Say on pay” is well on its way to becoming entrenched in Canada, with about 100 publicly traded companies now holding annual non-binding advisory votes on executive compensation. The campaign has made great strides in just five years.
Gary Hawton, president of OceanRock Investments, which runs the Meritas family of socially responsible mutual funds, was a key player in the advancement of say on pay in Canada, first approaching the big banks in 2007.
“We thought there were a number of large Canadian-based global companies that would agree with us,” says Hawton, who’s based in Kitchener, Ont.
The banks initially said no, and after realizing the conversation was “going nowhere,” Hawton, Meritas and the Shareholder Association for Research and Education (SHARE) put forward a shareholder resolution.
“We had a vote to see if we could have a vote, which is the ridiculous part of this,” says Hawton.
It took two years before the resolution received majority shareholder support and the banks agreed to implement a say-on-pay vote, starting in 2010.
“Since then, we have continued to approach a number of other companies, and once they realize there are several shareholders focused on this, they have voluntarily adopted,” says Hawton.
SHARE, which is based in Vancouver, tracks say-on-pay votes. Its director of law and policy, Laura O’Neill, says shareholders are starting to reject the executive compensation plans that companies put forward. In 2010, the largest vote against garnered just 13% support. In 2011, resistance levels began to rise—to higher than 20% in two cases.
This year, one company, drug firm QLT Inc., actually lost its say-on-pay vote; nine more companies experienced shareholder rejection over 20%.
“Shareholders are distinguishing between companies where they like what’s going on with pay or accept it, but they’re certainly not hesitant where a company is doing things they don’t think are appropriate,” she says.
O’Neill notes companies faring relatively poorly on their say-on-pay votes one year are adapting their compensation plans, and garnering much higher support the next year. Say on pay has also created a stronger link between pay and performance, says Hawton. “We’re seeing greater variability of overall compensation, and I think in some cases we’re seeing longer vesting periods.”
So what’s next for say on pay? Hawton would like to see regulators make the annual votes mandatory.
“The regulators need to take a close look at this. It’s already mandatory in several other countries—why don’t we make it mandatory here?”
O’Neill agrees, but isn’t optimistic. “We know the OSC in 2010 did float consultations on the issue, but there have been no other indications from securities commissions they want to move on this.”
Kathleen Peace, partner with Bennett March Inc. (IPC Investment Corp.) in Toronto, praises the say-on-pay movement, and supports the work Hawton and others have done.
It’s an issue that resonates with clients, she says, who struggle with huge corporate paydays.
“It gets people really wound up and it appears as though no one is being held to account.”