Canada: Say On Pay Comes To Canada

Last Updated: March 19 2009
Article by Dolores Di Felice and David Surat

Most Read Contributor in Canada, September 2016

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 uncertainties.


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 packages.

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 adopted.

Please refer to our November 2008 issue of The Material Change Report for a summary of the new executive compensation disclosure requirements.

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