Canada lagging behind on ‘say on pay’
BY Yaelle Gang | February 27, 2019
While more shareholders have been putting their foot down on excessive chief executive officer pay, not enough progress has been made, according to a new report by U.S.-based non-profit foundation As You Sow.
“Opposition to high CEO pay has risen, and more companies have seen their CEO pay packages receive less and less support from their shareholders,” noted the report. “European funds and U.S. public pension funds have made their opposition to a broken system clear. In this year’s report we pay special attention to those funds with the greatest change in voting practices on the issue of CEO pay, as well as highlight some of the reasons that have led to more shareholder votes against those pay packages.”
The As You Sow report focused on S&P 500 companies.
The report found pension funds typically have a higher level of opposition to overpaid CEOs than financial-manager controlled funds. Notably, it found several funds, with assets above $100 billion each, have more than doubled the number of CEO pay packages they vote against.
“One of the things we hope to accomplish is allowing shareholders to compare themselves to others,” says Rosanna Landis-Weaver, program manager for power of the proxy: executive compensation at As You Sow.
An update on ‘say on pay’ in Canada
In the U.S., companies are required to put executive compensation up for vote, says Landis-Weaver.
But, north of the border, Canada lags on rules requiring ‘say on pay.’ “There’s no regulatory requirement for companies to hold a ‘say on pay’ vote, although we have been asking the securities regulators to adopt that practice for some time,” says Kevin Thomas, executive director of the Shareholder Association for Research and Education.
While many Canadian companies have adopted this practice voluntarily, it’s time for the regulators to step in, he says. Many Canadian pension funds have been vocal in calling for ‘say on pay.’ For example, in 2015, the Alberta Investment Management Corp., the British Columbia Investment Management Corp., the Canadian Pension Plan Investment Board, the Caisse de dépôt et placement du Québec, the Ontario Teachers’ Pension Plan, the Public Sector Pension Investment Board and OPSEU Pension Trust sent a letter to various regulators asking for it.
The letter highlighted that plans engaging with companies to voluntarily adopt votes on executive compensation have slowed. “While the exact reasons for this slowing adoption rate are difficult to determine, it is our experience that those issuers not adopting ‘say on pay’ are likely those most in need of this mechanism to encourage and improve shareholder communications and build shareholder confidence,” the letter said.
It also noted the lack of regulation leaves Canadian capital markets behind other markets, such as Australia, Denmark, the Netherlands, Norway, Switzerland, the U.K. and the U.S.
In May 2018, the chair of the Pension Investment Association of Canada sent a letter to the Ontario Securities Commission asking that mandatory say on pay for issuers should be part of the organization’s priorities. “Globally, ‘say on pay’ is recognized as a corporate governance best practice and Canadian investors should be able to benefit from this practice when investing domestically in Canadian issuers,” the letter said. “However, Canada remains the only G7 country not to require that ‘say on pay’ be on the ballot.”
While there could be a difference of opinion, John M. Tuzyk, partner at Blake, Cassels and Graydon LLP, says the more logical place to make changes to require ‘say for pay’ would be in the corporate statutes governing the corporate law for the jurisdiction in which the company is incorporated.
“The securities legislation is largely disclosure-based and, generally speaking, although there are exceptions, securities laws don’t typically address matters relating to things like the substance of matters conducted at shareholders meetings,” he says. “Securities laws are aimed more at disclosure to shareholders about the business that has been conducted, but without mandating that any particular business be conducted.”
Practically all non-controlled major public companies have adopted ‘say on pay’ voluntarily, notes Tuzyk, so the effect of any legislation would be targeted mid and smaller cap companies at this point.
Pension plans are getting around the absence of mandatory ‘say on pay’ in two ways, says Thomas. “First, we’ve been working with a group of large pension funds to engage with companies that don’t have a vote and ask them to adopt the vote,” he says.
As well, large plans are beginning to vote against particular directors, usually the chair of the compensation committee if not the whole compensation committee, says Thomas. “And that’s unfortunate because you may have a very good director serving on the compensation committee in all sorts of other respects and you vote against them for one part of their job, but in the absence of a ‘say on pay’ vote, that’s the only way you have of sending that message and expressing disapproval.”
UPDATED: February 28, 2019