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Railway Executive Pay Should Reflect Safety: Shareholder Advocates

After Lac-Mégantic, corporate culture must reward improvements.

By David P. Ball 3 Jul 2014 | TheTyee.ca

David P. Ball is staff reporter with The Tyee. Send him tips or comments by email, find him on Twitter @davidpball, or read his previous Tyee reporting here.

More than a year after the Lac-Mégantic oil-by-rail disaster, a responsible investment non-profit is calling on companies to do more to prevent future tragedies.

But the Shareholder Association for Research and Education (SHARE) is not focused on changing laws or filing negligence charges for those responsible for train accidents.

Instead, the shareholder advocacy group is targeting the top of the corporate ladder, arguing that executive pay and bonuses for both energy and railway firms involved in moving oil-by-rail should come with safety strings attached.

"It's definitely something that was brought to public light with the Lac-Mégantic tragedy last year," said Kevin Thomas, SHARE's engagement director. "The exponential increase of shipping oil by rail is leading to new risks we're not really sure are being addressed in the way these companies operate."

In a briefing report released today, SHARE examined how Toronto Stock Exchange-listed firms have included safety performance in their pay calculations -- or not.

The report comes a year after the July 6, 2013 explosion in Lac-Mégantic, Quebec, when 74 oil-filled cars derailed and exploded, killing nearly 50 residents and destroying much of the small town's core. It was the deadliest rail accident in the country since 1864 and has sparked controversy over whether railways are a safe way to transport oil.

Oil-by-rail has figured prominently in debates over the risks of bitumen pipelines from Alberta's oilsands, with proponents arguing that Enbridge's Northern Gateway, Kinder Morgan's TransMountain, and TransCanada's Keystone XL pipeline proposals would be far safer than the high-risk railways currently used to carry product.

Ensuring safety 'from the top'

SHARE's report canvassed the 15 railway and energy firms that are listed on the Toronto Stock Exchange and transport hazardous products by train in Canada.

The report found slightly less than half had "identified rail transportation as a possible material risk factor" for their companies. The report did not include Montreal Maine & Atlantic Canada Co., the railway involved in the Lac-Mégantic crash, because the company filed for bankruptcy protection last August.

Likewise, few of the companies specifically described how a positive or negative health and safety record -- for instance operational accidents, employee injuries, or other safety incidents -- would impact executive compensation, including bonuses.

Over three-quarters of the firms, however, said they were "including some type of safety measurements in their evaluation" of top-level pay.

"Executive compensation and how a company evaluates its executives tells you a lot about that company's priorities," Thomas argued. "We wanted to look at whether the real risks to companies are actually being reflected in executives' compensation.

"We have examples of executives who got bonuses despite poor safety performance," he continued. "We don't know how strong the incentives are for management to address [health and safety]," or even "how big a priority" the issue is for companies, despite the fact that most have health and safety committees and policies, he said.

Formal written policies and committees are a positive step, but not enough to improve the overall safety record, he said.

"Executives set the tone from the top," and one way to do that is to make sure their pay depends on a proven and strong safety culture, he said.

More rail safety rules announced

Last Friday, federal Minister of Transport Lisa Raitt announced reforms to oil-by-rail transportation she said would "further safeguard" communities from future accidents. The changes included amendments to the Railway Safety Management System Regulations, the Transportation of Dangerous Goods Act and Transportation Information Regulations.

They include tougher construction standards for certain tank cars, requiring more data reporting by companies and encouraging them to "proactively identify and address safety risks before accidents happen," according to a Transport Canada press release.

"These changes will help build a stronger safety culture among railway companies, strengthen requirements for rail tank cars and other means of containment, and help reduce the risk of accidents," the statement said.

Thomas emphasized that such a corporate shift isn't just good for communities, employees and the environment. It also helps the bottom line, and needless to say that's something investors want to see.

"Transparency is the first step," he said of increased reporting requirements. "But active shareholders still have to hold their companies to account."

Shareholders have a long-term perspective in their investments, he said. "They want to see an executive is being rewarded when they put the long-term interests of the company ahead of short-term financial returns. They're not just looking for a bump in their share price."  [Tyee]

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