The C$110bn (€83.5bn) Ontario Teachers’ Pension Plan, Canada’s largest single-profession pension fund, has written to 665 listed companies outlining its corporate governance priorities – including executive pay – for 2012.
The letters provide specific information about how the fund will deal with directors’ executive remuneration decisions.
The fund, which does not support advisory votes on pay, re-iterates its view that investors are best served by competent boards making executive pay decisions.
However, it serves notice that it will review compensation disclosures to assess boards’ executive pay decisions. This will be followed by a three-step process:
Year one: OTPP will generally support management on advisory votes and only follow up with companies with “significant issues
Year two: Any unresolved issues will lead to OTPP generally not supporting management
Year three: If concerns are unaddressed “we will generally not support the re-election of the chair of the compensation committee and/or the members of the compensation committee”.
And it calls for accurate and plainly worded discussion of compensation plans.
The letters re-affirm Teachers’ belief that independence and accountability as “key attributes” of well-functioning boards everywhere. Good boards, it argues, should have“independent-minded, competent directors” led by an independent Chair and demonstrate accountability to shareholders.
“At Ontario Teachers’, we believe good governance is good business,” the fund says.
On shareholder accountability, Teachers says firms should aim to strengthen the accountability of directors to the shareholders in a number of ways.
These include annual elections for all directors, majority voting for directors, swift disclosure of voting results, and the timely implementation of successful shareholder proposals.
We believe good governance is good business
The fund supports shareholders having the right to nominate directors (“proxy access”). It says it will support shareholder “proxy access” proposals that are reasonable from the perspective of both shareholders and issuers.
The letter, from Wayne Kozun Senior Vice President, Public Equities, also highlights directors’ role in corporate capital allocation decisions. “In 2012, companies wishing to engage with shareholders would do well to focus discussions around their board’s role in capital allocation and creating shareholder value,” the letter says. It sent out a similar letter to some 650 global firms last year. Link