In recent weeks, proposals to adopt "say on pay" have
been approved at annual shareholder meetings or adopted by
management at Canadian Imperial Bank of Commerce, Royal Bank of
Canada, The Bank of Nova Scotia, Bank of Montreal, National Bank of
Canada and the TMX Group Inc. Similar proposals will be addressed
at upcoming shareholder meetings of The Toronto-Dominion Bank and
other major Canadian companies.
"Say on pay" refers to an annual advisory shareholder
vote on executive compensation reports. While the introduction of
advisory shareholder votes is new in Canada, similar initiatives
have been in place in the UK and several European countries for
several years. The say on pay initiative is also gathering momentum
in the US, with several issuers voluntarily adopting an advisory
vote for shareholders on executive compensation matters.
The Arguments For And Against Say On Pay
Proponents of say on pay argue that it is an efficient way for
shareholders to provide feedback to an issuer's board on
executive pay. The current shareholder mechanisms for expressing
dissatisfaction with executive compensation matters (such as
withholding votes for the election of directors) are not effective.
Say on pay provides a middle ground where compensation packages can
be addressed without taking more drastic steps such as attempting
to replace sitting directors. The existence of a shareholder vote
may also have the impact of moderating proposed compensation
decisions. In addition, proponents of say on pay note that advisory
shareholder votes have been in effect in foreign jurisdictions for
a number of years, with no major business disruptions, and seem to
be having the intended results.
Opponents of say on pay argue that executive compensation is a
complicated issue and that a simple yes/no non-binding vote does
not provide a board with any meaningful information about a
shareholder's views on executive compensation. In addition,
setting executive compensation is a duty of the directors. A
shareholder vote could result in confusion of the respective roles
of shareholders and directors and diminish the accountability of
the board of directors. Opponents suggest that the board of
directors could be led to adopt plans based on optics rather than
effectiveness, if the board is overly concerned with winning
shareholder approval. In addition, opponents point out that
shareholders already have the ability to express their disapproval
about compensation matters through the shareholder proposal
mechanism or by voting against or withholding their votes for the
election of directors. Some opponents of say on pay have also
suggested that non-binding shareholder votes could lead to legal
The Canadian Coalition for Good Governance has stated that it
will not propose or support recommendations for regulatory changes
that will mandate advisory shareholder votes on compensation
reports for Canadian issuers, nor will it recommend universal
support for all say on pay resolutions that are brought forward.
The Coalition will instead focus on monitoring compliance with the
new compensation disclosure requirements which have recently come
in to force, seeking clearer explanations of an issuer's
overall compensation framework and the link between the pay regime
and performance outcomes, and seeking less complex compensation
RiskMetrics Group will generally support non-binding shareholder
advisory votes on pay as a mechanism for shareholders to register
approval or disapproval of compensation arrangements.
The exact form in which say on pay will be implemented in Canada
remains to be seen. However, it appears that these resolutions will
become more common. Public issuer directors and members of
management should be prepared to address say on pay at upcoming
shareholder meetings, whether or not the issuer has received a
specific shareholder proposal on say on pay.
The primary goals of say on pay – increased
transparency of compensation decisions and better alignment of pay
with performance – are matters of key importance to all
boards. Discussion of how an issuer's compensation policies and
practices address these aims will be central to complying with the
new executive compensation disclosure requirements, particularly
the compensation discussion and analysis section required in
information circulars this year. Issuers that meet the new
standards of disclosure should be well positioned to respond to
shareholder concerns regarding executive compensation, regardless
of whether an advisory shareholder vote on compensation is
Please refer to our November 2008 issue of The Material Change Report for a summary of the new
executive compensation disclosure requirements.
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).