The Current State of Say on Pay in Canada

Say on pay continues to make inroads in Canada and to date 26 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. Only in the case of Power Corporation and Bombardier Inc. 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) recently confirmed that it 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 have introduced say on pay votes 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 2009 Board Games report, 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 late 2009, CCGG issued a draft form model policy on say on pay and shareholder engagement setting out not only the agreed upon form of advisory resolution on executive compensation, but also its members’ views on board and shareholder engagement.

The future of say on pay in Canada may well depend on the results of the say on pay votes to be conducted this proxy season, the degree to which shareholders perceive a misalignment between executive compensation levels and corporate performance in Canada and whether U.S. legislation to require such votes for all U.S. domestic companies comes into effect. In the meantime, 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.