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Say-on-pay – what’s next?

Posted by on Sep 15, 2011 in Compensation | 0 comments

John Tuzyk and Julia Tomson



  • 7% of Canadian-listed companies have adopted Say-on-Pay votes
  • OSC considering mandatory advisory Say-on-Pay votes

One of the developments to be observed in the upcoming proxy season will be the extent to which any additional public companies adopt a Say-on‑Pay shareholder vote – a shareholder vote approving executive compensation decisions – either voluntarily or in response to shareholder proposals for consideration at upcoming shareholders’ meetings.

The implementation of shareholder Say-on-Pay votes on the compensation practices of public companies in Canada started in 2009, when the major Canadian banks announced that they would give shareholders an advisory Say-on-Pay vote in 2010.

Our survey reveals that, to date, 71 reporting issuers in Canada, including the major banks, have adopted Say-on-Pay advisory votes, and 10 more will hold their first votes either later in 2011 or in 2012, representing in total approximately 7% of Canadian listed issuers by number (excluding structured-product issuers and non-listed issuers). Thirty-nine of these 81 issuers adopted, or announced they will adopt, a vote since December 2010. The Canadian Coalition for Good Governance (CCGG), an organization representing institutional shareholders and asset managers, which advocates the adoption of Say-on-Pay votes by Canadian companies, published a June 2011 Study indicating that 44 of the companies in the S&P/TSX Composite Index, representing 19% of the companies in that Index, have adopted Say-on-Pay votes.

Some companies, however, have indicated that they do not intend to implement a Say-on-Pay vote and, in a number of cases, shareholders have rejected shareholder proposals for an advisory Say-on-Pay vote at their companies.

In another significant development relating to Say‑on‑Pay for Canadian public companies, the Ontario Securities Commission (the OSC) issued OSC Staff Notice 54-701 – Regulatory Developments Regarding Shareholder Democracy Issues (OSC Notice 54-701) earlier this year, which identified the Say-on-Pay vote as an issue requiring additional review and potential development of regulatory proposals, and requested comments on this topic.

Although Say-on-Pay votes in Canada have to date been adopted in the form of a non-binding advisory vote, whereby shareholders approve on a non-binding basis the approach to executive compensation disclosed in the management proxy circular for the prior fiscal year, there are other forms which such a vote can take, and Say-on-Pay voting has been implemented in different forms in various countries.

Legislation in the United Kingdom requires an annual non-binding advisory vote by shareholders upon a remuneration report that includes pay policy for the following year and the compensation practices from the prior year. Australia has also adopted an advisory, non-binding Say-on-Pay vote on remuneration reports. However, if a remuneration report receives a 25% negative vote at two successive annual shareholders’ meetings, at the second meeting, the shareholders are to vote on holding a general meeting within 90 days to vote on retaining the existing directors.

Some countries have advisory non-binding votes that are not prescribed by legislation, resembling the current Canadian framework. For instance, in Ireland, some companies have held Say-on-Pay votes.
Other countries, such as the Netherlands, require a binding vote, whereby shareholders approve the compensation policies or guidelines of the company and changes to them. The Scandinavian countries – Denmark, Sweden and Norway – also require a mandatory binding Say-on-Pay, in somewhat different forms. South Africa also requires a binding Say-on-Pay vote, requiring directors’ remuneration to be approved in advance at each annual general meeting.

The European Commission has presented for public consultation proposed reforms that are intended to improve the corporate governance of listed companies, including a proposal for all European listed companies to be required to provide shareholders with a vote on remuneration policy and the remuneration report.


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