Executive compensation has been a hot button issue as of late.
Not only has executive compensation come under increased scrutiny
from politicians, regulators and the public at large, it is an
issue that is also top-of-mind for shareholders, analysts and proxy
advisory firms. For example, the Financial Post published an
article earlier this year entitled "Canadian shareholders increasingly aggressive on
'say-on-pay'", which reports that institutional
investors and the public are taking an increasingly hard-nosed and
critical approach to evaluating corporate compensation
Executive compensation can be a flashpoint between a company and
its shareholders, and it is thus critical that companies consider
the agenda and viewpoints of all stakeholders, including activist
investors, as they structure and review executive compensation
plans. A recent post by explores these same issues.
Shareholder discontent about the management of a company may
first manifest itself as low levels of support for a company's
"say-on-pay" vote. In his post, Mr. Goldstein cautions
that in the period after a failed "say-on-pay" vote, a
company may be particularly vulnerable to an activist attack, as
activists may capitalize on the divisive nature of executive
compensation issues to further their agenda. Companies can head off
these attacks by understanding how its approach to executive
compensation differs from industry norms and actively engaging with
its shareholders on pay and governance issues.
Although executive compensation is a focal point for shareholder
activists, it is difficult to generalize as to what type to pay
programs activists favour. Mr. Goldstein notes that activist
guidance usually makes "vague reference to pay for performance
disconnects", the main purpose of such comments being to use
pay as a wedge issue. The most effective way for companies to
address such criticism is to actively engage in shareholder and
stakeholder dialogue, and to ensure that executives are rewarded
for "achievement of stated strategic and operational goals and
that such goals are consistent with the company's attempt to
achieve sustainable, long-term growth." Andrea Brewer also
discusses the importance of implementing an effective executive
compensation plan and an effective communication strategy in her post on the Special Situations Law blog.
Companies should treat their approach to executive compensation
as part and parcel of any dissident readiness strategy. Shareholder
activists often exploit the divisive nature of executive
compensation issues to garner broader support, and the attitudes
and reactions of stakeholders towards a company's executive
compensation practices can serve as a barometer for shareholder
discontent and a company's vulnerability to an activist
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