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A WATERSHED YEAR FOR SAY-ON-PAY IN CANADA

24th September 2017           Categories: Multi-Asset ›      Emerging Markets ›


With no regulatory requirement for an advisory vote on executive compensation in Canada, companies that were early voluntary adopters of the vote believed they were doing most things ‘right’ and in line with shareholder interests.

Majority votes against 

Among the first adopters in Canada were the country’s five largest banks. These publicly traded entities have been leaders in adopting performance-based, long-term compensation plans. But the generous CAD16.6 million exit package awarded to a former Canadian Imperial Bank of Commerce (CIBC) CEO caused uproar among shareholders regardless of the bank’s otherwise acceptable pay practices. Despite some last minute attempts at damage control by the bank’s investor relations, shareholders expressed their disapproval via its say-on-pay vote in April, with 57% of votes cast against CIBC’s approach to executive compensation. This is a big change from the 3.8% opposition seen in 2014, which indicates that shareholders have decided that the advisory vote on pay is the right medium for delivering a formal message to the compensation committee and the board.

Another early adopter of a shareholder advisory vote on pay was Barrick Gold. At its 2015 AGM shareholders overwhelmingly opposed Barrick’s approach to executive compensation. The chair’s pay package of $12.9 million was difficult to link to any particular measure of corporate performance, which is why 73% of votes were cast against the management proposal. Although we too had concerns about pay and robustly argued these with the chair, we supported management on the proxy by exception due to access to the chair and an ongoing dialogue which reflected an understanding and desire of the chair to win back the support of long-term investors and make appropriate changes in the future. The chair has also demonstrated his commitment to the company by investing every after-tax dollar he has earned on the job directly in Barrick shares.

After adopting an advisory vote on executive compensation in 2012, Yamana Gold became the third large publicly traded Canadian company to suffer a majority of votes against its approach to executive compensation this proxy season. At the heart of the issue were the large cash bonus and performance shares awarded to the CEO on the closing of an acquisition. Again, Yamana’s damage control, which included the CEO’s forfeiture of the performance shares granted to him in connection with the acquisition, was not enough to turn the tide as the final advisory vote tally amounted to 63% against.

Finding their voice

With the directors of the respective compensation committees in each of these three cases receiving dissenting votes of 25% or lower, shareholders seem to have found their voice through the advisory vote on pay. The cases outlined above suggest to us that 2015 is a watershed year for the say-on-pay vote in Canada. While the potential for an embarrassing result may stop other companies from voluntarily adopting the advisory vote on pay, we strongly suggest otherwise. As the severity of shareholder dissent over a compensation issue cannot usually be forecast until days before the proxy deadline, companies must accept that it is better to lose an advisory vote than – in the absence of such a vote – see valuable board members voted out because they serve on their compensation committee.

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