DEFA14A: NOVAGOLD Defends Executive Pay Amidst ISS Recommendation Against Say-on-Pay

NOVAGOLD is urging shareholders to support its executive compensation plan at the upcoming annual general meeting, despite a recommendation from Institutional Shareholder Services (ISS) to vote against it.

Summary

• NOVAGOLD is addressing concerns raised by ISS regarding its executive compensation, specifically CEO pay increases, special retention grants, and long-term incentive plans.
• The company highlights that another proxy advisory firm, Glass Lewis & Co., supports the Say-on-Pay resolution.
• NOVAGOLD emphasizes that its compensation philosophy aims to attract, retain, and incentivize top-tier talent, which is critical for the company's success, particularly in advancing the Donlin Gold project.
• The company defends the special retention grants awarded in December 2022, stating they were necessary to retain key executives through at least June 2024, following an executive succession planning exercise.
• NOVAGOLD aims to pay above the median of its peer group to retain highly specialized and experienced executive talent.
• The company acknowledges ISS concerns about the performance-based nature of special awards but emphasizes that its assets are in the development stage, making typical operating company metrics inappropriate for performance evaluation.
• NOVAGOLD achieved 114% of its goals in 2023, with individual performance ratings of 130% for Gregory Lang and 120% for David Ottewell.
• The company is committed to aligning executive compensation with shareholder experience through performance-based compensation.

Sentiment

Score: 6

Explanation: The document presents a defensive stance, attempting to justify executive compensation in the face of criticism. While highlighting positive aspects, the need to address concerns from ISS suggests underlying issues.

Positives

• NOVAGOLD has received support for its Say-on-Pay resolution from Glass Lewis & Co.
• The company has a strong history of shareholder support for its Say-on-Pay resolution, averaging 95.55% FOR votes between 2021 and 2023.
• Voter participation increased from 71.59% to 85.17% between 2021 and 2023.
• The company's goals were achieved slightly above target at 114% in 2023.
• The Board believes that the one-off PSU retention awards served their purpose by playing a critical role in retaining key members of leadership.

Negatives

• ISS has recommended that shareholders vote against NOVAGOLD's Say-on-Pay resolution.
• ISS has raised concerns about CEO pay increases, special retention grants without clear performance vesting criteria, and the company targeting all pay elements above the median of peers.
• ISS identified concerns in the Long-Term Incentives plan where annual cycle equity awards target merely median performance.
• There was no payout of Performance Share Units ('PSUs') in 2022 or 2023 as the performance criteria was not met, and these PSUs were fully forfeited.

Risks

• Failure to secure shareholder support for the Say-on-Pay resolution could lead to negative publicity and potential challenges in retaining executive talent.
• Continued criticism from proxy advisory firms could impact investor confidence and the company's reputation.
• The Donlin Gold project's complexity and remote location pose ongoing challenges for executive management.
• The company's reliance on stock-based compensation plans could be affected by fluctuations in the company's share price.

Future Outlook

NOVAGOLD is confident that it has the right organizational structure, people, and platform to continue building on its business and to support long-term growth opportunities.

Management Comments

• The Board believes that the Company's current compensation structure adequately compensates our executives.
• The new compensation packages to Messrs. Lang and Ottewell, who are considered above-average executive talent, having worked for and with large mining companies, have specialized skills, knowledge, and experience necessary to advance the Company's complex Donlin Gold project, that cannot be easily replaced.
• The Committee believes that the executive compensation program structure has been successful in achieving the goals set out in the compensation philosophy.

Industry Context

The document highlights the competitive landscape for executive talent in the mining industry, particularly for companies managing large and complex projects like Donlin Gold. NOVAGOLD benchmarks its compensation against senior mining companies such as Barrick Gold Corporation, Newmont Corporation, Agnico Eagle Mines Ltd., and Kinross Gold Corporation.

Comparison to Industry Standards

• NOVAGOLD compares its executive compensation to senior mining companies like Barrick Gold Corporation, Newmont Corporation, Agnico Eagle Mines Ltd., and Kinross Gold Corporation, even though they are not formally included in the peer group.
• The company aims to pay above the median of its peer group to retain highly specialized and experienced executive talent, particularly for managing the Donlin Gold project, which is considered larger and more complex than assets owned by its peer group companies.

Stakeholder Impact

• Shareholders are directly impacted by the executive compensation decisions and will vote on the Say-on-Pay resolution.
• Employees, particularly executives, are affected by the compensation structure and retention incentives.
• The company's ability to attract and retain top talent impacts its long-term success and value creation for all stakeholders.

Next Steps

• Shareholders will vote on the Say-on-Pay resolution at the Annual General Meeting on May 16, 2024.
• The company will continue to engage with shareholders to address concerns and garner support for its compensation program.

Key Dates

Keywords

executive compensation, Say-on-Pay, NOVAGOLD, ISS, Glass Lewis, Donlin Gold, retention grants, performance share units, proxy vote, shareholders