In May 2009, holders of Thomson Reuters Corporation common shares became the first to have a ‘say on pay’ at a Canadian company. The vote result indicates that not all shareholders found the pay packages of the company’s top executives acceptable: 17.7% voted against the compensation report.
Do a little digging, however, and shareholder opposition to compensation at Thomson Reuters comes into sharp focus as an all-out revolt.
Thomson Reuters was the only company incorporated under Canadian law to hold a pay vote this year. The vote happened because of the company’s unique ties to the UK, a jurisdiction where say on pay votes are required for almost all public companies.
Last year, Thomson Corporation acquired Reuters PLC, a UK public company. To complete the Reuters purchase, Thomson Corporation shareholders received shares of Thomson Reuters Corporation (TRI), listed on the Toronto and New York stock stock exchanges while Reuters PLC shareholders became holders of shares of a parallel parent company to TRI, Thomson Reuters PLC (PLC), a UK company listed on the London Stock Exchange.
As a result of this dual corporate structure, the UK requirement for a vote on executive pay applied. Shareholders of both parent companies voted together, one vote per share held, on all issues put forward at the annual meeting this year, including the say on pay.
Thomson Reuters is also a controlled company: a single shareholder holds more than half of the outstanding shares. The controlling shareholder is Woodbridge, a private company owned by the Thomson family. When the Reuters deal was completed, Woodbridge held about 53% of all shares of Thomson Reuters.
A controlling shareholder has the power to decide any issue on the proxy ballot, and almost invariably backs management by voting in favour of its proposals. At a controlled company, the votes cast by all of the other shareholders (commonly referred to as the minority holders) must be examined separately to determine the ‘disinterested’ shareholder view.
Votes cast by minority holders of Thomson Reuters on the ‘say on pay’ indicate that a whopping 49.1% of them rejected the company’s pay report.
It is likely that the Thomson Reuters board has done this math too.
The company recently asked for and received shareholder approval to transform the UK parent, PLC, into a subsidiary of the Canadian company, TRI. One result of this change in structure is that the UK rules will no longer apply. Thomson Reuters will not be required to hold an advisory pay vote. For the company’s board, though, the view of the soon-to-be muzzled minority shareholders is very clear: there are big problems with executive pay at Thomson Reuters.
Addressing minority shareholder concerns about executive compensation is the prudent course of action for the Thomson Reuters board. Failing to hold any more votes on executive pay will keep this issue from coming quite so starkly into view in the future, but won’t make it go away.
By Laura O’Neill, Director of Law and Policy