Responsible Investor

Canada needs a “say on pay”

Canadian shareholders are weary of the “huge disconnect” between what many executives earn and how the companies they run perform.

In the coming months, most Canadian companies will report on how much their executives earned last year. The astronomical numbers will grab headlines, but for shareholders, the biggest problem isn’t the total dollars. There is a huge disconnect between what many executives earn and how the companies they run perform. Moreover, shareholders have grown weary of excessive golden handshakes, stealth compensation and other forms of “pay for failure.” The US continues to take top marks for truly excessive executive compensation and exit packages. For example, even after driving Countrywide Financial Corp. to the brink of bankruptcy with subprime home loans, CEO Angelo Mozilo stands to gain $115 million in severance pay.
But Canada too, certainly has its share of questionable pay packages for CEOs and other top management. Consider the nearly $75 million that Precision Drilling reported as the total value of its CEO compensation in 2005. In 2006, 26 Canadian companies reported that they had executives who made between $10 and $50 million. And executive pay continues to climb with no end in sight.
So how do shareholders go about the business of trying

to rein in excessive executive compensation and ensuring a positive dialogue on the question of value for money related to key performance issues?
Dubbed ‘Say on Pay’, a yearly advisory vote on executive compensation has a direct impact on poor corporate pay practices that commit companies to huge pensions and severance benefits and incentive paydays that are out of touch with reality.
A fact of corporate life in the U.K. since 2003, and Australia since 2005, the advisory vote allows shareholders to cast ballots at every annual meeting ‘for’ or ‘against’ the compensation paid to executives.
Very rarely – just eight times in thousands of votes over four years – do a majority vote against executive pay in the U.K. The real impact of the vote has been to motivate directors to avoid making decisions that shareholders don’t like and will vote against. Pay usually becomes linked to performance.
In 2008, shareholders are proposing a solution and their proposal will be put to its first test in Canada at the five big chartered banks.
This will be a corporate milestone in Canada. Some argue we must put the advisory vote on hold and wait for

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