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Annual say-on-pay votes could lead to short-termism – Ontario Teachers

Giant Canadian investor prefers advisory vote on pay every three years

The C$100bn (€75bn) Ontario Teachers’ Pension Plan has told companies it would prefer them to hold a say-on-pay vote every three years because annual votes could lead to more short-termism.
The comments follow the new Dodd-Frank Act in the US which gives shareholders the right to an advisory vote on pay at companies’ annual meetings at least every three years; the frequency of the say-on-pay vote has become a hot topic.

Some household-name companies such as Apple, Hewlett-Packard and Walt Disney are already recommending annual say-on-pay votes in their proxies ahead of forthcoming annual meetings, while investors have rejected three-yearly votes at AGMs that have taken place since the new rules came into force.
Shareholder advisory firm ISS says annual pay votes “provide the most consistent and clear communication channel for shareholder concerns about companies’ executive pay programs”.
But annual pay votes “could lead to a focus on short-term objectives rather than on more stable, long-term objectives, or lead to inconsistenciesin the compensation program without a clear long-term focus,” Teachers says in its annual letter to more than 650 public companies around the world.

“Our concern with an annual advisory vote on compensation is that it may compel boards to adjust compensation programs every year to demonstrate that they are effectively managing the compensation process,” OTPP says.
But it stresses it will continue to monitor the pay awards at its investee companies and that it will consider withholding its support if appropriate.
OTPP says remuneration decisions are the domain of the board and that advisory votes on pay “do not diminish the board’s responsibility with respect to executive pay”.
Meanwhile, the Canadian Coalition for Good Governance, the C$1.5trn coalition of institutional investors, has said a proposal to establish gender parity on company boards is “too blunt an instrument”. It was responding to the Senate Committee on Banking, Trade and Commerce on the planned Senate Bill S-206.