Canadian markets are moving on Say on Pay, and governments may be catching up

By April 11, 2019News

By Kevin Thomas, Executive Director at SHARE

Shareholders at Imperial Oil Limited and Linamar Corporation will be asked to vote on adopting an annual advisory “Say on Pay” vote on executive compensation at this year’s annual general meetings. Unlike many other Canadian companies that have voluntarily adopted the practice, the board of directors at Imperial Oil and Linamar Corporation have recommended that their shareholders vote against the proposals, which were filed by a group of Canadian institutional investors (including the Echo Foundation and Seamark Investment Management, represented by SHARE) that have been collectively advocating for expanded “say on pay” votes in Canada.

According to a new report from SHARE, more than 71% of companies in the TSX Composite Index have now adopted “Say on Pay” votes and 52 of the TSX60 Index companies have adopted the practice. Another 52 Canadian publicly-traded companies that are not on the TSX Composite Index have adopted the practice, making a total of 220 companies in Canada offering an annual “Say on Pay” vote.

While the practice is required by regulators in other jurisdictions like the US and UK, its uptake in Canada has been driven by shareholder engagement.

In fact, since 2017, there has been a 6.3% increase in the percentage of the TSX Composite Index and an 8.3% increase in the percentage of the TSX60 Index that has adopted Say on Pay thanks to persistent shareholder engagement by a group of Canadian institutional investors including SHARE members, the Alberta Investment Management Corporation, British Columbia Investment Management Corporation (BCI), the Caisse de dépôt et placement du Québec (CDPQ), and Public Sector Pension Investment Board (PSP Investments).

These engagements are literally moving the market.

And it now looks like the Canadian regulatory system might be catching up.

An amendment to the Canada Business Corporations Act (CBCA) proposed in the federal government’s new budget implementation bill, introduced April 8th, would require corporations incorporated under the CBCA to provide an annual Say on Pay vote. If the measure passes, Imperial Oil will have to adopt the practice regardless of the outcome of its upcoming shareholder vote. Linamar Corporation, however, will not yet be required to adopt the vote, as it is incorporated under the Ontario Business Corporations Act.

Say on Pay votes create a critical accountability mechanism for shareholders, providing them with an opportunity to voice concerns with executive compensation practices in a focused, effective and appropriate manner. Adopting Say on Pay has been a way for boards to demonstrate their willingness to communicate and discuss their approach to compensation in open dialogue with shareholders, both before and after the annual vote. It provides the right balance between accountability to a company’s owners and the board’s discretion to oversee the company’s overall health and success.

Read the report here:

https://share.ca/wp-content/uploads/2019/04/19-04-09-State-of-Say-on-Pay-in-Canada-FINAL.pdf

 

Read the proxy alerts here:

https://share.ca/proxy-alert-2019-linamar-say-on-pay/

https://share.ca/proxy-alert-2019-imperial-oil-say-on-pay/