EX-99.1 2 d405618dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

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2023 MANAGEMENT PROXY CIRCULAR

TABLE OF CONTENTS

 

  

 

PART I   
Notice of Annual Meeting and Executive Summary   

Notice of 2023 Annual Meeting of Shareholders

   1

About the Information in this Proxy Circular

   2

Message from the Chair of the Board

   6

Proxy Highlights

   9

2023 Meeting details

   9

Highlights (Board Governance, Compensation and Sustainability)

   10

PART II

  

Business of the Shareholder Meeting

   14

Business of the Shareholder Meeting

   14

Communications and Engagement

   17

About the Nominated Directors

   18

2022 Director Compensation

   27

Committee Reports

   29

PART III

  

Executive Compensation

   32

Message from the Chair of the Management Resources and Compensation Committee

   32

Compensation Discussion and Analysis Summary

   33

Compensation Programs

   42

2022 Executive Compensation

   43

Named Executive Officer Profiles

   52

Executive Compensation Details

   58

Summary Compensation Table

   58

Incentive Plan Awards

   61

Retirement Plans

   65

Termination and Change in Control

   68

CEO Pay Ratio

   70

PART IV

  

Corporate Governance

   71

Governance at CPKC

   72

About the Board

   72

Diversity

   76

Serving on Other Boards

   79

Director Compensation

   82

Serving as a Director

   85

Integrity

   85

Share Ownership

   87

Attendance

   88

Director Development

   89

PART V

  

Sustainability

   91

Message from the Chair of the Risk and Sustainability Committee

   91

Climate Change

   94

Sustainability Governance

   98

Reporting and Disclosure

   99

Sustainability Priorities

   100

PART VI

  

Delivery of Meeting Materials

and Voting Information

   102

Notice and Access

   102

Voting by Proxy

   104

PART VII

  

Other Information

   108

Internal Controls and Certification

   108

Pre-Approval of Audit Services and Fees

   108

Loans to Directors and Officers

   109

Directors’ and Officers’ Insurance

   109

About non-GAAP Measures

   109

PART VIII

  

Board Terms of Reference

   112
 

 


 

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NOTICE OF 2023 ANNUAL

MEETING OF SHAREHOLDERS

 

 

 

To our Shareholders

You are invited to our 2023 annual meeting of shareholders if you held common shares of Canadian Pacific Kansas City Limited (CPKC) at the close of business on April 24, 2023.

 

 When

 

 Thursday, June 15, 2023

 9:00 a.m. (Mountain Time)

 

Webcast

 

Virtual meeting via webcast at:

https://web.lumiagm.com/486134857

 

 

Record Date

 

April 24, 2023

We will cover five items of business:

 

1.

Receive the audited consolidated financial statements for the year ended December 31, 2022;

2.

Appoint the auditor;

3.

Have a say on executive pay at CPKC;

4.

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

5.

Elect directors.

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

This year’s meeting will be held in a virtual format. The meeting will permit registered shareholders and duly appointed proxyholders to participate virtually via live webcast online at https://web.lumiagm.com/486134857. Hosting a virtual meeting will enable greater participation by our shareholders by allowing shareholders who might not otherwise be able to travel to a physical meeting to attend online. The accompanying proxy circular provides important and detailed instructions about how to participate at 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 April 24, 2023 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 102 of the proxy circular.

We look forward to your participation in our meeting on June 15, 2023.

 

 

LOGO

Jeffrey Ellis

Executive Vice-President,

Chief Legal Officer and Corporate Secretary

Calgary, Alberta

April 24, 2023


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 (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.cpkcr.com/governance.

 

Non-GAAP measures

This proxy circular includes certain measures that do not have 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, core adjusted diluted earnings per share (EPS), adjusted return on invested capital (ROIC), free cash, and adjusted net debt to adjusted earnings before interest, tax, depreciation and amortization (EBITDA) included in the compensation discussion and analysis beginning on page 33. You can find more information about non-GAAP measures and the definitions of these measures on page 109.

 

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. Any statements about our expectations, beliefs, plans, goals, targets, predictions, forecasts, objectives, assumptions, information and statements about possible future events, conditions and results of operations or performance are not historical facts and may be forward-looking. Forward-looking information in this proxy includes, but is not limited to, plans or objectives of management for future operations; information regarding sustainability-related actions we plan to take in the future, including our Climate Strategy for reducing greenhouse gas (GHG) emissions and the alignment of CP’s and KCS’s climate objectives; and assumptions underlying or relating to any of the foregoing. Forward-looking information is often, but not always, made through the use of words or phrases such as “anticipates”, “aims”, “believes”, “can”, “could”, “may”, “predicts”, “potential”, “should”, “will”, “estimates”, “plans”, “projects”, “continuing”, “ongoing”, “expects”, “intends” and similar words or phrases 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 and energy; the effects of competition; industry capacity; shifts in demand; changes in laws and regulations; natural or other disasters, including earthquakes, wildfires, pandemics or acts of terrorism affecting the markets in which we operate; the adverse effects of climate change on our business, investors, customers, suppliers and counterparts; our ability to successfully execute on initiatives relating to sustainability; 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; satisfaction of the conditions imposed by the U.S. Surface Transportation Board (STB) in its March 15, 2023 decision and successful integration of Kansas City Southern (KCS) into the Company, 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 the 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 2022 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).

 

 

 

2  CPKC


 

In addition, our Climate Strategy (including our strategy for reducing GHG emissions) remains under development as we
continue to refine our analysis of and response to potential future climate risks and opportunities, and as the science, data
and methodology underlying our analysis and strategy continue to evolve over time.

 

Further, as we begin to integrate the operations of KCS into ours, we are conducting additional data-gathering and intend to
further assess the climate and other environmental, social, governance and sustainability strategies and initiatives for the
combined company, and may make changes to our existing strategies and initiatives as a result. (see “Explanatory notes -
Integrating ESG, governance and sustainability strategies and initiatives
”). Therefore, in future disclosures, we may
include information that differs from those contained in this proxy circular relating to our analysis and strategy. 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. Unless indicated otherwise or the
context otherwise requires, this proxy circular speaks only as of the date hereof; provided that, the forward-looking
statements included in Part IV and Part V hereof generally speak to the expectations, targets and goals for CP on a
standalone basis prior to the Control Date. We undertake no obligation to update or otherwise revise any forward-looking
information, unless we are required to by applicable law.

 

Explanatory notes

 

Kansas City Southern transaction and name change
On September 15, 2021, the Company entered into an Agreement and Plan of Merger (Merger Agreement) with KCS
pursuant to which the Company agreed to acquire KCS in a stock and cash transaction. On December 14, 2021, following
approval of the transaction by the shareholders of both the Company 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 (Voting Trust) and held by a single trustee as trust stock, with the KCS board of directors and
management continuing to pursue KCS’ independent business plan and growth strategies, pending final, non-appealable
approval from the STB of the Company’s acquisition and control over KCS’s railroad operations.

 

On March 15, 2023, STB issued its final approval of the KCS acquisition (STB March 15 Decision) subject to certain conditions
as described in the STB March 15 Decision. On April 14, 2023 (Control Date), in connection with the Company exercising the
authority granted by the STB March 15 Decision:
•   the Voting Trust was terminated in accordance with its terms and the Company acquired control of KCS;
•   the Company changed its name from “Canadian Pacific Railway Limited” to “Canadian Pacific Kansas City Limited “,
as previously approved by the Company’s shareholders;
•   in connection with the Company’s obligations under the Merger Agreement, the Company appointed four former
directors of KCS (namely, Amb. Antonio Garza (Ret.), David Garza-Santos, Janet Kennedy and Henry Maier), to the
board of directors of Canadian Pacific Railway Company (CPRC), a direct wholly-owned subsidiary of the Company,
and, thereafter nominated each of them for election to the board of directors of the Company at the Meeting;.

 

For more information regarding the KCS acquisition, see our Annual Report on Form 10-K for the fiscal year ended
December 31, 2022 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 (Special Meeting).
For more information regarding the STB March 15 Decision and the completion of the transactions contemplated under the
Merger Agreement, see our Current Reports on Form 8-K filed with the SEC on EDGAR (www.sec.gov) and filed on SEDAR
(www.sedar.com) on March 16, 2023, March 17, 2023 and April 14, 2023 and our Material Change Reports filed on SEDAR
on March 16, 2023, March 20, 2023 and April 14, 2023.

 

Unless indicated otherwise or the context otherwise requires, in this proxy circular, references to Canadian Pacific Kansas City
Limited, CPKC, the Company, or the Corporation, “we”, “us” or “our” with respect to or including a time period prior to
April 14, 2023 (being the Control Date) refer to or include the Company as it existed prior to (i) completion of the acquisition
of control of KCS and (ii) its name change from “Canadian Pacific Railway Limited” to “Canadian Pacific Kansas City Limited”.
Any references herein to “on a standalone basis” or other references to “standalone” refer to the Company either prior to the
acquisition of control of KCS, or otherwise excluding KCS. However, for clarity, in sections (such as Part IV and Part V) where
we include forward-looking statements that describe our expectations, targets and goals for periods after the Control Date but
which expectations, targets and goals are only those we have with respect to the Company on a standalone basis prior to the
Control Date, we use “CP” to mean the historical Company and its subsidiaries as they existed prior to the Control Date.

 

 

 

2023 MANAGEMENT PROXY CIRCULAR  3


Integrating ESG, governance and sustainability strategies and initiatives

As we integrate the operations of KCS into ours, we are evaluating the environment, social, governance and sustainability priorities, policies, practices, programs, goals and objectives of the combined CPKC, including actively working to update the science-based GHG emissions reduction target for 2030 with respect to the locomotive operations of the combined company. Although we have taken initial steps as further discussed in Part V of this proxy circular, we are still in the early stages of our sustainability integration process. We believe that we will need to undertake additional data-gathering and other analyses before we can establish a Climate Strategy and decide on other sustainability initiatives, in each case, for the combined company.

 

Therefore, unless indicated otherwise or the context otherwise requires in this proxy circular, references herein to environmental, social, governance and sustainability priorities, policies, practices, programs, goals and objectives describe only those of CP on a standalone basis, without factoring in the priorities, policies, practices, programs, goals and objectives of the historical KCS or preliminary discussions with respect to those of the combined company. Without limiting the generality of the foregoing, references in this proxy circular to our Climate Strategy refer to the Climate Strategy adopted for CP on a standalone basis prior to the Control Date. As we continue our integration process, we may adopt a Climate Strategy for the combined company that sets forth expectations, targets or goals that differ from those set forth in our current Climate Strategy, which we will communicate to our shareholders and other stakeholders in due course.

 

Share Split

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.

 

 

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

•  “Board” means the Board of Directors of CPKC

•  “Control Date” means April 14, 2023, the date on which CPKC (through an indirect wholly owned subsidiary) assumed control of KCS’s railroad operations pursuant to the final, non-appealable approval by the U.S. Surface Transportation Board of such control on March 15, 2023

•  “CP” has the meaning ascribed that term within the last paragraph of that section entitled “Explanatory notes” starting on page 3

•  “KCS” means Kansas City Southern

•  “KCS transaction” and “KCS acquisition” each mean the transactions contemplated under the Merger Agreement

•  “Merger Agreement” means the Agreement and Plan of Merger dated September 25, 2021 between CPKC and KCS pursuant to which CPKC agreed to acquire KCS in a stock and cash transaction

•  shares” means common shares of CPKC

•  shareholders means holders of our shares

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

•  we”, us”, our”, CPKC, Company” and “Corporation” refer to Canadian Pacific Kansas City Limited (known as Canadian Pacific Railway Limited until April 14, 2023) and, where applicable, its subsidiaries (which excludes KCS with respect to the period prior to April 14, 2023)

•  all amounts are in Canadian dollars

•  any 2022 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, 2022 ($1.3013 = US$1.00)

•  information in this document is as of April 28, 2023 unless otherwise indicated

 

For more information

 

You can find more information about CPKC, including our 2022 annual report, on our website (investor.cpkcr.com), 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 Kansas City Limited

7550 Ogden Dale Road S.E.

Calgary, Alberta T2C 4X9

 

 

 

4  CPKC


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ABOUT CPKC

 

 

Founded in 1881 to connect Canada, today we deliver transportation solutions across the only rail network connecting North America including Canada, the United States and Mexico. We create long-term sustainable value for our shareholders and the broader economy by delivering safely and efficiently for our customers. We leverage our precision scheduled railroading foundations: provide service; control costs; optimize assets; operate safely; and develop people in all that we do. CPKC’s culture is guided by three core values: accountability, diversity and pride. These values drive our actions, foster respect and inspire our journey towards excellence.

Our proud railroaders are building on the legacy of the people who envisioned and built our historic railroad. Throughout its history, our railroaders have defied those who said it couldn’t be done. The accountability and drive to deliver results is ingrained in our culture. The people who power our railroad are determined to redefine expectations of a Class I railroad today, while always keeping an eye on greater things ahead.

At CPKC, we are serving today and building for the future.

Our network - connecting a continent

 

 

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2023 MANAGEMENT PROXY CIRCULAR  5


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MESSAGE FROM THE CHAIR OF THE BOARD

 

 

Fellow Shareholders,

 

On behalf of the Board of Directors, I am pleased to invite you to the first meeting of Canadian Pacific Kansas City Limited (CPKC) following its name change from “Canadian Pacific Railway Limited” and control of Kansas City Southern (KCS) on April 14, 2023. CPKC’s 2023 annual meeting of shareholders will take place on June 15, 2023 at 9 a.m. (Mountain Time) and will be streamed via live webcast over the internet at: https://web.lumiagm.com/486134857. Shareholders will be able to vote as they would in an in-person shareholder 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 102 of this proxy circular.

 

Items at the meeting

 

At the meeting, you will vote on 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. This year, as part of the election of directors, you will be voting on the election of four additional nominees who join us from KCS: Amb. Antonio Garza (Ret.), David Garza-Santos, Janet Kennedy and Henry Maier.

 

 

LOGO

A transformative year

Let me start by congratulating our President and Chief Executive Officer (CEO) Keith Creel and the entire CPKC family of railroaders for completing the transaction that has brought together Canadian Pacific and KCS. The Company reached a significant milestone when the acquisition of KCS was consummated and all outstanding shares were placed into a voting trust on December 14, 2021. Final STB approval was received on March 15, 2023 with our two companies completing their combination as of April 14, 2023. The Board looks forward to supporting management in its efforts to leverage CPKC, the only single-line rail network connecting Canada, the U.S. and Mexico.

The Company’s standalone 2022 full-year results showed an increase in revenues to $8.81 billion from $8.0 billion in 2021. The operating ratio for the year was 62.2 percent, (61.4 percent on an adjusted basis(1)) and our diluted EPS decreased to $3.77 from $4.18, while core adjusted diluted EPS(2) was flat compared to $3.77 in 2021(3). The Company also continued to operate the safest railway in North America for the 17th consecutive year, as measured by Federal Railroad Administration (FRA)-reportable train accident frequency. Management is working to integrate the Company’s existing safety standards into the KCS portion of our network.

Sustainability

In 2023, shareholders will again have an opportunity to provide feedback through our annual non-binding advisory, “say on climate” vote, in which we seek shareholder approval on our approach to climate change as described in this proxy circular. In the past, we have pursued an approach to climate change that has been meaningfully influenced by the discussions we have had with shareholders over the last number of years, including through our “say on climate” vote. Our historical focus on climate has led to CP being named to the CDP Climate Change A List for the second consecutive year in 2022, to the S&P Global Dow Jones Sustainability World Index (DJSI World) for the first time, and to the North American Index (DJSI North

 

(1) 

Adjusted Operating ratio and Core Adjusted diluted EPS are non-GAAP measures. Non-GAAP measures are defined and reconciled on pages 66-77 of CP’s Annual Report on Form 10-K for the year ended December 31, 2022.

(2) 

Adjusted Operating ratio and Core Adjusted diluted EPS are non-GAAP measures. Non-GAAP measures are defined and reconciled on pages 66-77 of CP’s Annual Report on Form 10-K for the year ended December 31, 2022.

(3) 

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.

 

 

6  CPKC


America) for the third consecutive year. Going forward, we intend to bring the Company's focus on climate to our CPKC network as we integrate the operations of KCS into ours. This year's "say on climate" vote will allow shareholders to provide their feedback on our current Climate Strategy. Although we adopted our current Climate Strategy for CP on a standalone basis prior to the Control Date, we believe that this year's "say on climate" vote remains valuable because it will prompt dialogue on this important topic as we evaluate the combined CPKC's approach to sustainability, including as we work toward a Climate Strategy for the combined CPKC. Management is focused on building upon our safety culture. Safety has been a top priority for CP and will continue to be a top priority for CPKC. We are committed to continually investing in our people, in our infrastructure and into our newly expanded rail networks. Safety is a journey and not a destination. We strive to ensure that everyone goes home safely. You can read more about our approach to safety at page 100 and the Risk and Sustainability Chair's letter at page 91.

CPKC Leadership

President and CEO, Keith Creel and the CPKC team will continue to execute the precision scheduled railroading model to provide real, long-term value for customers, shareholders and employees alike. We are pleased to have retained Keith to at least 2026 and are thrilled to have Keith’s executive team largely remaining in place. The team includes Nadeem Velani, Executive Vice-President and Chief Financial Officer, John Brooks, Executive Vice-President and Chief Marketing Officer, Mark Redd, Executive Vice-President and Chief Operating Officer, James Clements, Executive Vice-President Strategic Planning & Technology and Jeff Ellis, Executive Vice-President Chief Legal Officer and Corporate Secretary. Also joining from KCS is John Orr, Executive Vice-President and Chief Transformation Officer, Oscar Augusto Del Cueto Cuevas, Kansas City Southern de México President, General Manager and Executive Representative, and Warren Erdman, Executive Advisor, Strategic Projects. We believe we have the right team, along with so many others, to leverage the many synergies of the transaction. I encourage you to read more about our leadership in our Executive Compensation section which starts at page 32 and includes a letter from the Committee Chair.

Governance

Earlier this year, Matthew Paull (Chair of our Management, Resources and Compensation Committee), Gordon Trafton (Chair of our Risk and Sustainability Committee), Maeghan Albiston (Vice-President, Capital Markets) and I met with top shareholders of CPKC, representing 38 percent of shares outstanding. In our discussions, we addressed the CPKC transaction, board governance, compensation, culture and succession planning and sustainability. The Board has been engaging with shareholders regularly since 2016 and we appreciate the ongoing dialogue and feedback.

CPKC has nominated Janet Kennedy to sit on our board. Ms. Kennedy has deep familiarity with Canada having served as President of Microsoft Canada from 2013 to 2017. She was most recently Vice President (North America Regions of Google Cloud), at Google until this year and brings cybersecurity experience. Henry Maier is also nominated on the basis of his deep understanding of shipper and customer needs from his time as President, FedEx Ground, a major subsidiary of FedEx Corp. Amb. Antonio Garza (Ret.) spent eight years as United States Ambassador to Mexico in the George W. Bush administration from 2002 to 2009. Finally, CPKC has nominated David Garza-Santos, who has been Chairman/CEO of Maquinaria Diesel S.A. de C.V. (MADISA) since 1994. He is a respected community and business leader based in Monterrey, Mexico.

I encourage you to read about our 13 director nominees, starting at page 18 of this proxy circular. Based on our collective director profiles, you will see that we continue to be a board that values industry experience (including in the railway, transportation and logistics sectors), language, cultural and geographic diversity.

I thank you for your commitment to the new CPKC as we continue building for tomorrow.

 

 

2023 MANAGEMENT PROXY CIRCULAR  7


We look forward to your participation at our virtual shareholder meeting on June 15, 2023. 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

 

 

 

8  CPKC


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PROXY HIGHLIGHTS

 

You have received this management proxy circular (proxy circular) because you owned shares of CPKC at the close of business on April 24, 2023 and are therefore entitled to participate in our 2023 annual meeting of shareholders and vote your shares.

The 2023 annual meeting will be held in a virtual format which will be conducted via live webcast online, allowing shareholders to participate regardless of where they are located. Shareholders will be able to vote on all business brought forth before the meeting and submit questions for consideration as they would at an in-person shareholders meeting. Questions that are not answered at the 2023 annual meeting will be addressed via email following the meeting. Shareholders that usually vote by proxy ahead of the meeting will be able to do so in the usual way.

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. Non-registered (or beneficial) shareholders that have not appointed themselves or another person as their proxyholder may attend the meeting online 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 102.

 

 

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 $104,186. 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.

2023 Meeting details

 

  When

  Thursday, June 15, 2023

  9 a.m. (Mountain Time)

 

  Where

  Virtual meeting

  via webcast online at:

  https://web.lumiagm.com/
  486134857

 

  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, 2022

 

The audited consolidated financial statements are included in our 2022 annual report, available under our corporate profile on SEDAR (www.sedar.com), EDGAR (www.sec.gov) and on our website (investor.cpkcr.com)

      page 14
    

 

2. Appoint the auditor

 

Ernst & Young LLP has served as our auditor since 2022. The Board recommends you vote FOR the appointment of Ernst & Young LLP as our auditor.

    

 

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FOR

 

 

 

   page 14
    

 

3. 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.

    

 

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FOR

 

 

 

   page 15
    

 

4. Have a say on our 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.

    

 

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FOR

 

 

 

   page 15
    

 

5. Election of directors

 

You will be asked to elect 13 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.

 

    

 

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FOR

 

 

 

   page 16

 

 

2023 MANAGEMENT PROXY CIRCULAR  9


Governance highlights

We strive to maintain a well-rounded and diverse Board that balances transportation industry experience with independence. Our directors bring to our board a mix of core skills and experience across a broad range of industries. This year, consistent with our commitments under the Merger Agreement, we are nominating four new directors who previously served on the board of directors of KCS, for election to the Company’s Board. The new nominees have served on the board of directors of CPRC since the Control Date, and bring with them a wealth of knowledge relating to the KCS business which will serve the Board well as it continues to steward the integration of KCS into its business and operations. The institutional knowledge of incumbent CPKC directors together with fresh perspectives brought by the new nominees will further broaden and complement the skills required to have an effective and dynamic CPKC Board. For more information on the KCS acquisition and the Control Date, see “Explanatory notes”, on page 3.

Some of the key skills our director nominees possess are identified below, along with our key governance policies and practices.

 

LOGO

   

 

 

 

industry and

KCS-specific

knowledge

 

 

 

   

 

accounting and

financial literacy

 

   

 

senior

executive leadership

and strategic

oversight

 

    

 

Key governance policies and practices(1)

•   Code of business ethics

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

•   Business ethics reporting 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

           
 

 

human resources

and executive

compensation

experience

 

   

 

environmental,

health and safety

experience

 

   

 

risk management

and cybersecurity

 

 

LOGO

 

 

(1) 

The policies and procedures described in this table reference policies and practices that CP had in place in 2022. Kansas City Southern has instituted similar policies. We are in the process of aligning and evaluating policies for the combined CPKC.

 

 

10  CPKC


PROXY CIRCULAR

PROXY HIGHLIGHTS

 

 

Our 2023 director nominees

 

Name   Age   Director since   Position   Independent  

2022 Standing committee

memberships(1)

  2022 meeting
attendance
  2022
voting results
(in favour)
  Other public
company boards

John Baird

  53   May 2015  

Senior Advisor Bennett Jones LLP Former Minister Transport and Infrastructure, Canada

 

 

LOGO

 

Corporate Governance, Nominating & Social Responsibility (Chair)

Risk and Sustainability

  100%   94.79%   3

Isabelle Courville

  60   May 2013   Chair, CPKC  

 

LOGO

  Ex-officio member of all Committees   100%   99.74%   2

Keith Creel

  54   May 2015  

President and CEO

CPKC

      N/A   100%   98.73%   -

Jill Denham

  62   Sept 2016   Former Chair of the Board, LifeWorks, Inc.  

 

LOGO

 

Audit and Finance

Management Resources and Compensation

  100%   94.66%   1

Amb. Antonio Garza (Ret.)(2)

  63   N/A   Counsel, White & Case, LLP  

 

 

LOGO

 

  N/A   N/A   N/A   2

David Garza-Santos(3)

  61   N/A  

Chairman and CEO

Marquinaria Diesel S.A. de C.V.

 

 

 

LOGO

 

  N/A   N/A   N/A   2

Edward Hamberger

  72   July 2019   Former President and CEO Association of American Railroads  

 

 

LOGO

 

Audit and Finance

Risk and Sustainability

  100%   98.67%   -

Janet Kennedy(4)

  62   N/A   Former VP, North America Regions, Google  

 

 

LOGO

  N/A   N/A   N/A   -

Henry Maier(5)

  69   N/A   Former President & CEO, FedEx Ground  

 

 

LOGO

 

  N/A   N/A   N/A   3

Matthew Paull

  71   Jan 2016  

Former Senior Executive

Vice President and CFO

McDonald’s Corporation

 

 

 

LOGO

 

Management Resources and Compensation (Chair)

Risk and Sustainability

  100%   97.57%   1

Jane Peverett

  64   Dec 2016  

Former President and

CEO BC Transmission

Corporation

 

 

 

LOGO

 

Audit and Finance (Chair)

Corporate Governance, Nominating & Social Responsibility

  100%   98.25%   2

Andrea Robertson

  59   July 2019  

President and CEO

Shock Trauma Air Rescue Service (STARS)

 

 

 

LOGO

  Management Resources and Compensation   100%   99.30%   -

Gordon Trafton

  69   Jan 2017  

Former Senior Vice

President Canadian National Railway

 

 

 

LOGO

  Corporate Governance, Nominating & Social Responsibility Risk and Sustainability (Chair)   100%   99.27%   -

You can read more about each nominated director in the profiles beginning on page 20 and the skills matrix on page 88.

 

 

(1) 

As of December 31, 2022.

(2)

Amb. Antonio Garza (Ret). was appointed a director of Canadian Pacific Railway Company as of April 14, 2023.

(3) 

Mr. David Garza-Santos was appointed a director of Canadian Pacific Railway Company as of April 14, 2023.

(4) 

Ms. Janet Kennedy was appointed a director of Canadian Pacific Railway Company as of April 14, 2023.

(5) 

Mr. Henry Maier was appointed a director of Canadian Pacific Railway Company as of April 14, 2023.

 

 

2023 MANAGEMENT PROXY CIRCULAR  11


Compensation highlights

Our executive compensation program is designed in a manner consistent with 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(1)

•   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 CPKC

shareholders

 

 

The table below shows how we have aligned our Named Executive Officers’ (NEOs) pay to performance in 2022.

 

 

 Pay for performance alignment

 

  

How we do it

 

At-risk compensation   

 

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

 

NEO’s performance assessments and accomplishments   

 

Comprehensive review of NEO accomplishments starting on page 52

 

Incentive program is tied directly to financial, operations and safety results as well as shareholder value creation:

•  29 percent corporate performance factor for annual incentive

•  180 percent payout for the 2020 PSUs

  

 

Explanation of how our corporate performance results and relative total shareholder return (TSR) are tied to 2022 annual incentive and 2020 PSU payouts are on pages 44 and 51

 

Incentive payouts are formulaically determined   

 

Descriptions of how we determine our short-term and long-term incentive awards are provided on pages 43 and 47

 

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 33.

 

(1) 

Key compensation governance policies are as of December 31, 2022. Updates to policies will be made during 2023.

 

 

12  CPKC


PROXY CIRCULAR

PROXY HIGHLIGHTS

 

 

Sustainability highlights(1)

 

  LOGO     became the first North American freight rail company to participate in the United Nations Global Compact     more than 100,000 miles, 6 provinces and 12 states traversed by the Company’s “Every Child Matters” locomotive since 2021 to help raise awareness and commemorate those impacted by the legacy of residential schools in Canada    

helped raise over $33 million through the CP Has Heart program to improve heart health since 2014

 

   

 

Key sustainability developments in 2022

•  Established the Company’s Carbon Reduction Task Force to assess potential carbon reduction opportunities and associated financial analysis to develop a climate action roadmap by identifying, evaluating and prioritizing potential opportunities to reduce GHG emissions.

•   Advanced production on three hydrogen locomotive conversions and commenced installation of hydrogen production and fueling facilities under the Company’s Hydrogen Locomotive Program.

•   Launched a web-based Carbon Emissions Calculator designed to provide users with the ability to calculate and compare an estimate of the GHG emissions related to transportation of freight by CP’s rail services versus heavy haul trucking.

•   Published the Company’s annual Corporate Sustainability Data Supplement outlining the Company’s 2021 environmental, social and governance performance.

 

 

 
 

achieved 17th consecutive year with the lowest train accident frequency rate among Class 1 railways in North America

 

    maintained focus on racial, gender, 2SLGBTQ+ and Indigenous diversity through three diversity councils     improved locomotive fuel efficiency by 43% since 1990  

Awards and Recognitions

During 2022 and 2023, on a standalone basis, CP was proud to have received several awards, rankings and other notable recognitions, including the following:

 

 

 

 

 

LOGO

 

 

   

 

LOGO

 

   

 

LOGO

 

   

 

LOGO

 

 

Added to the Dow

Jones Sustainability World

and North America Indices in

2022

   

 

Named to the CDP Climate Change A List in 2022

   

 

Recognized as one of

Canada’s Top 100 Employer’s

for 2023

   

 

Recognized as one of

Alberta’s Top 75 Employers

for 2023

 

LOGO

 

   

 

LOGO

 

   

 

LOGO

 

   

 

LOGO

 

 

Received an MSCI ESG Rating

of A in 2022

   

 

Awarded ISS Prime Status for Corporate ESG Performance in 2022

   

 

Included in the 2023

S&P Global Sustainability

Yearbook

   

 

CP’s locomotive emissions

reduction target was

validated by the Science

Based Targets initiative (SBTi)

 

 

 

(1) 

All information in the “Sustainability highlights” section is with respect to CP on a standalone basis.

 

 

2023 MANAGEMENT PROXY CIRCULAR  13


LOGO

 

PART II – BUSINESS OF THE SHAREHOLDER MEETING

 

 

You will vote on four items of business at the Meeting (items 2 - 5 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 of 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 CP for the year ended December 31, 2022 and the auditor’s report thereon will be presented at the Meeting.

The audited consolidated financial statements are included in our 2022 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.cpkcr.com/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, 2023. EY has served as auditor since 2022 and the Board recommends that they be re-appointed as the Company’s auditor until the close of the next annual meeting of shareholders.

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

EY’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 30 and 81.

The table below shows the fees we paid to EY in 2022 and Deloitte in 2021 for audit and non-audit services. Representatives of EY 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

 

  

EY

2022

 

    

Deloitte
2021

 

 

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)

   $ 3,404,000      $ 3,834,200  

Audit-related fees

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

   $      $ 545,700  

Tax fees

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

   $      $ 224,700  

All other fees

   $      $  

Total

   $ 3,404,000      $ 4,604,600  

As previously reported, on November 4, 2021, as a result of a review process, the Company requested, upon recommendation and approval of the Audit and Finance Committee, that Deloitte LLP (Deloitte) resign as the Company’s independent registered public accounting firm. Following such request, Deloitte resigned as the independent public accounting firm of the Company. 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 the Company’s financial statements for the fiscal year ended December 31, 2021. In addition to the amounts shown above, the Company paid Deloitte a further $20,900 in aggregate for audit, audit-related and tax fees in 2022 in respect of the 2021 financial year.

 

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

 

 

14  CPKC


PROXY CIRCULAR

PART II – BUSINESS OF THE SHAREHOLDER MEETING

 

 

3. Have a say on executive pay

You will have an opportunity to vote on the Company’s executive pay 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 2022 annual meeting, we received a 92.52 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.

You can vote FOR or AGAINST the following non-binding resolution on executive pay 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 Kansas City 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 2023 annual 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 33.

4. 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, including our Climate Strategy. We adopted our current Climate Strategy for CP on a standalone basis prior to the Control Date. Also, as this is an advisory vote, the results are non-binding. However, your vote will give the Board important feedback on our approach to climate change, including as we evaluate the approach for the combined CPKC. Last year at our 2022 annual meeting, we received an 86.66 percent vote FOR our non-binding advisory resolution on CP’s approach to climate change.

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 science-based greenhouse gas (GHG) emissions reduction targets. An update on the Company’s progress on our Climate Strategy and actions on climate change in 2022 is included in Part V of this proxy circular.

The Climate Strategy outlines our current science-based targets 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).

 

The Company 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.

As further discussed in “Explanatory notes - Integrating ESG, governance and sustainability strategies and initiatives”, the science-based emissions reductions targets disclosed in this report, including CP’s locomotive target validated by the SBTi, are only with respect to CP on a standalone basis. We are currently evaluating the Climate Strategy and GHG emissions reduction targets for the combined CPKC, including actively working toward updating the science-based GHG emissions reduction target for 2030 with respect to the locomotive operations of the combined company.

 

(1) 

A copy of the Climate Strategy is available on our website at sustainability.cpkcr.com. You may also ask us for a copy of the Climate Strategy by writing to:Office of the Corporate Secretary, 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.

 

 

2023 MANAGEMENT PROXY CIRCULAR  15


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 Kansas City Limited (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 the Company’s approach to climate change in the future. CPKC expects to inform shareholders about any Climate Strategy that we adopt for the combined company, including any updates made to the expectations, targets or goals set forth in our current Climate Strategy as part of our evaluation process or in response to the feedback we receive from our shareholders, in due course.

 

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

You can read about our approach to climate change in Part V of this proxy circular beginning on page 91.

5. Elect directors

Our governing documents require us to have between five and 20 directors on our Board. Additionally, consistent with our commitments under the Merger Agreement, we are nominating four new directors who previously served on the board of KCS, for election to the Company’s Board. At our last meeting of shareholders, nine of our 11 directors stood for election at the meeting, as two directors retired; we chose not to nominate directors to replace the retiring directors with the anticipated nomination of four KCS director nominees this year.

Accordingly, this year, there are 13 nominees for election to the CPKC Board, nine of whom currently serve on the Company’s Board and four who were members of the KCS board of directors prior to the Control Date (as well as immediately prior to the acquisition of KCS). See “Explanatory notes” on page 3 for further information on the KCS transaction, the Control Date, and “About the Nominated Directors” beginning on page 18 for further information on each nominated director.

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. Directors who are elected at the Meeting will serve from the date of the Meeting until the close of our next annual meeting of shareholders, unless a director resigns or is otherwise removed earlier.

You can vote FOR or AGAINST for each nominated director.

 

The Board recommends you vote LOGO FOR each nominated director.

Other Business

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

 

 

Shareholder proposals

 

The Company did not receive any shareholder proposals requiring disclosure in this proxy circular.

 

If you want to submit a shareholder proposal for our 2024 annual meeting, it must be mailed to the Office of the Corporate
Secretary, 7550 Ogden Dale Road S.E., Calgary, Alberta T2C 4X9, with a copy via email at shareholder@cpkcr.com.

 

Under Canadian law, shareholder proposals can only be considered for the annual meeting if they are submitted during a
specific period. Pursuant to amendments to the Canada Business Corporations Act (CBCA), effective August 31, 2022,
shareholder proposals must be submitted between 90 and 150 days before the one-year anniversary of the previous annual
meeting, being June 15, 2024. As such, the period during which our Corporate Secretary must receive shareholder proposals
in order for them to be considered for inclusion in the circular for the 2024 annual meeting is from Wednesday January 17,
2024 to and including Sunday March 17, 2024. Submitting a shareholder proposal does not guarantee that it will be included
in the proxy materials.

 

 

 

16  CPKC


PROXY CIRCULAR

PART II – BUSINESS OF THE SHAREHOLDER MEETING

 

 

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

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

Or by email to: shareholder@cpkcr.com or ocs@cpkcr.com

 

 

    

 

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.

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 first quarter of 2023, we engaged with many of our top institutional shareholders, collectively representing over 38 percent of our public float, to participate in virtual meetings. The meetings were conducted via Zoom and were attended by the Company’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 the Company’s Investor Relations department.

The objective of the meetings was to provide shareholders an update on the Company’s key topics around the KCS acquisition, governance, sustainability, compensation, culture and succession planning. Other topics of interest raised by shareholders included labour and our hydrogen locomotive program.

 

 

2023 MANAGEMENT PROXY CIRCULAR  17


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

 

Twelve of the 13 nominated directors, including the Chair of the Board and all committee members, are independent. Mr. Creel is not independent because he is the Company’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 and

KCS-specific knowledge

 

   

 

accounting and financial literacy

 

   

 

senior executive leadership and strategic

oversight

 

 
 

 

 

human

resources & executive compensation

 

   

 

environment, health & safety

 

   

 

risk

management/

cybersecurity

 

 

 

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 88. Additional information on our KCS nominees can be found on page 11 and 20.

 

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 63 years and nominee directors that served on the board in 2022 have an average tenure of 6.5 years (without taking into account the tenure the KCS nominees served on the KCS board of directors prior to the Control Date). Five of the 13 nominees (38.5 percent) are women. The Chair of the Board is a woman and three of our nominee directors are visible minorities 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 76. A copy of our Board of Directors Diversity Policy can be found at investor.cpkcr.com/governance.

 

 

18  CPKC


PROXY CIRCULAR

ABOUT THE NOMINATED DIRECTORS

 

 

Serving on other Boards

Canadian Pacific Railway Company (CPRC) is our principal operating entity in Canada and it directly or indirectly owns all of the voting shares of our other subsidiaries, including KCS. Our current directors serve as directors of both Canadian Pacific Kansas City 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 79 for more information on serving on other boards).

Each of our nominees currently serve as a director of CPRC. The KCS nominees were appointed to the CPRC board of directors on the Control Date, in connection with the Company’s obligations under the Merger Agreement governing the KCS transaction. For more information relating to the KCS transaction and the Control Date, see “Explanatory notes” on page 3.

Meeting attendance

We expect directors to attend, in person, via telephone or video conference, all board meetings and all of their committee meetings. Meeting materials are provided to directors in advance. If a director cannot attend a meeting, they 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.

2022 board and committee attendance

Nominee directors who served on the board in 2022 attended 100 percent of the formally scheduled board and 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.

 

 

LOGO

(1)

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

(2) 

Mr. Baird was appointed Chair of the Corporate Governance, Nominating and Social Responsibility committee on April 27, 2022.

(3) 

Mr. Paull moved from the Risk and Sustainability committee to the Audit and Finance committee on April 27, 2022.

(4) 

Ms. Robertson was appointed a member of the Corporate Governance, Nominating and Social Responsibility committee on April 27, 2022.

(5) 

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.

(6) 

Meetings of the KCS Acquisition and Integration committee take place concurrently with Board meetings.

 

 

2023 MANAGEMENT PROXY CIRCULAR  19


         Director Nominee Profile Highlights

 

 

 

  

 

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

 

Share Ownership

 

All directors are CPKC shareholders and must meet our director share ownership requirements within five years of joining the board. Share ownership listed here is as at April 24, 2023 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.

 

Key skills and qualifications

 

The Board reviewed the Company’s skills matrix to determine nominees for the 2023 annual meeting. Below are the top skills which a majority of nominee directors possess in their portfolios:

 

•  Governance

•  Risk Management

•  Strategic Oversight

•  Senior Executive Leadership

 

Meet our new director nominees

 

Amb. Antonio Garza (Ret.)

 

Ambassador Garza (Ret.) brings strong political, diplomatic and international business skills to the Board that he has developed through his experience as the United States’ Ambassador to Mexico. In addition, he has extensive experience in public policy development, strategic relationships with government officials and government relations experience including prior experience working with the Mexican government, which will serve the Board well in its governance and strategic oversight of CPKC.

 

David Garza-Santos

 

Mr. Garza-Santos is a business and community leader in Monterrey, N.L. Mexico. As Chairman and Chief Executive Officer of MADISA, Mr. Garza-Santos has experience in all phases of leading a company. Mr. Garza-Santos also sits on the board of directors of Promotora Ambiental, S.A.B. de C.V., a publicly-traded waste management services company based out of Monterrey, Mexico. As a recognized leader in Monterrey, Mr. Garza-Santos will provide CPKC with additional insight and leadership on the business and political environment both regionally in Monterrey as well as nationally across Mexico.

 

Janet H. Kennedy

 

Ms. Kennedy, as former VP, North America Regions of Google Cloud at Google, focused on helping clients to leverage disruptive thinking and emerging technologies to develop and execute their digital transformation strategies. In her role as CEO of Microsoft Canada, Ms. Kennedy was responsible for both internal and external digital transformations for Microsoft’s customers and partners. Together with Ms. Kennedy’s valuable executive leadership skills and experience in compensation, cybersecurity, business development and strategy, the experience and insights she has gained from these roles provide her with a unique and valuable perspective for CPKC.

 

Henry J. Maier

 

Mr. Maier, as the former President and Chief Executive Officer of FedEx Ground, developed a deep and strong skill set relating to strategy development and execution. Mr. Maier held various other senior executive roles in the areas of marketing, communications and strategic planning. Mr. Maier’s executive leadership skills will strengthen the Board’s ability to oversee the execution of CPKC’s strategy, including fostering a culture that demands performance excellence. In addition, Mr. Maier has spent his entire career working in various segments of the transportation industry, giving him tremendous insight into the many areas important at CPKC.

 































































    

 

Isabelle Courville

Chair

 

 

LOGO  

Independent

Age: 60

Director since:

May 1, 2013

Residence: Mont-Tremblant, Québec, Canada

2022 voting results:

99.74% 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 2023)

 

    Member of the Human Resources Committee and the Governance and Ethics Committee  

Veolia Environnement S.A. (2015 to present)

 

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

* Ms. Courville will not be standing for re-election at SNC-Lavalin’s 2023 Annual Meeting of Shareholders.

 

OVERALL 2022 ATTENDANCE          100%  
Meeting Attendance(1)       
Board   11 of 11        100%  
Audit and Finance   5 of 5        100%  
Governance   6 of 6        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)
  Gecina S.A. (2016 to April 2017)
  TVA Group (2013 to 2016)

OTHER EXPERIENCE

Other Boards - Current

 

  Institute for Governance of Private and Public Organizations (IGOPP) (2016 to present) (member of Human Resources Committee)
  Quebec Institute of Corporate Directors (2013 to present)

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: 61,266

Meets share ownership requirements

 

 

(1) 

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

 

 

20  CPKC


PROXY CIRCULAR

ABOUT THE NOMINATED DIRECTORS

 

 

 

The Hon. John Baird, P.C.

 

LOGO  

Independent
Age:
53

Director since:

May 14, 2015

Residence: Toronto, Ontario, Canada

2022 voting results:

94.79% for

 

 

DIRECTOR SKILLS AND QUALIFICATIONS

 

Brings experience in the following areas: senior executive leadership, environmental policy, 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 2022 ATTENDANCE          100%  
Meeting Attendance       
Board   11 of 11        100%  
Governance (Chair) (1)   6 of 6        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 Risk Committee and Audit Committee / FWD Group Holdings Ltd. (2022 to present) (Chair of Compensation Committee, member of Nominating and Corporate Governance Committee and Risk Committee)
  PineBridge Investments (2015 to present) (member of Audit Committee)

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 Council Member, Prince’s Trust Canada, the charitable office of His Majesty King Charles III

EDUCATION

 

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

SHARE OWNERSHIP

Shares: 0

DDSUs: 39,026

Meets share ownership requirements

 

 

Keith E. Creel

 

LOGO  

Not Independent

Age: 54

Director since:

May 14, 2015

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

2022 voting results:

98.73% for

 

 

DIRECTOR SKILLS AND QUALIFICATIONS

 

President and Chief Executive Officer of the Company 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   11 of 11        100%  

BUSINESS EXPERIENCE

 

  President and Chief Executive Officer of CPKC (2017 to present)
  President and Chief Operating Officer of CPKC (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 “2021 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 CPKC

OTHER EXPERIENCE

Other Boards - Current

  Representative on Association of American 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(2): 95,349

DSUs: 163,980

Options(3): 3,178,779

Meets executive share ownership requirements (see page 36)

 

 

 

(1) 

Mr. Baird was appointed as Chair of the Corporate Governance, Nominating and Social Responsibility Committee on April 27, 2022.

(2) 

Reflects CPKC shares in Employee Share Purchase Plan, 401(k) and personal accounts.

(3)

Reflects stock options outstanding as of April 24, 2023.

 

 

2023 MANAGEMENT PROXY CIRCULAR  21


 

Gillian (Jill) H. Denham

 

LOGO  

Independent

Age: 62

Director since:

September 6, 2016

Residence: Toronto, Ontario, Canada

2022 voting results:

94.66% 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

Kinaxis Inc. (2016 to present)

 

    Chair of Compensation Committee  
    Member of the Nominating and Governance Committee  

 

OVERALL 2022 ATTENDANCE          100%  
Meeting Attendance       
Board   11 of 11        100%  
Audit and Finance   5 of 5        100%  
Compensation   3 of 3        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)
  Lifeworks Inc. (2008 to 2022)
  Canaccord Genuity (2020 to March 2023)

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: 28,038

Meets share ownership requirements

 

Amb. Antonio Garza (Ret.)

 

LOGO  

Independent

Age: 63

Director since:

N/A(1)

Residence: Mexico City, Mexico (US Citizen)

2022 voting results:

N/A

 

 

DIRECTOR SKILLS AND QUALIFICATIONS

 

Brings experience in the following areas: senior executive leadership, transportation industry knowledge, governance, government/regulatory affairs and legal and strategic oversight.

 

 

CURRENT PUBLIC COMPANY BOARD EXPERIENCE

MoneyGram International (2012 to present)

 

    Member of the Human Resources & Nominating Committee and Chairman of the Compliance and Ethics Committee  

The Greenbriar Companies (2021 to present)

 

    Member of the Nominating and Corporate Governance Committee  

BUSINESS EXPERIENCE

 

  Counsel to the law firm of White & Case LLP, Mexico City (2009 to present)

PAST PUBLIC COMPANY BOARD EXPERIENCE

 

  Americas Technology Acquisition Corp (2022)
  Kansas City Southern(2) (2010 to April 13, 2023)
  Basic Energy Services (2010 to 2016)

OTHER EXPERIENCE

Other Boards - Current

  Tricolor Auto (Independent Director)
  Grupo KUA (Independent Director)
  Southern Methodist University (Board Trustee member)
  Americas Council/Council of the Americas Society (Director)
  Texas Tribune (Director)

Other Boards - Past

 

  BBVA Compass and the U.S Companies of BBVA (2009 to 2012)
  Saavi Energia de Mexico (2018 to 2020)

Other Experience

 

  United States Ambassador to Mexico (2002 to 2009)
  Chairman, Texas Railroad Commission (1998 to 2002)
  Vice Chairman, Interstate Oil and Gas Compact Commission (1998-2002)
  Partner, Bracewell Law Firm (2017)
  Secretary of State, State of Texas (1995 to 1997)
  Senior Policy Advisor, Governor of the State of Texas (1994 to 1997)
  Cameron County Judge (1988 to 1994)

EDUCATION

 

  JD (Doctor of Jurisprudence), Southern Methodist University School of Law
  BBA Finance, University of Texas at Austin

RECOGNITIONS

 

  Aguila Azteca/Aztec Eagle
  Distinguished Alumni at both the University of Texas at Austin and the Southern Methodist University, Dallas, TX

SHARE OWNERSHIP

Shares: 12,828

DDSUs: 0

 

 

 

(1) 

Served as a director of KCS from 2010, to the Control Date, and as a director of CPRC since the Control Date. For more information on the KCS transaction and the Control Date, see “Explanatory notes” on page 3.

(2) 

The common shares of KCS ceased to be publicly traded on December 14, 2021.

 

 

22  CPKC


PROXY CIRCULAR

ABOUT THE NOMINATED DIRECTORS

 

 

 

David Garza-Santos

 

LOGO  

Independent

Age: 61

Director since:

N/A(1)

Residence: San Pedro Garza Garcia, Nuevo León, Mexico

2022 voting results:

N/A

 

 

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.

 

 

CURRENT PUBLIC COMPANY BOARD EXPERIENCE

Promotora Ambiental, S.A.B. de C.V. (1991 to present)

Grupo Financiero Banorte (BANORTE) (2016 to present)

BUSINESS EXPERIENCE

 

  Chairman and Chief Executive Officer of Maquinaria Diesel S.A. de C.V. (MADISA) (1994 to present)

PAST PUBLIC COMPANY BOARD EXPERIENCE

 

  Kansas City Southern(2) (2016 to April 13, 2023)
  Fibra Mty. SAPI de C.V.

OTHER EXPERIENCE

Other Boards - Current

 

  Desarrollos Delta SA de C.V. (2016 to present)
  Bocapalma Club De Ski AC (2013 to present)

Other Experience

 

  Member of Prosuperacion Familiar Neolonesa AC

EDUCATION

 

  Undergraduate Degree, Instituto Technologico y de Estudios Superiores de Monterrey.

SHARE OWNERSHIP

Shares: 10,411

DDSUs: 0

 

Edward R. Hamberger

 

LOGO  

Independent

Age: 72

Director since:

July 15, 2019

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

2022 voting results:

98.67% 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 2022 ATTENDANCE

         100%  

Meeting Attendance

      

Board

  11 of 11        100%  

Audit and Finance

  5 of 5        100%  

Risk and Sustainability

  3 of 3        100%  

BUSINESS EXPERIENCE

 

  President and Chief Executive Officer, Association of American Railroads (1998 to 2019)

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)
  Asociación Mexicana de Ferrocarriles (2005 to 2008)

Other Experience

 

  Served as Assistant Secretary for governmental affairs at the U.S. Department of Transportation (1987 to 1989)

EDUCATION

 

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

SHARE OWNERSHIP

Shares: 0

DDSUs: 13,459

Is expected to meet share ownership requirements in 2024

 

 

 

(1) 

Served as a director of KCS from 2016 to the Control Date, and as a director of CPRC since the Control Date. For more information on the KCS transaction and the Control Date, see Explanatory note on page 3.

(2) 

The common shares of KCS ceased to be publicly traded on December 14, 2021.

 

 

2023 MANAGEMENT PROXY CIRCULAR  23


 

Janet H. Kennedy

 

LOGO  

Independent

Age: 62

Director since:

N/A(1)

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

2022 voting results:

N/A

 

 

DIRECTOR SKILLS AND QUALIFICATIONS

 

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

 

BUSINESS EXPERIENCE

 

  Vice President, North America Regions of Google Cloud at Google (2019 to April 2023)
  Partner/Principal, Americas Advisory Digital Transformation Leader of Ernst & Young (2018 to 2019)
  Vice President of US Digital Transformation for Microsoft Corp. (2018 to 2019)
  President of Microsoft Canada (2013 to 2017)
  Vice President, U.S. Enterprise of Microsoft Corp. (2009 to 2013)
  Vice President, Central Region EPG for Microsoft Corp. (2002 to 2013)
  Business Unit Executive for IBM (1990 to 2002)

PAST PUBLIC COMPANY BOARD EXPERIENCE

 

  Kansas City Southern(3) (2017 to 2018 and from 2019 to April 13, 2023)

OTHER EXPERIENCE

Other Boards - Past

 

  Information Technology Association of Canada (2013 to 2017)
  Business Council of Canada (2014 to 2017)

EDUCATION

 

  BSIM, Industrial Mgmt/Industrial Engineering, Purdue University, Daniels School of Business
  MBA, Queens University of Charlotte
  Directors Consortium 2018, Stanford Graduate School of Business Executive Education
  Diligent Board Certification for Cyber Security & Risk

SHARE OWNERSHIP

Shares: 7,944

DDSUs: 0

 

Henry Maier

 

LOGO  

Independent

Age: 69

Director since:

N/A(2)

Residence: Gallatin, Tennessee, U.S.A.

2022 voting results:

N/A

 

 

DIRECTOR SKILLS AND QUALIFICATIONS

 

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

 

 

CURRENT PUBLIC COMPANY BOARD EXPERIENCE

CalAmp Corp. (2021 to present)

 

    Chair of the Board  
    Member of the Governance and Nominating Committee and the Human Capital Committee  

CarParts.com (2021 to present)

 

    Member of the Nominating and Corporate Governance Committee  

CH Robinson Worldwide Inc. (2022 to present)

 

    Member of the Governance Committee and the Capital Allocation and Planning Committee  

BUSINESS EXPERIENCE

 

  President and Chief Executive Officer of FedEx Ground (2013 to 2021)
  Executive Vice President, Strategic Planning, Communications, and Contractor Relations for FedEx Corp. (2009 to 2013)

PAST PUBLIC COMPANY BOARD EXPERIENCE

 

  Kansas City Southern(3) (2017 to April 13, 2023)

OTHER EXPERIENCE

Other Boards - Past

 

  United Way of Southwestern Pennsylvania

EDUCATION

 

  Bachelor of Arts in Economics, University of Michigan

SHARE OWNERSHIP

Shares: 26,206

DDSUs: 0

 

 

 

 

 

(1) 

Served as a director of KCS from 2017 to 2018 and then from 2019 to the Control Date, and as a director of CPRC since the Control Date. For more information on the KCS transaction and the Control Date, see “Explanatory notes” on page 3.

(2) 

Served as a director of KCS from 2017, to the Control Date, and as a director of CPRC since the Control Date. For more information on the KCS transaction and the Control Date, see “Explanatory notes” on page 3.

(3) 

The common shares of KCS ceased to be publicly traded on December 14, 2021.

 

 

24  CPKC


PROXY CIRCULAR

ABOUT THE NOMINATED DIRECTORS

 

 

 

Matthew H. Paull

 

LOGO  

Independent

Age: 71

Director since:

January 26, 2016

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

2022 voting results:

97.57% 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 2022 ATTENDANCE          100%  
Meeting Attendance       
Board   11 of 11        100%  
Compensation (Chair)   3 of 3        100%  
Risk and Sustainability (1)   2 of 2        100%  
Audit and Finance (1)   2 of 2        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 - Past

 

  Pershing Square Capital Management, L.P. (2008 to 2023) (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: 42,464

Meets share ownership requirements

 

Jane L. Peverett

 

LOGO  

Independent

Age: 64

Director since:

December 13, 2016

Residence: West Vancouver, British Columbia, Canada

2022 voting results:

98.25% 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

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 2022 ATTENDANCE          100%  
Meeting Attendance       
Board   11 of 11        100%  
Audit and Finance (Chair)   5 of 5        100%  
Governance   6 of 6        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)
  CIBC (2009 to April 2023)

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: 28,703

Meets share ownership requirements

 

 

(1) 

Mr. Paull moved from the Risk and Sustainability committee to the Audit and Finance committee on April 27, 2022.

 

 

2023 MANAGEMENT PROXY CIRCULAR  25


 

Andrea Robertson

 

LOGO  

Independent

Age: 59

Director since:

July 15, 2019

Residence: Calgary, Alberta, Canada

2022 voting results:

99.30% 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 2022 ATTENDANCE          100%  
Meeting Attendance       
Board   11 of 11        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)
  Chief Nursing and Health Professions Officer, Alberta Health Services (2009 to 2011)
  Vice President, Foothills Medical Centre (2008 to 2009)
  Vice President, Alberta Children’s Hospital (2008 to 2009)
  Vice President, South Health Campus (2005 to 2007)

OTHER EXPERIENCE

Other Boards - Current

 

  The Calgary Airport Authority (2017 to present)

Other Boards - Past

 

  Bow Valley College (2015 to 2018)
  United Way (2007 to 2013)
  University of Alberta, Faculty of Medicine & Dentistry (2021 to 2023)

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: 13,364

Is expected to meet share ownership requirements in 2024

 

Gordon T. Trafton

 

LOGO  

Independent

Age: 69

Director since:

January 1, 2017

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

2022 voting results:

99.27% 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 2022 ATTENDANCE          100%  
Meeting Attendance       
Board   11 of 11        100%  
Governance   6 of 6        100%  
Risk and Sustainability (Chair)   3 of 3        100%  

BUSINESS EXPERIENCE

 

  Consultant, Brigadier Consulting (2014 to 2015)
  Consultant, CPKC (f/k/a Canadian Pacific Railway Limited) (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)
  Pacific National (2023 to present)

EDUCATION

 

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

SHARE OWNERSHIP

Shares: 0

DDSUs: 28,410

Meets share ownership requirements

 

 

 

(1) 

Ms. Robertson was appointed a member of the Corporate Governance, Nominating and Social Responsibility Committee on April 27, 2022.

 

 

26  CPKC


PROXY CIRCULAR

ABOUT THE NOMINATED DIRECTORS

 

 

 

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 percent of the outstanding shares of Postmedia at that time. Postmedia repaid, extended and amended the terms of its outstanding debt obligations.

 

 

2022 Director Compensation

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$280,000. Committee chairs receive an additional US$30,000 per year and the Board Chair receives an additional annual retainer of US$195,000(1).

Effective 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 approximately $3,616,773 in 2022 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 2022, 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.

Mr. Creel does not receive director compensation because he is compensated in his role as President and CEO (see pages 52 and 58 for details).

 

(1) 

Board Chair compensation for 2022 is an aggregate total of the Director retainer fee of US$280,000 plus the Chair of the Board retainer fee of US$195,000 totaling US$475,000.

 

 

2023 MANAGEMENT PROXY CIRCULAR  27


All figures in the chart below are in Canadian dollars.

 

  Name   

Fees earned(2)

(cash)

($)

    

Share-based
awards
(1),(2)

(DDSUs)

($)

    

All other
compensation
(2),(3)

($)

    

Total

($)

     % of Total
Compensation
Taken in DDSUs
 

  John Baird

              395,741        1,000        396,741        100  

  Isabelle Courville

     312,508        312,508        1,000        626,016        50  

  Jill Denham

     110,529        257,902        1,000        369,431        70  

  Edward Hamberger

              364,364        1,301        365,665        100  

  Rebecca MacDonald(4)

              126,585                 126,585        100  

  Edward Monser(4)

              118,418                 118,418        100  

  Matthew Paull

              416,416        1,301        417,717        100  

  Jane Peverett

     210,532        210,532        1,000        422,064        50  

  Andrea Robertson

              368,431        1,000        369,431        100  

  Gordon Trafton

     201,702        201,702        1,301        404,705        50  

 

(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)

All directors fees are initally determined in U.S. dollars. The value of director share-based awards, and cash and other payments, as applicable, is paid in their local currency. Messrs. Hamberger, Monser, Paull and Trafton were paid in U.S. dollars and their amounts have been converted to Canadian dollars using the 2022 average exchange rate of $1.3013. The Canadian directors were paid based on the exchange rate at the date of payment or grant date, as the case may be.

(3)

Each director was provided with a $1,000 donation, in local currency, to the charity of their choice in December 2022 in gratitude for their year of service. This amount appears under All other compensation.

(4) 

Ms. MacDonald and Mr. Monser retired from the board on April 27, 2022.

You can read more about our director compensation program beginning on page 82.

Incentive plan awards

Outstanding share-based awards and option-based awards

The table below shows all vested and unvested equity incentive awards held by directors, that are outstanding as of December 31, 2022.

On July 21, 2003, the Board suspended any additional grants of options under the director stock option plan. 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

 

 

-

 

 

 

-

 

 

 

3,824,188

 

  Isabelle Courville

 

 

-

 

 

 

-

 

 

 

6,084,862

 

  Jill Denham

 

 

-

 

 

 

-

 

 

 

2,756,137

 

  Edward Hamberger

 

 

-

 

 

 

-

 

 

 

1,255,737

 

  Rebecca MacDonald(2)

 

 

-

 

 

 

-

 

 

 

-

 

  Edward Monser(3)

 

 

-

 

 

 

-

 

 

 

604,229

 

  Matthew Paull

 

 

-

 

 

 

-

 

 

 

4,168,885

 

  Jane Peverett

 

 

-

 

 

 

-

 

 

 

2,834,777

 

  Andrea Robertson

 

 

-

 

 

 

-

 

 

 

1,252,689

 

  Gordon Trafton

 

 

-

 

 

 

-

 

 

 

2,808,689

 

 

(1)

Calculated based on the closing price of our shares on December 31, 2022 on the TSX ($100.95), in the case of directors resident in Canada, and on the NYSE (US$74.59) which was converted to Canadian dollars using the year-end exchange rate of $1.3544, in the case of the directors resident in the U.S.

(2)

Ms. MacDonald retired from the Board on April 27, 2022. There are no outstanding DSU payouts as at December 31, 2022.

(3) 

Mr. Monser retired from the Board on April 27, 2022. His final DSUs are payable after April 27, 2023 (the 12 month anniversary of retirement from the Board).

 

 

28  CPKC


PROXY CIRCULAR

ABOUT THE NOMINATED DIRECTORS

 

 

 

 

2022 Board and Committee reports

overview

 

In 2022, the Board had 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

 

The Board also had a separate committee dealing with the Kansas City Southern transaction (KCS Integration Committee). For 2023, the KCS integration committee has been renamed the Integration Committee and is now a standing committee of the Board.

 

Each committee has terms of reference approved by the Board that sets out the committee’s responsibilities. Each committee has fulfilled all of its responsibilities in 2022. All committee memberships are as of December 31, 2022 unless otherwise noted.

 

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 20. Copies of the terms of reference for the Board and committees are available on our website (investor.cpkcr.com/governance).

 

 

Integration Committee

 

Responsible for overseeing the integration of KCS following the Company’s acquisition of control of KCS. The Integration Committee also provides advice to management regarding the integration of KCS and evaluates, approves and monitors the integration plan. The members as of December 31, 2022 were as follows:

 

MEMBERS

 

Edward Hamberger (Chair - as of January 31, 2023)

Isabelle Courville (ex-officio)

Andrea Robertson

Gordon Trafton

 

2022 HIGHLIGHTS

 

Meetings of the Integration committee were conducted during the Board meetings.

 

Strategic Risk

 

•  Reviewed steps required for post control plans, and monitored the integration plan

 

Safety and environmental processes and systems

 

•  Received updates on safety and environmental matters

 

Culture

 

•  Reviewed the development of an integrated future CPKC culture

•  On January 31, 2023, Gordon Trafton stepped down as Chair of the Committee and Ed Hamberger became the Committee Chair. The Committee changed its name from KCS Integration Committee to the Integration 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

John Baird (Chair)

Isabelle Courville (ex-officio)

Jane Peverett

Andrea Robertson

Gordon Trafton

2022 HIGHLIGHTS

Six formal meetings in 2022 in addition to a number of informal meetings to discuss the matters before the committee.

Corporate governance

  Reviewed and updated our corporate governance principles and guidelines
  Reviewed and confirmed the terms of reference for the Board and committees
  Reviewed and confirmed the position descriptions for the Board Chair, CEO and committee chairs
  Reviewed Board age and term limits
  Reviewed Globe and Mail Board Games survey ranking
  Received and approved management proxy circular and related disclosures
  Reviewed progress to promote diversity and inclusion

Board performance

  Set Board goals for 2022 relating to strategic planning, Board succession, shareholder engagement, director education and mentorship
  Engaged in a peer review process as part of the director evaluation process

Board composition for 2022

  Reviewed the director skills matrix to ensure that the current directors have the skills and experience to meet the Board’s needs
  Reviewed the director skills and attributes for KCS nominee candidates and considered those skills and attributes for the CPKC board
  Met with KCS director nominees both online and in person to determine those directors who could complement CPKC’s board

Director development

  Continuing education provided through board and committee meetings as well as participation in industry conferences.

 

 

 

 

2023 MANAGEMENT PROXY CIRCULAR  29


 

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

Matthew Paull

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, Ms. Courville and Mr. Paull have been determined to be “audit committee financial experts” as defined by the SEC.

2022 HIGHLIGHTS

Five formal meetings in 2022 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 re-appointment of the company’s external auditor for fiscal year 2023
  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 KCS acquisition.

Risk oversight

  Reviewed and monitored our material financial disclosure
  Confirmed our audit committee financial experts
  Received report from 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 2021 pension plan financial statements and external auditor’s reports
  Approved appointment of auditor for the Canadian 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 pension plan amendments

 

2022 Audit Committee Financial Experts

 

All members of the Audit and Finance Committee are “financially literate” as required by the NYSE and applicable Canadian securities laws. As of December 31, 2022, the following Audit and Finance Committee members have been determined to be “audit committee financial experts” as defined by the SEC:

•   Isabelle Courville

•   Matthew Paull

•   Jane Peverett

 

 

 

30  CPKC


PROXY CIRCULAR

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 and the succession plans for senior officers.

MEMBERS

Matthew Paull (Chair)

Isabelle Courville (ex-officio)

Jill Denham

Andrea Robertson

2022 HIGHLIGHTS

Three formal meetings in 2022 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

  In early 2022, reviewed the compensation programs and recommended the Board approve:
    the 2021 short-term incentive plan payout
    the 2019 performance share unit (PSU) payout which vested on December 31, 2021
    the 2019 special retention grant
    the 2022 short-term incentive plan metrics
    the 2022 long-term incentive plan grants
  Assessed CEO and other management retention risks
  Reviewed CEO and NEO 2022 performance objectives and goals
  Reviewed the CEO’s assessment of the NEOs and other direct reports of the CEO and recommended their 2022 compensation to the Board
  Reviewed executive share ownership guidelines and monitored compliance

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 37 and executive compensation generally beginning on page 32.

 

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

2022 HIGHLIGHTS

Three formal meetings in 2022 and 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
  Supported management’s recommendation for CP to participate in the United Nations Global Compact
  Reviewed progress on implementation of the CP Climate Strategy, including management’s evaluation of additional decarbonization opportunities
  Received updates from management on the Hydrogen Locomotive Program
  Received updates from management on sustainability governance initiatives, including establishment of the Company’s Carbon Reduction Task Force
  Provided oversight with respect to ESG disclosures and engagement with third-party ESG information providers and ratings organizations
  Received regular sustainability updates from management
 

 

 

2023 MANAGEMENT PROXY CIRCULAR  31


LOGO

PART III - EXECUTIVE COMPENSATION

MESSAGE FROM THE CHAIR OF THE MANAGEMENT RESOURCES AND COMPENSATION COMMITTEE

 

Fellow Shareholders,

 

As in prior years, I have participated with Isabelle Courville, Board Chair, in engagement meetings with our institutional shareholders with respect to the Company’s compensation programs. We heard that our shareholders are excited for us to build CPKC’s legacy and have our industry-leading management team at the helm of the combined entity. They also understand the need for us to adapt our compensation programs to align executives and employees to CPKC business objectives.

 

2022 Compensation highlights

 

The 2020 performance share unit (PSU) plan overall payout of 180 percent is a testament to the long-term value we have consistently delivered for our shareholders with above target performance on adjusted return on invested capital (ROIC) and total shareholder returns relative to the TSX 60 index and Class 1 railroads over the past three years. Consistent with our pay for performance philosophy, the corporate factor for our 2022 short-term incentive plan (STIP) reflects the Company’s financial performance falling short of our target objectives, which resulted in a payout of 29 percent (see page 45).

 

LOGO

2023 CPKC Incentive compensation

To continue to align pay for performance, the Board has approved two modest changes to the performance measures for our 2023 STIP and 2023 PSU designs during a transformative time for the Company. For the 2023 performance year, CPKC will continue to focus on financial and safety measures for STIP and temporarily remove the trip plan measure as we integrate the KCS network into the combined entity. For the 2023 PSU plan design, management has demonstrated strong oversight of the Company’s capital structure in 2022 making it possible to remove the adjusted net debt to adjusted EBITDA modifier(1). Lastly, we have increased the total weighting of relative TSR from 30 percent to 40 percent to place greater emphasis on shareholder value return as we contemplate integration with KCS. The financial measure will correspondingly decrease by 10 percent from 70 percent to 60 percent. Additionally, we have challenged the newly combined company with an exceptional target for all long-term performance measures to payout up to 250 percent (see page 48). Our shareholders have told us they like ROIC as a long-term performance measure. We are committed to return to ROIC as a PSU measure once significant progress has been made on the CPKC integration.

Annual “say on pay” vote

On behalf of the Management Resources and Compensation Committee, I encourage you to take time to read the compensation discussion and analysis, which starts on page 33, and invite you to vote on our approach to executive compensation at this year’s annual meeting.

If you have any questions about our compensation programs, please contact me through the office of the Corporate Secretary at CPKC, or by sending an email to ocs@cpkcr.com. Your comments and feedback are welcome at any time.

Sincerely,

 

LOGO

Matthew H. Paull

Chair, Management Resources and Compensation Committee

  

 

(1) 

Adjusted net debt to adjusted EBITDA ratio is a non-GAAP measure. Non-GAAP measures are defined and reconciled on pages 66-77 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

 

 

32  CPKC


PROXY CIRCULAR

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 2022 compensation decisions for our Named Executive Officers (NEOs), listed below.

 

 

2022 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(1)

Executive Vice-President Operations

 

Jeffrey J. Ellis(2)

Chief Legal Officer and Corporate Secretary

 

 

(1) 

Until April 13, 2023, Mr. Redd held the role of Executive Vice-President Operations. He was appointed Executive Vice-President and Chief Operating Officer of CPKC effective April 14, 2023.

(2)

Until April 13, 2023, Mr. Ellis held the role of Chief Legal Officer and Corporate Secretary. He was appointed Executive Vice-President Chief Legal Officer and Corporate Secretary of CPKC effective April 14, 2023.

Where to find it

 

 

 

 

2023 MANAGEMENT PROXY CIRCULAR  33


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 portion 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 requirements

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

 

 

LOGO

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 CPKC equity and our share ownership guidelines increase by executive level (see page 36).

 

 

2022 total target direct compensation mix

for our NEOs is

shown in the graph.

 

For 2022, 90 percent of

our CEO’s total target

direct compensation

and an average of

79 percent for our

other NEOs was at risk.

   LOGO

 

 

34  CPKC


PROXY CIRCULAR

PART III – EXECUTIVE COMPENSATION

 

 

Benchmarking

Our comparator group in 2022 remains unchanged from 2021 and consists of companies we compete with for talent. The group includes our Class 1 railroad peers as well as 11 capital-intensive Canadian companies. For certain positions within the organization, we apply a heavier weighting to Class 1 railroad peers; however, we consistently review alignment and compensation practices against our comparator group.

Our 2022 compensation comparator group was as follows:

 

 

Class 1 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

 

 

2023 MANAGEMENT PROXY CIRCULAR  35


Executives are CPKC 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 increase by level. The ownership requirement must be achieved within five years of the employee 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 do not count towards ownership requirements. Once executives have met their initial shareholding requirements, they are required to maintain compliance, which is reported annually to the Compensation Committee. The CEO must maintain the ownership level of six times his base salary for one year after the cessation of employment.

Executives have the opportunity to participate in the Senior Executive’s DSU Plan (see page 66 for further plan details). DSUs must be held for a minimum of six months after the executive leaves the Company. The units are redeemed for cash, 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 103 executives and senior management employees in 2022. 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 (as at December 31, 2022)

 

           

Executive

   

Requirement

(as a multiple

of salary)

 

 

 

   

Minimum
    ownership

value

($) (1)

 
 

 

 

   

        Shares

($)

 

 

   

Deferred

    share units

($)(2)

 

 

 

   

Total

    ownership

value

($) (3)

 

 

 

 

    

Total 

ownership 

(as a multiple 

of salary) 

 

 

 

 

Keith Creel

    6x       9,751,680       9,587,934       16,507,476       26,095,410        16.06x  

Nadeem Velani(2)

    4x       3,416,688       353,639       5,984,379       6,338,018        7.42x  

John Brooks

    4x       3,304,736       1,266,885       1,702,926       2,969,811        3.59x  

Mark Redd(2)

    4x       3,196,384       2,334,627       2,187,596       4,522,223        5.66x  

Jeffrey Ellis

    2x       1,210,000       644,101       1,668,229       2,312,330        3.82x  

 

(1) 

Minimum ownership values for Mr. Creel, Mr. Brooks and Mr. Redd have been converted to Canadian dollars using an exchange rate of $1.3544.

(2) 

Includes the 16,969 Performance DSUs (PDSUs) and 3,277 PDSUs credited to Mr. Velani and Mr. Redd, respectively, on February 2, 2023, as a result of the 2020 PSU performance factor, and the additional 5,759 and 1,843 matching PDSUs credited to Mr. Velani and Mr. Redd, respectively, under the terms of the Senior Executive Deferred Share Plan. See the About deferred compensation section on page 66 for more details.

(3)

Total ownership values for Mr. Creel, Mr. Brooks and Mr. Redd are based on US$74.59, the closing share price of the Company’s shares on the NYSE on December 30, 2022 and have been converted to Canadian dollars using an exchange rate of $1.3544. Values for Mr. Velani and Mr. Ellis are based on $100.95, the closing share price of the Company’s shares on the TSX on December 30, 2022.

 

 

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PART III – EXECUTIVE COMPENSATION

 

 

Compensation governance

Disciplined decision-making process

Executive compensation decisions involve management, the Compensation Committee and the Board. The Board has final approval for setting, amending and adopting any equity compensation plans or awards, subject to applicable shareholder approval requirements. The Compensation Committee also receives advice and support from external consultants from time to time and retained an independent compensation consultant in June 2020, Frederic W. Cook & Co., Inc. (FW Cook), to provide objective analysis and assessment of the Company’s executive compensation program. Management receives advice and support from Willis Towers Watson, and other external consultants to the Company.    

 

 

LOGO

 

 

2023 MANAGEMENT PROXY CIRCULAR  37


Qualified and experienced 2022 Compensation Committee

The Compensation Committee is responsible for our compensation philosophy, strategy and program design. The Compensation Committee consists of four 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

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 CPKC during 2022 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 20.

Our Compensation Committee members also serve on other standing committees. Mr. Paull and Ms. Denham are members of the Audit and Finance Committee and Ms. Robertson is also a member of the Governance Committee. Ms. Courville, in her capacity as Chair of the Board, is an ex-officio member of all standing committees and may attend committee meetings at her discretion. 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.

 

 

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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 2021 and 2022 for compensation advisory services.

 

   
     

2022

    

2021

 
       
     

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

  

$

119,864

 

  

$

57,808

 

  

$

226,608

 

  

$

88,394

 

 Other fees(2)

  

$

0

 

  

$

1,161,580

 

  

$

0

 

  

$

1,525,184

 

 Total fees

  

$

119,864

 

  

$

1,219,388

 

  

$

226,608

 

  

$

1,613,578

 

 

(1)

FW Cook fees have been converted to Canadian dollars using the average exchange rate for 2022 of $1.3013

(2) 

In addition to the amounts shown in the table, a one-time fee of $13,500 for Committee advice from an independent consultant was paid in 2022

Fees paid

In 2022, $57,808 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, were $1,219,388. The total executive compensation fees represent 4.7% percent of the total fees in 2022.

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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The Committee engaged Willis Towers Watson in 2019 to conduct a detailed risk assessment of our compensation plans, programs and practices. 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 the Company. A subsequent risk assessment was expected to be completed in 2021, however in light of the KCS transaction, and after consultation with Willis Towers Watson, management determined that a risk assessment would be more pertinent in 2023 following the completion of the KCS transaction. For further information on the KCS transaction, see “Explanatory notes” on page 3.

Managing compensation risk

Our commitment to risk mitigation of the Company’s executive compensation program is reflected in the following practices and policies:

 

LOGO

Key policies(1)

In addition to the code of business ethics and the business ethics reporting policy for the Company, a number of other policies act to mitigate compensation risk. You can read more about our code of business ethics and other policies beginning on page 85.

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. We expect to amend our clawback policy going forward as may be required by changes in applicable laws and listing requirements.

 

(1) 

The Key policies described in this section reference policies and practices that CP had in place in 2022. Kansas City Southern has instituted similar policies. We are in the process of aligning and evaluating policies for the combined CPKC.

 

 

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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 CPKC 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.

Compensation committee discretion

As part of the Company’s commitment to risk mitigation and corporate governance, 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 discretion for the short-term incentive plan or annual long-term incentive plan in 2022. Please refer to page 51 for details regarding adjustments made by the Compensation Committee for PSU purposes to remove impacts of the KCS acquisition in the calculation of the 2020 PSU performance factor.

 

 

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Compensation program

Total direct compensation consists of salary, 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    Why it is important

Salary

Fixed cash

(see page 43)

  

•  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 43)

  

•  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 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 66)

  

•  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, subject to a cap

  

•  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 and matching PDSUs vest immediately

  

•  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 the Company

       

Long-term incentive

Performance share units

(see page 46)

  

•  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 factor 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 46)

  

•  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 65)

  

•  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 59)

  

•  market competitive benefit to support health and well-being

  

•  capped perquisites for the CEO and executives

  

•  attract and retain highly qualified leaders

 

 

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2022 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   

2022  

(in USD)  

   percent change from 2021     

2021

(in USD)

  Keith Creel

   1,200,000      0.5%     

1,193,513

  Nadeem Velani

   660,000      3.1%     

640,000

  John Brooks

   610,000      5.2%     

580,000

  Mark Redd(1)

   590,000      12.4%     

525,000

  Jeffrey Ellis(1)

   475,000      11.8%     

425,000

 

(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 focuses executives on achieving strong annual 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 at a maximum of 200 percent of target to limit payout and excessive risk-taking

 

We calculate each STIP 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

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 is based on 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.

 

 

2023 MANAGEMENT PROXY CIRCULAR  43


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 45 for a complete review of the targets and results for the 2022 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.

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 2022 market review resulted
in a STIP target adjustment for
Mr. Redd to maintain his 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%   100%   200%
    Jeffrey Ellis   0%   80%   160%

2022 STIP awards

The table below shows the calculation of the STIP awarded to each NEO based on the 2022 corporate and individual performance factors. The salaries of Mr. Creel, Mr. Brooks and Mr. Redd have been converted to Canadian dollars using an average exchange rate of $1.3013 for 2022.

 

LOGO

 

(1)

Neither Mr. Creel nor the other NEOs elected to defer a portion of their 2022 STIP award to DSUs.

Assessing individual performance

Individual performance objectives are set at the start of every financial year. 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. The individual performance factor ranges from 0 to 200 percent. The individual performance factor for the CEO cannot exceed the STIP corporate performance factor and accordingly Mr. Creel’s performance factor was capped at 29 percent. This ensures the payout factor for the CEO aligns with the Company’s overall performance. For Mr. Velani, Mr. Brooks, Mr. Redd and Mr. Ellis, their individual performance factor for 2022 was 100 percent.

See the profiles beginning on page 52 to read about each executive’s individual performance highlights in 2022.

 

 

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Assessing corporate performance

In 2022 the Company achieved its lowest ever and industry leading Federal Railroad Administration (FRA) train accident frequency ratio of 0.93, a 15 percent improvement from 2021. Our 2022 FRA-reportable personal injury frequency ratio of 1.01 was the second best ever result in this category. Additionally, the Company continued to progress its merger application to combine with KCS to create the first single-line haul rail network connecting the U.S., Mexico and Canada. However, due to a softer than anticipated volume environment as well as weather and labour disruptions, the Company’s financial results did not meet targets for the 2022 STIP award. In 2022, the Company’s operating ratio was 62.2 percent, an increase of 230 basis point from 2021, adjusted operating ratio(1) was 61.4 percent, an increase of 380 basis point from 2021, while operating income increased from $3,206 million in 2021 to $3,329 million and adjusted operating income(1) increased from $3,389 million in 2021 to $3,403 million. Consistent with our pay for performance philosophy, the corporate performance factor for our 2022 STIP award reflects financial measures falling short of our annual target objectives and resulted in a payout of 29 percent.

2022 STIP scorecard results

The table below shows the 2022 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%)

 

   

 

2022
  Reported  

Result

 

   

 

2022
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

    57.6%       57.3%       57.0%       61.4%(1)       58.7%(2)       0%  

 

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

    3,410       3,490       3,565       3,403(1)       3,334(2)       0%  

 

Safety measures

 

             

FRA Train Accident Frequency (10%)

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

 

 

 

The Company 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       1.02       0.96       0.93       0.93       200%  

FRA Personal Injury Frequency (10%)

Number of FRA-reportable injuries per 200,000 employee hours

 

 

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

 

    1.05       1.00       0.95       1.01       1.01       90%  

 

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 CPKC’s product offering. It balances between customer needs and what we are capable of delivering safely

 

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

 

    75%       80%       85%       64%       64%       0%  

Corporate performance factor

 

                                             

 

 

29

 

 

 

(1)

Adjusted operating ratio and Adjusted operating income are non-GAAP measures. Non-GAAP measures are defined and reconciled on pages 66-77 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

(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 2022 budget.

 

 

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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 approves

 

    

•  vest 25% annually over four years beginning on the first anniversary of the grant date

Payout  

•  paid out in cash based on units vested 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 Company 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 not paid out

 

    

•  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 forfeited

 

    

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

 

Retirement  

•  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 with payout based on actual performance 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 forfeited

 

    

•  all options forfeited

 

Change of Control

 

 

•  if a PSU unit holder is terminated without cause following a change of control, PSUs credited prior to the change of control vest as of the termination date, and PSUs credited after the change of control are forfeited

 

    

•  if the optionholder is terminated without cause following a change of control, then all options vest immediately(1)

 

 

(1) 

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 to NEOs and eligible employees annually 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 to employees, excluding the executives reporting to the CEO, 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 2022, the Compensation Committee authorized a pool of 250,000 options for allocation by the CEO, who granted 25,492 options to seven employees below executive officer level for retention and to recognize performance.

2022 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.

The table below shows the 2022 long-term incentives awards for the NEOs:

 

Executive   

2022  

long-term  

incentive award  

(grant value)  

($) (1)  

    Grant price   Allocation  
  Performance share units      Stock options  
  ($)      (#)      ($)      (#)  

    Keith Creel (2),(3)

     11,616,154     US$71.40 (NYSE)     6,960,936        74,919        4,655,218        208,107  

    Nadeem Velani

     3,194,126               $90.94 (TSX)     1,878,184        20,653        1,315,942        64,255  

    John Brooks (1),(3)

     2,818,037     US$71.40 (NYSE)     1,648,366        17,741        1,169,671        52,289  

    Mark Redd (1),(3)

     2,498,469     US$71.40 (NYSE)     1,461,426        15,729        1,037,043        46,360  

    Jeffrey Ellis

     1,606,731               $90.94 (TSX)     944,776        10,389        661,955        32,322  

 

(1)

See the Summary compensation table on page 58 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. For Mr. Brooks and Mr. Redd, this represents the annual long-term incentive target award value, excluding DSUs granted in 2022.

(2)

As per the terms of the employment agreement amendment dated March 21, 2021, Mr. Creel’s 2022 LTIP target grant value was reduced by US$2.1 million (C$2.8 million) in consideration for the special upfront stock option grant Mr. Creel received on March 27, 2021. This is the first of four planned reductions to Mr. Creel’s annual LTIP award in each year of 2022, 2023, 2024 and 2025 for a total aggregate reduction of US$8.4 million. See Employment agreements on page 60 for more details.

(3)

The grant value of the awards based on the NYSE trading price has been converted to Canadian dollars using a 2022 average exchange rate of $1.3013.

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.

2022 PSU awards

The close of the KCS transaction into voting trust on December 14, 2021 marked a significant milestone for the Company. The impacts of the accelerated timing of the trust closing made it necessary for us to re-evaluate how to most effectively align our 2022 compensation plans with performance as well as to retain and motivate our talented railroaders during this transformative time. After careful consideration and review, the Board decided that because of the KCS transaction it was prudent to make changes to the PSU plan design for the 2022 grant. To further strengthen the link between pay and performance, the Board approved two performance metric changes. For the performance period covering January 1, 2022 to December 31, 2024, a three year cumulative free cash flow(1) 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 replaced adjusted return on invested capital (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 ensured continued rigour in target setting with this near-term change to our financial metric.

 

(1) 

Free cash, Adjusted net debt to adjusted EBITDA ratio and Adjusted ROIC are non-GAAP measures. Non-GAAP measures are defined and reconciled on pages 66-77 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

 

 

2023 MANAGEMENT PROXY CIRCULAR  47


In addition, our relative TSR on the NYSE will be compared to constituents of the S&P 500 Industrials index. This replaced our previous Class I railroad TSR peer group, which consisted of the five publicly-listed Class I railroads. This was reduced to four companies following KCS’ delisting from NYSE in connection with the closing of KCS into voting trust, which is too small for meaningful evaluation of relative TSR performance. All weightings and payout factor ranges from the prior year’s design have remained the same.

The performance period for the 2022 PSU awards is January 1, 2022 to December 31, 2024. Performance will be assessed against the measures in the table below.

 

2022 PSU performance measures      Why the measure is important   Threshold   Target   Stretch   Exceptional   Weighting

Three-year cumulative Free Cash Flow (FCF)(1)

FCF calculated as cash from operating activities less cash used in investing activities, adjusted for changes in cash and cash equivalents balances

  

Incents strong cash flow generation and disciplined capital reinvestment to support the Company’s growth strategy and in turn generate shareholder value

  50.0%   100.0%   140.0%   180%   70%
  $8,755   $9,155   $9,355   $9,555

Adjusted Net Debt to Adjusted EBITDA(1) Ratio target of 2.5

Measures financial leverage and the ability to pay off debt; calculated as adjusted net debt divided by adjusted EBITDA (earnings before interest, tax, depreciation and amortization)

  

Modifier incentive for management to efficiently pay down debt in order to meet the Company’s commitment to return to its long-term target leverage following KCS acquisition and maintain strong investment grade credit rating

  x1.125   x1.250   x1.375   x1.500
  9/30/2024   6/30/2024   3/31/2024   12/31/2023

 

 

FCF x Adj. Net Debt to Adj. EBITDA Payout

 

 

       56%   125%   193%   270%

Total shareholder return (TSR)

Measured over three years. The percentile ranking of the Company’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 performance relative to the Canadian market

 

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

 

  50%   100%   200%   n/a   15%
  25th
percentile
  50th
percentile
  75th
percentile
  n/a

Total shareholder return (TSR)

Measured over three years. The percentile ranking of the Company’s TSX CAGR relative to the companies that make up the S&P 500 Industrials Index

  

Compares our TSR on the NYSE relative to a group of large U.S. industrial companies with similar macroeconomic exposure

 

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

 

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

Potential maximum payout

                       249%

 

(1) 

Free cash, Adjusted net debt to adjusted EBITDA ratio are non-GAAP measures. Non-GAAP measures are defined and reconciled on pages 66-77 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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 on the appropriate index prior to January 1, 2022 and the ending point will be the 10-day average closing share price on the appropriate index prior to January 1, 2025. 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 not be paid out.

New for 2023 PSU Awards

After thoughtful consideration, with our shareholders in mind, the Board has approved changes for the 2023 PSU plan design to further strengthen the link between pay and performance for CP executives and employees. For the performance period covering January 1, 2023 to December 31, 2025, the adjusted net debt to adjusted EBITDA modifier(1) introduced for the 2022 PSU design will be removed as management is on track to return to target leverage. Additionally, we have challenged the Company with an exceptional target for the remaining FCF(1) and relative TSR performance measures to payout up to 250 percent. Lastly, we have increased the total weighting of relative TSR from 30 percent to 40 percent to place greater emphasis on shareholder value return as we contemplate integration with KCS. The financial measure will correspondingly decrease by 10 percent from 70 percent to 60 percent.

 

(1) 

Free cash, Adjusted net debt and Adjusted EBITDA are non-GAAP measures. Non-GAAP measures are defined and reconciled on pages 66-77 of CP’s Annual Report on Form 10-K for the year ended December 31, 2022.

 

 

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PART III – EXECUTIVE COMPENSATION

 

 

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 over four years beginning on the first anniversary date of the grant. The grant price is the closing price of our shares on the TSX, if the option is granted in Canadian dollars or the NYSE, if the option is granted in United States dollars, 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 the Company’s 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.

CPKC 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;

 

  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.

CPKC did not grant any SARs in 2022 and as of December 31, 2022, CPKC does not have any SARs outstanding.

 

 

2023 MANAGEMENT PROXY CIRCULAR  49


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%

 

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 2022 was 3.2 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

 

    

 

2020

 

      

 

2021

 

      

 

2022

 

 

   Number of options granted

 

      

 

1,086,200

 

 

 

      

 

1,346,358

 

 

 

      

 

839,108

 

 

 

   Weighted number of shares outstanding

 

      

 

677,193,050

 

 

 

      

 

679,709,375

 

 

 

      

 

929,976,385

 

 

 

   Burn rate

 

      

 

0.16%

 

 

 

      

 

0.20%

 

 

 

      

 

0.09%

 

 

 

The table below shows the options outstanding and available for grant from the Stock Option Plan as at December 31, 2022.

 

      

Number of options/shares

 

      

Percent of outstanding shares

 

 

Options outstanding (as at December 31, 2022)

 

      

 

7,353,133

 

 

 

      

 

0.79%

 

 

 

Options available to grant (as at December 31, 2022)

 

      

 

22,511,317

 

 

 

      

 

2.42%

 

 

 

Shares issued on exercise of options in 2022

 

      

 

840,303

 

 

 

      

 

0.09%

 

 

 

Options granted in 2022

 

      

 

839,108

 

 

 

      

 

0.09%

 

 

 

Since the launch of the stock option plan in October 2001, a total of 110,393,210 shares have been available for issuance under the plan and 80,528,760 shares have been issued through the exercise of options as at December 31, 2022. The last share pool increase to the Management Stock Option Incentive Plan was an increase of 20,000,000 shares reserved for issuance thereunder, approved at the annual meeting of shareholders of the Company held on April 27, 2022.

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

 

 

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PART III – EXECUTIVE COMPENSATION

 

 

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.

Payout of 2020 PSU award

On December 31, 2022, the 2020 PSU grant for the performance period of January 1, 2020 to December 31, 2022 vested and was paid out on February 16, 2023. The NEOs and all other eligible employees received an overall performance payout factor of 180 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 $1.3415 for 2020. The target grant value represents PSUs only. For Mr. Velani and Mr. Redd, the target grant values excludes the value of the PSUs deferred to PDSUs.

(2) 

Reflects the 30-day average closing share price prior to December 31, 2022 on the TSX ($105.97) and NYSE (US$78.32) when both markets were open.

(3) 

The PSU payout value for Mr. Creel, Mr. Brooks and Mr. Redd was converted using a 2022 year-end exchange rate of $1.3544.

(4) 

Mr. Velani and Mr. Redd elected to defer a portion of their 2020 PSU award to PDSUs. The PSU value reflects the cash payout for the PSUs that were not deferred. Mr. Velani and Mr. Redd received an additional 16,969 and 3,277 PDSUs as a result of the 2020 PSU performance factor, and a further 5,759 and 1,843 matching PDSUs, respectively, on February 2, 2023. See About deferred compensation section on page 66 for more details.

How we calculated the 2020 PSU performance factor

The payout value has been calculated in accordance with the terms of the PSU plan and the 2020 award agreement. This includes provisions for adjustments to adjusted ROIC(1) results for PSU purposes to remove the impacts of the KCS acquisition in 2021 and 2022 in order to more accurately reflect the operating performance of the Company’s core business from 2020-2022.

 

PSU performance measures   

Threshold

(50%)

 

    

Target
(100%)

 

    

Maximum

(200%)

 

    

PSU
result

 

    

Weighting

 

    

PSU
performance
factor

 

3-Year Average Adjusted ROIC(1)

 

    

 

15.3%

 

 

 

    

 

16.0%

 

 

 

    

 

16.7%

 

 

 

    

 

16.5%

 

 

 

    

 

70%

 

 

 

   171.4%

 

TSR to S&P/TSX 60 Index(2)

 

    

 

25th
percentile

 

 
 

 

    

 

50th
percentile

 

 
 

 

    

 

75th
percentile

 

 
 

 

    

 

78th
percentile

 

 
 

 

    

 

15%

 

 

 

   200%

 

TSR to Class I railroads(2)

 

    

 

4th

 

 

 

    

 

3rd

 

 

 

    

 

1st

 

 

 

    

 

1st

 

 

 

    

 

15%

 

 

 

   200%

 

PSU performance factor                                                

 

180%

 

 

(1) 

Adjusted ROIC is a non-GAAP measure. Non-GAAP measures are defined and reconciled on pages 66-77 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

(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 2020 award agreement.

 

 

2023 MANAGEMENT PROXY CIRCULAR  51


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 the Company’s in February 2013 as President and Chief Operating Officer (COO). Prior to joining the Company, 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 Canadian National Railway 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.

 

Mr. Creel has been recognized for his leadership within and beyond the railroad industry throughout his career. In 2014, he was named as Railroad Innovator by Progressive Railroading, in recognition for his

outstanding achievement in the railroad industry. Furthermore, Mr. Creel was recognized by The Globe and Mail’s Report of Business magazine as their CEO of the Year and Strategist of the Year in 2021 for orchestrating the biggest merger and acquisition deal of the year. Railway Age magazine also named Mr. Creel as co-Railroader of the Year and was part of Institutional Investor magazine’s All-Canada Executive team in 2022.

Accomplishments in 2022

Our revenue increased 10 percent to $8.8 billion from $8.0 billion in 2021. The operating ratio increased by 230 basis points to 62.2 percent from 59.9 percent last year. Adjusted operating ratio(1) was 61.4 percent, a 380 basis point increase from 57.6 percent in 2021. Reported diluted earnings per share (EPS) was $3.77, a 10 percent decrease from last year and core adjusted diluted EPS(1),, excluding significant items and KCS purchase accounting, was $3.77, unchanged from last year.

For the 17th consecutive year, the Company’s has operated the safest railway in North America with a remarkable 15 percent reduction in our FRA-reportable train accident ratio from 1.10 in 2021 to a new all-time record low of 0.93. These industry leading records have been made possible due to our continued investment in technology including broken rail detection, train inspection portals, and advanced information architectures which enables innovative data analytics and machine learning to warn of impending failures, allowing for proactive actions to be taken. We also continue to make personal safety a priority and finished 2022 with a FRA-reportable personal injury ratio of 1.01.

Our journey to being Sustainably Driven has continued to progress in 2022. Recognizing that we are not alone in the journey to reduce our greenhouse gas (GHG) emissions, we have shared insights and experiences with external stakeholders in order to add further value to the Company’s climate programs and support collaboration and innovation that will benefit the broader transportation industry. In 2022, we were proud to launch a web-based carbon emissions calculator for our customers to provide greater insight into the carbon footprint of their freight rail transportation services. The Company also continued to advance our hydrogen locomotive program in 2022 with initiatives such as conducting mainline testing, which included the first revenue service trials for the world’s first hydrogen line-haul railway locomotive and developing hydrogen fueling locations in Calgary and Edmonton.

The Company is proud that CP has been recognized as a global leader for our commitment to operating sustainably by being included in the Dow Jones Sustainability World Index (DJSI World) for the first time and in the North America Index (DJSI North America) for the third consecutive year. CP’s membership in the DJSI index reflects a long-term organizational commitment to continuous improvement and transparent disclosure of the company’s sustainability performance. CP was also recognized as a global leader for our actions on climate change by being named to CDP’s exclusive A-list for the second consecutive year, placing CP in the CDP leadership group of companies leading action on climate change globally. We continue to enhance the Company’s sustainability disclosure by voluntarily including reporting that is aligned with the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD), allowing our stakeholders to understand the Company’s climate-related risks and opportunities so that they can be integrated into business and investment decisions. CP also became the first freight rail company in North America to participate in the United Nations (UN) Global Compact, a voluntary global corporate sustainability initiative.

 

(1) 

Adjusted operating ratio and Core adjusted diluted EPS are non-GAAP measures. Non-GAAP measures are defined and reconciled on pages 66-77 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

 

 

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PART III – EXECUTIVE COMPENSATION

 

 

In a year of changing conditions and challenges, in order to support the broader economy and prepare for our proposed combination, we executed one of the largest hiring plans and capital investment programs in our company’s history. Our hiring strategy was multi-faceted, leveraging data analytics to support targeted advertisements, interdepartmental collaboration, hiring events, and community networking. We feel a great deal of the Company pride delivering on our hiring strategy. We are also proud that CP was named one of Alberta’s Top Employers for the third year in a row and for the first time as one of Canada’s Top 100 Employers in early 2023.

Throughout 2022, Mr. Creel has continued to lead and champion the expansion of the Company’s network capacity and infrastructure to provide more service options for our customers. These initiatives include but are not limited to, building on our existing partnership with Hapag-Lloyd for an additional service call at Port Saint John to further unlock the port’s potential for CPKC customers and the North American supply chain. We have also entered in a multi-year agreement with CMA CGM Group to be their primary rail provider in Canada, servicing the ports of Vancouver, Montreal and Saint John. By envisioning the future needs of the agricultural sector with a $600 million multi-year investment, spanning from 2018 to 2022, in high-capacity hopper cars (8,500-foot High Efficiency Product (HEP) model) enabled us to break the all-time monthly record for transporting Canadian grain and grain products by moving 3.14 million metric tonnes (MMT) in October 2022.

Under Mr. Creel’s leadership, the Company has been steadfast in planning KCS integration projects in preparation for the historic combination with KCS. Throughout 2022, teams have been progressing the vital work needed to safely and efficiently operate the combined company. Our Integration Management Office has been diligent in identifying the new processes and practices for the combined CPKC company. In addition, a CEO-led Integration Steering Committee has been established with a regular meeting cadence providing strategic oversight with clear deliverables and project plans to ensure a seamless and successful transition for employees, customers and other stakeholders.

 

2022 Compensation

 

LOGO

 

    

 

 

At CPKC, the STIP individual performance factor for the CEO cannot exceed the corporate performance factor. This ensures the payout factor for the CEO aligns with the Company’s overall performance.

 

Consistent with our pay for performance philosophy for Mr. Creel, his STIP award for 2022 is directly linked to CPKC’s corporate performance factor of 29 percent.

2023 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 adjusted Mr. Creel’s 2023 base salary and short-term and long-term incentive targets for a total target direct compensation increase of US$1.387 million (C$1.8 million). As per the terms of Mr. Creel’s employment agreement amendment dated March 21, 2021, the 2023 LTIP target grant value will be reduced by US$2.1 million (C$2.8 million) in consideration for the special upfront stock option grant Mr. Creel received on March 27, 2021. See Employment agreements on page 60 for more details.

 

 

2023 MANAGEMENT PROXY CIRCULAR  53


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 2020 to 2022.

 

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 58

 

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 2020 to 2022

•  the value of vested 2020 PSUs paid in February 2023 was calculated using the 30-day average trading price of our shares prior to December 31, 2022 of US$78.32 on the NYSE with a performance multiplier of 180 percent and includes reinvested dividends up to the payment date

•  the value of unvested 2021 and 2022 PSUs are based on the closing price of our shares on December 30, 2022 of US$74.59 on the NYSE with a performance multiplier of 100 percent and includes reinvested dividends

•  the value of unvested/unexercised stock options is based on the closing price of our shares on December 30, 2022 of US$74.59 on the NYSE

•  the values for salary earned and actual cash bonus are as disclosed in the Summary compensation table on page 58

•  the value of any realized and realizable PSUs and stock options have been converted into Canadian dollars using the 2022 year-end exchange rate of $1.3544

 

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, 2022. 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.

 

Year   

Compensation

awarded

($)

 

    Realized and realizable value
of compensation as at
            Value of $100  
  December 31, 2022            

Keith Creel

    

Shareholder

 
  ($)      Period      ($)      ($)  

2020

     16,026,481       32,117,366        Jan 1, 2020 to Dec 31, 2022        200        156  

2021(1)

     25,883,203       16,939,310        Jan 1, 2021 to Dec 31, 2022        65        116  

2022(2)

     13,743,780       10,639,834        Jan 1, 2022 to Dec 31, 2022        77        112  
(1) 

Compensation awarded in 2021 is higher than 2020 and 2022 as a result of the special upfront grant of stock options in March 2021 and has normalized in 2022.

(2) 

As per the terms of Mr. Creel’s employment agreement amendment dated March 21, 2021, Mr. Creel’s 2022 LTIP target grant value was reduced by US$2.1 million (C$2.8 million) in consideration for the special upfront stock option grant Mr. Creel received on March 27, 2021. This is the first of four planned reductions to Mr. Creel’s annual LTIP award in each year of 2022, 2023, 2024 and 2025 for a total aggregate reduction of US$8.4 million. See Employment agreements on page 60 for more details.

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: $1.3415 for 2020, $1.2535 for 2021 and $1.3013 for 2022. The value of any realized and realizable long-term incentive is converted into Canadian dollars using the 2022 year-end exchange rate of $1.3544.

 

 

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PART III – EXECUTIVE COMPENSATION

 

 

  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 the Company 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 obtained a Bachelor of Economics from Western University and an MBA in Finance/International Business from McGill. He is a graduate of the Harvard Business School completing the Advanced Management Program in 2022.

 

Mr. Velani is a key member of the Company’s 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 plan management, tax, treasury and internal audit functions. He is the co-chair of the Company’s Diversity and Leadership Development Steering Committee, championing company-wide leadership programs and diversity initiatives. Mr. Velani was named to Institutional Investor’s All-Canada Executive Team as Top CFO in capital goods/ industrials sector and recognized for Best Investor Relations by Senior Management team (large cap) at IR Magazine Awards – Canada for 2022.

 

      
    2022 Performance highlights:

 

  

2022 Compensation:

 

  •   Revenue increased by 10 percent to $8.8 billion from $8.0 billion in 2021. Reported diluted EPS was $3.77, a 10 percent decrease from last year while core adjusted diluted EPS(1), excluding significant items and KCS purchase accounting, was $3.77, unchanged from last year. Share price significantly outperformed SP500, TSX60 and Class I peers.

 

  •   Provided strong oversight of the Company’s capital structure, including the repayment of $1.6 billion in debt. An important step in ensuring the Company returns to its target leverage of 2.5x adjusted net debt to adjusted EBITDA(1).

 

  •   Successfully on-boarded new external auditors.

 

  •   Ensured the disciplined deployment of $1.55 billion in capital investment focusing the Company on investments that enhanced the safety, fluidity and capacity of our network.

 

  •   Leadership development through Harvard Business School’s Advanced Management Program, followed by field-based training through the Company’s in-house “Railroad MBA” program to gain further operations knowledge while qualifying as a conductor in January 2023.

 

  •   Ongoing champion for CP’s sustainability strategy. In 2022, CP was named to CDP A-list as well as DJSI World and DJSI North America Indices.

 

  •   Progressed integration planning objectives and projects for the company’s financial functions.

 

  

 

 

LOGO

 

 

  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 the Company acquired the DM&E in 2007, Mr. Brooks was Vice-President of Marketing.

 

With more than 28 years in the railroading business, Mr. Brooks has held senior responsibilities in all lines of business, including coal, chemicals, merchandise products, grain and intermodal. He 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 the Company’s business.

 

      
    2022 Performance highlights:

 

  

2022 Compensation:

 

  •   Delivered record revenues in 2022, increasing by 10 percent from 2021. We also had a record year in potash revenue and volumes.

 

  •   Active engagement with our industry partners in 2022 resulted in a new multi-year agreement with CMA CGM Group, where the Company will be their primary rail provider in Canada. Access to the Port of Vancouver and Port of Montreal, combined with our strategic connection to Port Saint John via New Brunswick Southern Railway, will enable the Company to move the majority of CMA CGM’s freight from Canadian ports to key Canadian and US Midwest inland markets.

 

  •   Established new premium intermodal service at Port of Saint John, a key contributor to the company’s 13 percent increase in intermodal volume growth in 2022.

 

  •   Established long-term partnership with Ford Motor Company which strengthens our relationship and develops new supply chain solutions, including the utilization of our new Chicago auto compound and the reopening of our Edmonton auto compound in January 2023.

 

  •   Worked closely with grain supply chain partners to implement infrastructure and capacity investments to improve efficiency in the grain supply chain including the receipt of the final installment of the 5,900 new high-capacity hopper cars.

 

  

 

 

LOGO

 

 

(1)

Core adjusted diluted EPS and Adjusted net debt to adjusted EBITDA ratio are non-GAAP measures. Non-GAAP measures are defined and reconciled on pages 66-77 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

 

 

2023 MANAGEMENT PROXY CIRCULAR  55


  Mark A. Redd    Executive Vice President Operations  

 

 

LOGO

  

 

Mr. Redd has been Executive Vice-President Operations since September 1, 2019. He joined the Company 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 began his railroading career at Midsouth Rail in Jackson, Mississippi, and then moved to KCS as a locomotive engineer and progressed to 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.

 

Mr. Redd leads the 24/7 operations of our network, which includes responsibility for network transportation, operations, mechanical, engineering, procurement, operations technology and labour relations. He is the co-chair of our Diversity and Leadership Development Steering Committee, actively supporting the development of a diverse and inclusive operations team. Mr. Redd was proudly named the Company 2016 Railroader of the Year.

 

      
    2022 Performance highlights:

 

  

2022 Compensation:

 

  •   Accelerated our grain service after a robust harvest arrived earlier than expected to break the all-time monthly record for transporting Canadian grain and grain products by moving 3.14 million metric tonnes (MMT) in October 2022.

 

  •   Hired and trained over 1,600 conductors in 2022 to support growing business needs by using a multi-faceted strategy that included leveraging data analytics to support targeted advertisements, interdepartmental collaboration, hiring events, and community networking.

 

  •   Achieved record train length and weights, which is a culmination of work and planning by our talented railroaders.

 

  •   Progressed the Company’s pursuit to be the safest railway in North America with a remarkable 15 percent reduction in our FRA-reportable train accident frequency ratio from 1.10 in 2021 to a record low of 0.93 in 2022.

 

  •   Continued focus on personal safety with our second best ever FRA-reportable personal injury ratio of 1.01, supported by our Home Safe program

 

  •   Advanced integration planning with the team hard at work to prepare to bring CPKC together.

 

  

 

LOGO

 

 

  Jeffrey J. Ellis    Chief Legal Officer and Corporate Secretary  

 

 

LOGO

  

 

Mr. Ellis has been Chief Legal Officer and Corporate Secretary since November 23, 2015. Prior to joining the Company 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 and is fluent in French.

 

Mr. Ellis is accountable for the overall strategic leadership, and performance of the legal, corporate secretarial, communications and government relations functions at the Company. Mr. Ellis’ responsibilities include litigation management, regulatory, contracts, commercial matters and advising on risk management as well as providing strategic support to the Company’s senior management and the Board of Directors. As Chair of the Company’s Indigenous Diversity Council, he champions an inclusive workplace. Mr. Ellis was an Executive Committee member for Legal Leaders for Diversity and Inclusion from 2018-2022 and is a Board member of the Railway Association of Canada.

 

      
    2022 Performance highlights:

 

  

2022 Compensation:

 

  •   Since closing KCS into the voting trust on December 14, 2021, Mr. Ellis and his team have played a key role in the integration of the historic combination of the Company and KCS.

 

  •   Worked closely with the Integration Management Office to progress the vital work needed to safely and efficiently operate the combined company.

 

  •   Instrumental in providing the legal strategy for the Company’s presentation to the STB in the fall of 2022.

 

  •   Responsible for securing additional regulatory approvals for the KCS transaction, including approvals in Mexico and the United States.

 

  •   The Company’s legal team was recognized by Financial Times at the 2022 Innovative Lawyers Awards North America in the award category for In-House Legal Team: Innovation in Commercial and Strategic Advice.

 

  

 

LOGO

 

 

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PART III – EXECUTIVE COMPENSATION

 

 

2023 Compensation

Effective April 14, 2023, with thoughtful consideration of CPKC’s industry-leading team, the Compensation Committee has approved appointments for Messrs. Redd and Ellis to Executive Vice-President and Chief Operating Officer and Executive Vice-President, Chief Legal Officer and Corporate Secretary, respectively. Mr. Brooks remains in his current position with an increased portfolio as Executive Vice-President and Chief Marketing Officer in the combined entity. In recognition of these appointments, Messrs. Brooks, Redd and Ellis received an increase of US$278,000, US$510,400 and CAD$476,778, respectively to their total target direct compensation.

Share performance

The graph below shows the total shareholder return of $100 invested in CPKC shares compared to the two major market indices over the last five years ending December 31, 2022 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 CPKC shares have outperformed the S&P/TSX Composite Index and the S&P 500 index since 2018 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, 2022 was 130 percent on the TSX and 114 percent on the NYSE.

The total compensation value for NEOs as disclosed in the Summary compensation table is 0.3 percent of our total revenues of $8.8 billion for 2022.

 

LOGO

 

at December 31

  

  2018

    

  2019

    

  2020

    

  2021

    

  2022

 

CPKC TSR (C$)

  

 

107

 

  

 

147

 

  

 

198

 

  

 

206

 

  

 

230

 

CPKC TSR (US$)

  

 

98

 

  

 

142

 

  

 

196

 

  

 

205

 

  

 

214

 

S&P/TSX Composite Index (C$)

  

 

91

 

  

 

112

 

  

 

118

 

  

 

148

 

  

 

139

 

S&P 500 Index (US$)

  

 

96

 

  

 

126

 

  

 

149

 

  

 

191

 

  

 

157

 

TDC ($ thousands)

  

 

22,210

 

  

 

27,352

 

  

 

31,855

 

  

 

41,754

 

  

 

28,917

 

Note:

   

Total direct compensation (TDC) is the total compensation of the NEOs (excluding pension), as reported in the Summary compensation table in prior years.

   

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

   

2022, 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

   

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: $1.3013 for 2022, $1.2535 for 2021, $1.3415 for 2020, $1.3269 for 2019 and $1.2957 for 2018.

 

 

2023 MANAGEMENT PROXY CIRCULAR  57


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, 2022, 2021 and 2020. 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: $1.3013 for 2022, $1.2535 for 2021 and $1.3415 for 2020. 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

    2022       1,561,560       6,960,936       4,655,218       566,066       499,916       279,850       14,523,546  

President and Chief

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

Executive Officer

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

Nadeem S. Velani

    2022       833,193       1,878,184       1,315,942       399,325       232,289       69,608       4,728,541  

Executive Vice-President

    2021       806,821       1,684,658       997,455       1,102,552       248,433       53,715       4,893,634  

and Chief Financial Officer

    2020       790,366       1,818,076       1,157,441       1,263,452       226,331       66,336       5,322,002  

John K. Brooks

    2022       788,913       1,712,572       1,169,671       371,098       289,889       96,199       4,428,342  

Executive Vice-President

    2021       722,525       1,566,074       920,156       999,666       534,527       90,248       4,833,196  

and Chief Marketing Officer

    2020       735,100       1,548,288       942,743       1,149,741       557,101       83,767       5,016,740  

Mark A. Redd

    2022       757,194       1,513,731       1,037,043       358,931       137,801       100,518       3,905,218  

Executive Vice-President

    2021       645,748       1,444,831       1,010,560       814,384       104,262       89,381       4,109,166  

Operations

    2020       595,081       1,155,272       693,849       827,327       93,038       79,781       3,444,348  

Jeffrey J. Ellis

    2022       596,571       944,776       661,955       226,270       157,656       61,385       2,648,613  

Chief Legal Officer

    2021       554,274       947,383       514,607       616,166       143,932       51,938       2,828,300  

and Corporate Secretary

    2020       520,967       954,825       520,534       638,004       125,011       44,457       2,803,798  

 

(1)

Salary. Represents salary earned in the year. Mr. Velani’s salary is set in U.S. dollars and was paid in Canadian dollars based on an exchange rate of 1.2779 in 2022.

(2) 

Share-based awards. Includes PSUs and DSUs awards, where applicable. PSUs were granted on January 31, 2022. The grant date accounting fair value is $90.94 for grants on the TSX and US$71.40 for grants on the NYSE and are calculated in accordance with FASB ASC Topic 718: Compensation—Stock Compensation. See Item 8, Financial Statements and Supplementary Data, Note 22: Stock-based compensation in our Annual Report on form 10-K filed with the SEC and securities regulatory authorities in Canada on February 24, 2023 for more details.

 

  

To calculate the number of PSUs our NEOs receive, we use the Willis Towers Watson binomial lattice model and the 30-day average closing share price on the TSX or the NYSE prior to the grant date.

 

    

Willis Towers Watson Expected Life Binomial Valuation      

Assumptions

   TSX / NYSE      

Term

   3 years      

Vesting Schedule

   3 year cliff      

Payout Range %

(threshold-target-max)

   50-100-270      

Risk of Forfeiture

   5%      

PSU Value
(as a % of grant price)

   84%      

 

  

Using this valuation model, the grant date expected fair value on January 31, 2022 was $76.39 on the TSX and US$59.98 on the NYSE, based on the above assumptions.

 

  

Mr. Brooks and Mr. Redd amounts include the value of DSUs granted on January 31, 2022. See the About deferred compensation section on page 66 for more details.

 

  

Mr. Velani and Mr. Redd amounts exclude the 16,969 PDSUs and 3,277 PDSUs credited to Mr. Velani and Mr. Redd, respectively, on February 2, 2023, as a result of the 2020 PSU performance factor, and the additional 5,759 and 1,843 matching PDSUs credited to Mr. Velani and Mr. Redd, respectively, under the terms of the Senior Executive Deferred Share Plan. See the Payout of 2020 PSU award on page 51 and the About deferred compensation section on page 66 for more details.

 

 

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EXECUTIVE COMPENSATION

 

 

(3) 

Option-based awards. The grant date fair value of stock option awards granted to each NEO has been calculated in accordance with FASB ASC Topic 718: Compensation – Stock Compensation. We used the Black-Scholes option-pricing model (with reference to the shares underlying the options). Stock options awarded as part of the annual program were granted on January 31, 2022. The grant date accounting fair value of the awards shown in the Summary Compensation table with reference to the TSX and NYSE are $20.48 and US$17.19, respectively. See Item 8, Financial Statements and Supplementary Data, Note 22: Stock-based compensation in our Annual Report on Form 10-K filed with the SEC and securities regulatory authorities in Canada on February 24, 2023 for more details.

 

  

To calculate the number of options, we use Willis Towers Watson’s expected life binomial methodology and the 30-day average closing share price on the TSX or the NYSE prior to the grant date.

 

  

The grant price on January 31, 2022 is $90.94 on the TSX and US$71.40 on the NYSE. Using the binomial valuation model, the grant date expected fair value was $16.37 on the TSX and US$13.57 on the NYSE. The assumptions are below:

 

 

 

  Willis Towers Watson Expected Life Binomial Valuation   

Assumptions

  NYSE          TSX   

Option Term

    7 years           7 years   

Vesting Schedule

    4 year pro-rated           4 year pro-rated   

Expected Life

    4.75 years           4.75 years   

Dividend Yield

(1-year historical)

    0.86%           0.86%   

Volatility

(3-year daily)

    24.8%           24.0%   

Risk-free Rate

(yield curve)

    0.25% - 0.75%           0.1% - 0.6%   

Risk of Forfeiture

    5%           5%   

Stock Option Value

(as a % of grant price)

    19%           18%   

 

  

Mr. Creel’s 2021 amount includes a special upfront grant on March 27, 2021 in relation to amendments to his executive employment agreement made on March 21, 2021 to retain him until at least year 2026. The grant date fair value of this grant is US$16.24 on the NYSE and is calculated in accordance with FASB ASC Topic 718: Compensation - Stock Compensation. In consideration of this special upfront grant, the Company and Mr. Creel agreed to amend his current employment agreement to reduce the value of the annual long-term incentive plan award Mr. Creel is entitled to receive by US$2.1 million in each year of 2022, 2023, 2024 and 2025 (an aggregate of $8.4 million). See Employment agreements on page 60 for more details.

 

  

Mr. Redd’s 2021 amount also includes the incremental fair value of $247,071 (US$197,105) to reflect the discretion approved by Board for his July 20, 2018 PSOs granted when he was not an NEO. The incremental fair value is calculated in accordance with FASB ASC Topic 718: Compensation - Stock Compensation and reflects the fair value of incremental options allowed to vest due to exercise of positive discretion as calculated using the Black-Scholes option-pricing model at the modification date.

 

(4) 

Non-equity annual incentive. Cash bonus earned under our short-term incentive plan for 2022 and paid in February 2023.

(5) 

Pension. Mr. Creel, Mr. Velani and Mr. Ellis participate in the Canadian defined contribution plan (DC plan) and in the defined contribution supplemental plan (DC SERP). Mr. Creel and Mr. Redd participate in the U.S. defined contribution plan and the U.S. supplemental executive retirement plan. Mr. Brooks participates in the Company Pension Plan for U.S. Management Employees. See Retirement plans on page 65 for more details.

(6) 

All other compensation. The NEOs receive certain benefits and perquisites which are competitive with our comparator group. The table below shows the breakdown of all other compensation for 2022. The values in the table have been converted to Canadian dollars using the 2022 average exchange rate of $1.3013.

 

     Perquisites      Other compensation