SHARE Engagements In Focus: Improving executive compensation

By March 7, 2016News

Executive compensation is an issue that involves SHARE’s engagement team, its proxy voting team, and its policy advocates in a common drive to change the way corporate executives are paid in Canada. One of the key mechanisms we use is the “Say on Pay” vote.

“Say on Pay” votes provide shareholders with a potentially powerful tool to address out-of-control executive compensation. Yet the practice of an annual shareholder advisory vote on executive compensation is still relatively new, and needs to become more entrenched. When we started working on developing Say on Pay votes in Canada in 2007, not one Canadian company held a Say on Pay vote. In 2008, SHARE wrote to nine companies requesting an annual Say on Pay vote. All nine refused. In response we filed shareholder proposals at the big banks and received a significant show of support on the proxy ballots. This initiative resulted in Canada’s first Say on Pay votes at Canada’s largest banks in 2009.

As a result of continuing efforts, over 142 Canadian companies have now adopted advisory Say on Pay votes. In 2015, SHARE continued to engage with those companies that have not yet adopted the practice.

Yet the number of new companies adopting the practice is starting to plateau. Several high profile votes in 2015 have highlighted the value of Say on Pay votes and we believe the practice should be expanded further. Without a regulatory mandate, however, there is no way to ensure that all companies will conduct a vote, or that the votes will be held on an annual basis. Other jurisdictions such as the U.S. and the U.K. have made a Say on Pay vote mandatory for publicly traded corporations. Canada is still lagging behind.

SHARE’s Engagement

In 2015, Air Canada put forward a contentious compensation plan which included an enhanced pension plan nearly doubling the CEO’s retirement pay and setting a floor price for a portion of his equity pay. Unfortunately shareholders were not given an opportunity to vote on the pay plan since Air Canada holds a biennial Say on Pay vote rather than an annual vote. SHARE had asked Air Canada to adopt an annual vote, but the company was unresponsive. At the end of the year, SHARE worked with OceanRock Investments to file a shareholder proposal at Air Canada asking for an annual say-on-pay vote.

SHARE has also begun to urge securities regulators to make holding an advisory vote on executive compensation mandatory in Canada. In the spring, SHARE publicly urged the Ontario Securities Commission to take a more aggressive stance on Say on Pay and to begin development of a new regulation on the issue. Since that time, SHARE has been collaborating with large Canadian institutional investors to put Say on Pay on the agenda of securities regulators across the country and we hope to see increased traction on this issue in 2016.

 

Proxy Voting and Excessive Compensation

SHARE votes against companies’ executive compensation if the executives’ pay is excessive compared to the company’s performance. This is the reason we voted against Blackberry’s executive pay in 2014 and 2015. In 2014, Blackberry’s CEO was the highest-paid in Canada, receiving $89.7 million while the company’s net loss was $5.9 billion. Blackberry’s 2015 executive compensation was down from the stratospheric levels of 2014, but it was still too high and not aligned with the company’s performance. The company had a net loss of $300 million in that fiscal year, but the top 5 executives were paid a total of $34 million. Blackberry’s persistence in paying generous bonuses while it loses money is not good for the company in the long run.

Find out more about SHARE’s Engagement activities in our Shareholder Engagement Snapshot.