tied for second best frequency of all Class I railroads.

With progressively longer, heavier, and faster trains, we increased our terminal network capacity and reduced operating costs. Nearly half of the locomotives in service are equipped with Fuel Trip Optimizer (FTO), which is an on-board software designed for the safe automated movement of freight trains, resulting in improved fuel efficiency and a reduction in overall emissions. As part of CP’s Climate Strategy, our investment in the innovative Hydrogen Locomotive Program reinforces our commitment to sustainable growth and greenhouse gas emission reductions. We also released the new intermodal virtual assistant, PORTAGE, in which drivers can access the virtual assistant to resolve issues quickly. This technology provides an enhanced customer experience while allowing CP employees to focus on providing support for more complex issues, resulting in improved operating efficiencies throughout our network. Under Mr. Redd’s leadership, we continue to grow our network with technology enhancements, including the installation and commissioning of a Train Inspection Portal System. The system is utilized under industry unique regulatory exemptions to inspect train movements by remote inspectors. This technology is also coupled to CP’s industry leading cold wheel technology whereby CP performs air brake inspections to ensure cars are braking effectively. These technologies ensure freight cars with defects are removed from service and promptly repaired for continued safe operation with fewer online failures, increased train velocity and lower overall terminal dwell.

Develop People is one of our five Foundations, and we continue our leadership and development training programs during the pandemic as we are committed to a culture of continuous improvement. Mr. Redd is proud to co-chair our Diversity and Leadership Steering Committee and fosters the development of a diverse and inclusive operations team, mentoring, recognizing employee’s commitment to safety through CP’s annual Safety Awards, and by frequent visits to the field.

2021 compensation

The table below is a summary of the compensation awarded to Mr. Redd for 2021. The assessment was reviewed by the Compensation Committee, and approved by the Board.

 

 

LOGO

 

Compensation (in CAD $‘000)

 

  

2021

 

 
 

Fixed

 

  
 

Salary

 

    

 

646

 

 

 

 

At-risk

 

  
 

Short-term incentive

 

    

 

814

 

 

 

 

Long-term incentive

 

  
 

- PSUs

 

    

 

1,426

 

 

 

 

- DSUs

 

    

 

19

 

 

 

 

- Stock options

 

    

 

1,011

 

 

 

 

Total direct compensation

 

    

 

3,916

 

 

 

Note:

All values above are from the Summary Compensation Table on page 64. Total direct compensation includes base salary, actual short-term paid and actual long-term incentive grants.

 

 

 

 

2022 MANAGEMENT PROXY CIRCULAR  61


JEFFREY J. ELLIS  CHIEF LEGAL OFFICER AND CORPORATE SECRETARY

 

LOGO

 

Mr. Ellis has been Chief Legal Officer and Corporate Secretary since November 23, 2015. He is accountable for the overall strategic leadership, and performance of the legal, corporate secretarial, government relations and public affairs functions at CP.

 

Prior to joining CP in 2015, Mr. Ellis was the U.S. General Counsel at BMO Financial Group. Before joining BMO in 2006, Mr. Ellis was in private practice in Ontario. He holds a BA and MA from the University of Toronto, JD and LLM degrees from Osgoode Hall Law School as well as an MBA from Western University. Mr. Ellis is a member of the bars of New York, Illinois, Ontario and Alberta.

Accomplishments in 2021

Mr. Ellis and his team provide strategic guidance and have accountability for legal services, corporate secretarial matters, communications and government affairs. This year, Mr. Ellis and his team played a key role in negotiating the historic merger agreement between CP and KCS in March 2021. When a rival bid was made for KCS in April 2021, they led efforts to show the STB that the rival bid should not receive regulatory approval. Upon receipt of that decision, Mr. Ellis and his team, helped renegotiate the merger agreement with KCS in September 2021, leading to the acquisition of KCS and closing into the voting trust on December 14, 2021 (the merger remains subject to STB approval).

Throughout 2021, the legal team collaborated with stakeholders to navigate the regulatory requirements necessary to achieve the generational CP-KCS opportunity, which, if approved by the STB, will inject new competition and new capacity into the North American rail network.

As Corporate Secretary, Mr. Ellis’ responsibilities include corporate governance practices, CP’s Code of Business Ethics and providing strategic support to CP’s senior management and the Board of Directors. In 2021, during the ongoing COVID-19 pandemic, he has been pivotal in providing legal guidance along with governmental affairs and communications support on both sides of the Canada-US border as part of the company’s pandemic response.

As chair of CP’s Indigenous Diversity Council, Mr. Ellis helped establish the Indigenous Liaison-Network at CP. This is an important step in reinforcing an inclusive workplace at CP by creating a network of Indigenous employees for cultural support, guidance and mentorship in the workplace. With his leadership, the Indigenous Relations team was also integral in the launch of CP’s Every Child Matters locomotive. This locomotive commemorates the survivors of residential schools in Canada and raises awareness to continue learning about Indigenous peoples and their rich history and culture. Mr. Ellis continues to be an Executive Committee member for Legal Leaders for Diversity and Inclusion and is a Board member of the Railway Association of Canada. In 2021, with Mr. Ellis’ guidance, CP was recognized by Corporate Knights as one of Canada’s Best 50 Corporate Citizens. Corporate Knights annually ranks the country’s largest companies based on corporate environmental, social and governance practices.

2021 compensation

The table below is a summary of the compensation awarded to Mr. Ellis for 2021. The assessment was reviewed by the Compensation Committee, and approved by the Board.

 

 

LOGO

 

Compensation (in CAD $‘000)

 

  

2021

 

 
 

Fixed

 

  
 

Salary

 

    

 

554

 

 

 

 

At-risk

 

  
 

Short-term incentive

 

    

 

616

 

 

 

 

Long-term incentive

 

  
 

- PSUs

 

    

 

869

 

 

 

 

- DSUs

 

    

 

78

 

 

 

 

- Stock options

 

    

 

515

 

 

 

 

Total direct compensation

 

    

 

2,632

 

 

 

Note:

All values above are from the Summary Compensation Table on page 64. Total direct compensation includes base salary, actual short-term paid and actual long-term incentive grants.

 

 

 

 

62  CANADIAN PACIFIC


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PART III – EXECUTIVE COMPENSATION

 

 

Share performance

The graph below shows the total shareholder return of $100 invested in CP shares compared to the two major market indices over the last five years ending December 31, 2021 assuming reinvestment of dividends. The graph also shows the total compensation awarded to our NEOs for each of the past five years.

The graph shows CP shares have outperformed the S&P/TSX Composite Index and the S&P 500 index while our NEOs’ total compensation has directly aligned with the increasing value provided to our shareholders in recent years. We have delivered significant shareholder value as our cumulative total return for the five-year period ending December 31, 2021 was 149 percent on the TSX and 165 percent on the NYSE.

The total compensation value for NEOs as disclosed in the summary compensation table is 0.5 percent of our total revenues of $8.0 billion for 2021.

 

 

LOGO

 

at December 31

  

  2017

    

   2018

    

   2019

    

  2020

    

  2021

 

CP TSR (C$)

  

 

121

 

  

 

129

 

  

 

178

 

  

 

240

 

  

 

249

 

CP TSR (US$)

  

 

129

 

  

 

127

 

  

 

184

 

  

 

253

 

  

 

265

 

S&P/TSX Composite Index (C$)

  

 

109

 

  

 

99

 

  

 

122

 

  

 

129

 

  

 

161

 

S&P 500 Index (US$)

  

 

122

 

  

 

116

 

  

 

153

 

  

 

181

 

  

 

233

 

TDC ($ thousands)

  

 

27,471

 

  

 

22,210

 

  

 

27,352

 

  

 

31,855

 

  

 

41,754

 

Note:

   

Total direct compensation (TDC) is the total compensation awarded to the NEOs, as reported in the summary compensation table in prior years.

   

We used the following to calculate total direct compensation in the table above:

   

2021 and 2020: Keith Creel, Nadeem Velani, John Brooks, Mark Redd and Jeffrey Ellis

   

2019: Keith Creel, Nadeem Velani, John Brooks, Laird Pitz and Mark Redd

   

2018: Keith Creel, Nadeem Velani, Robert Johnson, Laird Pitz and John Brooks

   

2017: Keith Creel, Nadeem Velani, Robert Johnson, Laird Pitz and Jeffrey Ellis

   

Mr. Creel, Mr. Brooks, Mr. Pitz, Mr. Redd and Mr. Johnson were paid in U.S. dollars and their amounts have been converted using the following average exchange rates: $1.2535 for 2021, $1.3415 for 2020, $1.3269 for 2019, $1.2957 for 2018 and $1.2986 for 2017.

 

 

2022 MANAGEMENT PROXY CIRCULAR  63


LOGO

 

    

EXECUTIVE COMPENSATION DETAILS

 

Summary compensation table

The table below shows annual compensation in Canadian dollars for our five NEOs for the three fiscal years ended December 31, 2021. Mr. Creel, Mr. Brooks and Mr. Redd are paid in U.S. dollars and their compensation has been converted to Canadian dollars using the average exchange rates for the year: $1.2535 for 2021, $1.3415 for 2020 and $1.3269 for 2019. Mr. Velani and Mr. Ellis are paid in Canadian dollars.

 

Executive and principal

position

 

 

Year

 

   

Salary ($)(1)

 

   

Share-based
awards

($)(2)

 

   

Option-based
awards

($)(3)

 

   

Non-equity
incentive plan
compensation -
annual incentive

plan

($)(4)

 

   

Pension
Values

($)(5)

 

   

All other
compensation

($)(6)

 

   

Total
Compensation
($)

 

 

Keith E. Creel

    2021       1,496,068       7,138,547       14,910,982       2,337,606       608,541       237,237       26,728,981  

President and Chief

    2020       1,601,097       6,826,446       4,156,579       3,442,359       546,767       242,948       16,816,196  

Executive Officer

    2019       1,537,866