Say on pay continues to make inroads in Canada and to date over 70 Canadian companies have agreed to hold say on pay votes. The vast majority of Canadian companies have done so in response to a shareholder proposal or request. Only in the cases of Bombardier Inc., Gennum Corporation and Power Corporation have shareholder proposals to introduce say on pay been taken by a Canadian company to a shareholder vote and defeated.
Institutional support for say on pay remains mixed. In 2009 the
Canadian Coalition for Good Governance (CCGG) reversed its
opposition to shareholder proposals requesting the adoption of say
on pay votes and decided to recommend the adoption of an advisory
resolution on executive compensation. For some time now,
RiskMetrics has recommended votes in favour of say on pay proposals
so long as it is clear that the resolution will be non-binding. By
contrast, the Ontario Teachers' Pension Plan (OTPP) does not
support shareholder proposals for say on pay, although if a company
puts forward a say on pay resolution OTPP will assess the
company's compensation practices and vote on the matter.
During 2009, CCGG and a group of large market cap Canadian
companies settled on a form of advisory resolution to submit to
shareholders. It is this form which has been presented to
shareholders by companies which introduced say on pay votes
starting in 2010.
Corporate governance rating organizations give credit to companies
which have agreed to provide shareholders with an opportunity to
vote on an advisory resolution on executive compensation. In the
Globe & Mail Board Games reports for 2009 and 2010, such
companies received two points. The RiskMetrics Governance Risk
Indicators for measuring governance risk also takes into
consideration whether the company has agreed to provide its
shareholders with a say on pay vote.
Generally-speaking, the conduct of a say on pay vote by itself
provides little information. Rather, proponents of such votes
believe that the existence of a say on pay vote encourages
companies to engage in a more meaningful dialogue with their owners
regarding compensation practices. In September 2010, CCGG
issued a model say on pay policy reflecting portions of CCGG's
model policy on say on pay and shareholder engagement issued in
late 2009 which set out an agreed upon form of advisory resolution
on executive compensation, and its members' views on board and
shareholder engagement.
Last year, the United States passed legislation making say on pay
mandatory for companies subject to U.S. proxy rules. The SEC
issued final rules implementing the say on pay provisions of such
legislation effective at each company's first meeting for which
a proxy circular has been filed after January 21, 2011. On
January 14, 2011, the Ontario Securities Commission issued a staff
notice seeking comment on the desirability of developing regulatory
proposals on several shareholder democracy issues, including say on
pay. Comments submitted in response have been mixed, with
most institutional shareholders in favour and almost everyone else,
including the Institute of Corporate Directors, opposed.
The future of say on pay in Canada likely will depend on the degree to which shareholders perceive a misalignment between executive compensation levels and corporate performance in Canada, the continued promotion of say on pay by institutional shareholders and the willingness of boards of directors to adopt say on pay voluntarily. Canadian companies which have not adopted say on pay should consider their response to such initiatives and review their approach to shareholder engagement, consistent with their policies respecting company spokespersons and equal and fair disclosure and their other disclosure controls and procedures.
Andrew MacDougall is a partner and practices corporate and securities law, with a particular focus on mergers and acquisitions and corporate governance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
