Finance Committee on Dec. 4th, 2007

[Lee Richardson, Conservative, Calgary Centre, AB]

No, I get that, and I understand that. As I think you said, it's to align the interests of the company with the interests of your employees. I would like to add that you have a tendency to align interests with your customers as well, which is a pleasant deviation in Canada.

[Mike McNaney]

Thank you for that.

[Lee Richardson, Conservative, Calgary Centre, AB]

Again, what we're talking about here is half and half. Is the portion that the company...?

Let's say I were to buy 100 shares a month....

Is it at market, is that what it is?

[Mike McNaney]

It's at market, yes.

[Lee Richardson, Conservative, Calgary Centre, AB]

At market, okay.

So there shouldn't be any concern about the part you buy with your own money. It's the part that the company then buys for you that you're speaking of, is that it?

[Mike McNaney]

Yes, because right now, if you bought those 100 shares—let's say, for the sake of argument, they cost $200—and you paid $100 off your paycheque to buy those shares and WestJet contributed $100 in shares to you, then you would immediately have to pay tax on the $100 in shares that WestJet bought for you.

[Lee Richardson, Conservative, Calgary Centre, AB]

Right, as income.

[Mike McNaney]

As income.

Now, you can't sell those shares for a year, so you're not going to get any cash from those shares for at least a year. From our perspective, it's the same as an option: you don't get an immediate dollar value from the option, you have to wait two years, three years, one year, whatever, to cash in those options. When you cash in those options, you pay income tax.

We're saying treat the employee share purchase in the same way. We're not saying get rid of the tax, just hold it until the employee actually sells his shares, and then he will remunerate the federal government accordingly.

[Lee Richardson, Conservative, Calgary Centre, AB]

It seems a reasonable accommodation.

Great, thank you.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

On that note, Mr. McNaney, I think it's a good proposal. The only problem I have is why can't I do the same thing? Why can I not pay tax? I don't work...well, in this case I work for and get paid by the Government of Canada, but I used to work for myself before. Why can't I take my after-tax money, invest it in WestJet, and not have to pay tax on it?

That's where the problem is, I think, with your proposal.

[Mike McNaney]

We have to look at what our proposal is designed to do. Our proposal is designed to drive productivity.

The airline industry, by any measure economically, is a silly business. It's ferociously capital-intensive, highly cyclical. It also traditionally does not have very good relations between employers and employees. Yet in that industry, we have managed to be quite successful over the past 11 years. It's by tying those interests together and driving your notion of ownership that has provided us with the ability to go from 200 to 7,000.

So if I'm looking—

[The Vice-Chair, Liberal, Massimo Pacetti]

I agree. I think WestJet is a good company. But you have to get me to buy as well. Why is it just your employees?

[Mike McNaney]

Well, you can come and work for us, Mr. Chair. We'd be happy with that.

Again, I go back to the purpose of it, and the purpose of it is to make companies better, so by definition, you're looking toward your own employees.

I could make the same argument to you about stock options. Using the rationale you've used, we shouldn't allow stock options.

[The Vice-Chair, Liberal, Massimo Pacetti]

Probably not.

[Mike McNaney]

I would argue that stock options are probably fairly good, and also are a way to encourage people to work for their companies. You can't simply go and give stock options to every employee. The investment community would ditch your stock because you'd be too ferociously diluted. What we do is we go to the open market and we purchase those shares.

If we all agree that there's a productivity issue in this country, if we all agree that we have to find ways to do things better, then we're proposing something that does not cost the federal treasury a dime. The federal treasury is still going to get its tax rebate, it's just not going to get it immediately.

[The Vice-Chair, Liberal, Massimo Pacetti]

No, I agree with your proposal; it's just to try to find a way to expand it so that everybody benefits and not just the WestJet employees or just people who work for public companies.

[Mike McNaney]

Sure, but this would apply, obviously, to any company that wanted to take advantage of it and establish employee share purchase. This can also apply to privately held Canadian-controlled companies. It doesn't have to be a publicly traded entity. If you can create shares in your own company, a privately held company, you can have those shares purchased by your employees. You would simply have to make sure that at some point--

[The Vice-Chair, Liberal, Massimo Pacetti]

The only way you can do it currently is through your RRSP, if you wanted to invest through your RRSP.

[Mike McNaney]

You can do it through your RRSP, but you can max that out fairly quickly with the company matching.

[The Vice-Chair, Liberal, Massimo Pacetti]

Yes.

Okay, great. Thanks.

I'm just going to go back to the members again.

Mr. Dykstra, do you want to go again for five minutes?

[Rick Dykstra, Conservative, St. Catharines, ON]

Thanks.

I have a question, but I have first a comment, Mike, that I can't resist: I hope and pray that you don't do the same thing with my luggage that you did with your brother's toys.

[Mike McNaney]

They don't let me near the luggage, I'm afraid.

[Rick Dykstra, Conservative, St. Catharines, ON]

That's really good to know. It's hard enough trying to find stuff when it gets lost, much less finding it on the runway after you've taken off.

[Mike McNaney]

I'm just happy you're flying with us.

[Rick Dykstra, Conservative, St. Catharines, ON]

Good stuff.

The question I have is what percentage of the stock that's out there with WestJet is actually owned by employees right now?