By Kevin Thomas, Executive Director at SHARE
In December, 2018, SHARE met with Canadian federal government representatives to discuss legislative and policy options to protect workers’ retirement savings in light of insolvencies.
The issue was brought to the fore most recently with the disastrous Sears Canada insolvency put the pension savings of more than 16,000 workers at risk – despite the company having made large dividend payouts and share buybacks to reward investors prior to the insolvency.
In a follow-up letter to the federal government, SHARE proposed extending clawback provisions to allow recovery of dividends, executive compensation and other extraordinary payments made while a company has underfunded its pension obligations.
We’ve urged the government to establish early-warning signals through disclosures of financial ratios relevant to the funding status of the pension plan, comparing the ratio of dollars spent on dividends, repurchases or executive compensation to any unfunded liability in the pension plan. While this would not compel any particular course of action, it would draw attention to the issue such that management should seek to improve the ratio before it becomes a reputational liability.
Where a corporate pension deficit is large or persistent, we’ve asked that the Canada Business Corporations Act be amended to restrict or reduce dividend payments, share repurchases, and variable executive and director compensation until such time as the solvency funding ratio surpasses a specified threshold.
And we’ve asked that the legal duties of corporate directors be clarified in legislation to make clear that directors must consider the interests of a broad range of stakeholders – including the workforce, and the environment – and not just the interests of shareholders.
All of this might sound odd coming from an organization that represents shareholders.
But no shareholder should accept corporate behaviour that enriches investors by robbing employees and retirees. Legislative and regulatory efforts that curb that activity are long overdue. What happened at Sears Canada was not the first time retirees were cheated of their deferred wages, but we should expend every effort to make sure it is the last.