Proxy Alert

Proxy Alert: Realigning Executive Compensation at Thomson Reuters Corporation

Thomson Reuters Corporation
Symbol: TRI (TSX, NYSE)
Annual Meeting Date: June 5, 2019
Filer: Congregation of the Sisters of Mercy of Newfoundland, The Daly Foundation, both facilitated by SHARE.

Vote FOR shareholder proposal on realigning executive compensation at Thomson Reuters Corporation. 

Shareholder proposal on realigning Executive Compensation at Thomson Reuters Corporation

The Congregation of the Sisters of Mercy of Newfoundland and the Daly Foundation filed a shareholder proposal related to executive compensation at Thomson Reuters.

The shareholder proposal reads:

RESOLVED that the Human Resources Committee (“HRC”) of the Board of Directors commission a report, on an annual basis, on the pay grades and/or salary ranges of all classifications of Company employees, to be considered by the HRC when setting target amounts for compensation of Named Executive Officers (“NEO”). We also ask that the Board of Directors describe in the company’s proxy circular how it takes compensation, advancement and retention practices throughout the organization into consideration in setting NEO compensation, and ensures that the company’s approach to rewarding and retaining talent is consistently applied.

Relevance of the issue for investors

Although attracting and retaining the best talent at the executive level is one of the primary challenges faced by boards when setting compensation, they must also attend to the company’s approach to attracting and retaining talent across the workforce. This role includes ensuring that the value that the rest of the workforce provides is recognized and rewarded appropriately.

While the average inflation-adjusted hourly wage has remained “essentially unchanged” since the 1970s, the ratio of median CEO pay to the average salary of workers in the private sector has grown disproportionally: from 120:1 to 140:1 between 2008 and 2016.

A large body of research suggests that distribution of rewards within an organization affects employee attitudes and behaviors, including organizational commitment and job performance. Management research has concluded that “decisions about pay dispersion are among the most important decisions facing compensation policy makers because dispersion is expected to influence how hard people work, the kinds of human capital they will acquire, and whether they leave or stay with an organization”.

Other studies established a negative correlation between disparity in internal pay equity and company performances. A study from MSCI found that companies with lower CEO-to-average-worker pay gaps have better performance than those with higher pay gaps.

With the performance benefits in mind, investors are increasingly asking companies to provide more information on how they integrate pay grades across the overall organization, including when evaluating the competitiveness and appropriateness of executive compensation.

Vote recommendation and rationale

Thomson Reuters’ board Human Resources Committee (“HRC”) uses peer group benchmarks to set its target Named executive officers (“NEO”) compensation. While these benchmarks may be relevant to certain aspects of executive compensation, the use of horizontal benchmarking can skew compensation practices at the top end of a company’s pay structure and lead to high CEO-to median-worker pay ratios.

Boards focused on aligning executive compensation with the market may neglect the crucial role of the workforce in the achievement of a company’s performance. To remedy this situation, consideration of non-executive compensation and workforce metrics needs to be elevated to the board level.

This proposal is not prescriptive as to the specific manner in which the board should consider organization-wide compensation and incentives, asking only that the board consider the information annually when setting executive pay.

Management responded to this proposal by stating that the company “seek to provide competitive compensation opportunities to all of employees and to deliver meaningful and differentiated rewards to high performers at all levels, reflecting the value and impact that they have delivered and considering the behaviors they have demonstrated.”

Thomson Reuters doesn’t publish any information that would allow investors to assess this statement, and while Thomson Reuters CEO is consistently among the highest paid CEOs in Canada, the extent of board oversight of compensation structures for other employees is unknown.

Management indicated that the HRC does not believe vertical pay ratios would be a useful or meaningful tool as the company has global operations, a large and diversified employee base and businesses that operate in different industries.

Because the shareholder proposal does not propose vertical pay ratios as a prescribed method of assessing compensation structures within the organization as a whole, the HRC’s concerns about vertical pay ratios may be addressed by choosing a reporting method appropriate to the company’s structure. There are numerous other options to help the board (and, ultimately, investors) understand the relation between executive compensation and incentive structures and those afforded to the rest of the employees.

For example, in 2014, six Canadian banks released a report by Meridian Compensation Partners looking at the question of horizontal benchmarking in the Canadian financial sector. The consultants concluded that

“Committees should evaluate the consistency of executive pay actions with those proposed by management for the rest of the company. For example, salary increases provided to executives should be compared to the merit budget for the rest of the organization. Likewise, Committees can assess the payout from executive bonus plans to those for other employees. These evaluations can provide Committees with insight into how the Company’s resources are being shared at different levels of the organization.”

In a letter sent late last year by to the boards of every S&P500 company in the US, a group of institutional investors asked boards to supplement reporting related to the mandated pay ratio disclosure with breakdowns of full and part time employment status, tenure and experience, compensation mix, and alignment between CEO pay practices and those for other employees.

And a 2016 report from PWC recommended that:

Companies should develop a set of fair pay principles. These principles should cover the company’s approach to living wage across their business and supply chain, to equal pay, and to executive pay in the context of pay in the wider workforce and society. Remuneration Committees need clearer principles to deal with the difficult questions of fairness and responsibility in relation to executive pay, which go beyond simple market competitiveness.

These and other approaches may help the board assess the relationship between compensation at the highest levels of the company with the incentives provided to the rest of the workforce, while avoiding the pitfalls of using a single metric – which, in any event, is not what was requested by the shareholders.

Other global companies have been able to take this step. For instance, Mattel, through the services of an independent compensation advisor, takes into consideration “the company’s global compensation framework, which incorporates the pay grades and salary classifications of all Company employees, including CEO”.

The request for Thomson Reuters to consider the pay grades and/or salary ranges of all classifications of company employees follows this best practice to address the risks that can arise when setting NEO compensation in isolation, or solely in relation to other executives. Enhanced transparency on this matter will help investors to assess the reasonableness of NEO’s compensation relatively to its overall employee pay philosophy and structure.

SHARE urges a vote FOR this proposal.

Link to full proposal:


Sarah Couturier-Tanoh
Analyst, Shareholder Engagement and Policy
Shareholder Association for Research & Education
[email protected]

Statistics Canada (Government of Canada). Minimum wage in Canada since 1975. Available at:

Institute for Governance of Private and Public Organizations. Executive Compensation: Cutting the Gordian Knot. Policy Paper #9. 2017. Page 17. Available at:

Matt Bloom and John G. Michel. (2002) The relationships among organizational context, pay, dispersion, and managerial turnover. Academy of Management Journal. Volume 45, Issue 1, pp. 33-42

MSCI. (2016) Income Inequality and the Intracorporate Pay Gap. Research paper, available at:

Meridian Compensation Partners. Canadian Banks: Review of Horizontal Benchmarking and Its Impact on CEO Compensation and Pay Disparity. 2014. Page 28 (available at: )

The Wall Street Journal. U.S. Companies Asked to Disclose More About Their Workers. (December 13, 2018) (available at: )

PWC. Time to Listen. July 2016. (available at:

Mattel, Inc. (2019) Proxy Statement

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