March 15, 2018

in Executive Compensation

A rundown on say-on-pay in Canada


As 2017 begins to fade in the rear-view mirror, Canadian publicly-traded organizations are busy preparing for the upcoming proxy season. A say-on-pay vote is not required in Canada, however many organizations do so to accommodate compensation-related concerns raised by their shareholders. In 2017 over 250 organizations held a vote, which is a large uptick from the 86 early adopters back in 2011. Much of this uptick can be attributed to the overwhelmingly large pressure on organizations to adopt a vote, yet there are still large Canadian organizations who have yet to hold one.

Typically, three schools of thought around say-on-pay can be found in Canada:

INACTIVE – some organizations avoid say-on-pay based on their ownership makeup or since no shareholder concerns have risen. These organizations tend to view it as an unnecessary process or cost and opt out.

TRUE ADOPTION – either market leaders, or motivated to be more active in addressing shareholder concerns, these organizations actively engage their shareholders and look to make changes based on their concerns.

RELUCTANT ADOPTION – Some organizations may adopt say-on-pay as a measure to appease stakeholders. These organizations tend to view the vote as non-binding and that the results don’t have much of a direct impact. These organizations don't always pay attention to the recommendations outlined by the leading institutional investor advisor groups either. Following a poor vote, these organizations can be caught by surprise by the impact and expectations from shareholders for change.

What qualifies as a failed vote?

Fifty per cent is the magical fail value – however a much higher threshold is demanded by shareholders. The market tends to view anything below 90% as a warning sign and if your organization receives a vote below 75%, a significant issue is present that many organizations will be required to address.

Unlike many organizations in the U.S. no Canadian organization has ever failed the vote in consecutive years, indicating that their boards are quick to respond to the shareholder concerns.


What has say-on-pay done? It has led to enhanced compensation disclosure thresholds and has resulted in a dramatic increase in how boards factor in the views of their shareholders. Some would say it has provided an enhanced lens into the importance of corporate governance and better questions asked around compensation-related matters. One thing is for certain – it’s enhanced the dialogue between organizations and their shareholders.


Just as there are successful outcomes from the say-on-pay vote, there are also nuances to consider. For instance, activist investors can leverage the say-on-pay vote to push an alternative agenda. Whether this is a shake up in the board, the termination of a CEO, or part of an investor's advance on the company, it can become costly, and shareholders’ views on the compensation program tend to change depending on annual performance. In these cases, the big picture might be overlooked – focusing on the compensation value, rather than the process or structure.


If your organization has failed the vote, or received a low acceptance, a few things can happen:

  • Changes to the composition of the compensation committee.
  • A change in the board’s external compensation advisor.
  • Enhanced shareholder outreach.
  • Enhanced disclosure in the following year. For instance, in Kinross’s 2015 proxy, following a low vote in the prior year, the management team outlined each shareholder concern and the actions that the company took.
  • Revamp of the compensation program. In 2017, Bombardier was quick to revamp their compensation awards during the interim period between the release of their proxy and the say-on-pay vote date. This led to a 93% approval vote, in lieu of what was predicted to be a negative outcome for the company following a strong “no vote” recommendation by Institutional Shareholder Services (ISS).
  • The elimination of specific compensation practices – for example, transactional/special bonus awards, stock options for directors, or a single-trigger change of control provisions.


So how can you work towards receiving an exemplary vote?

  • Ensure that you actively engage with shareholders throughout the year. Management engagement is one step, but shareholders want to hear from the board chair, and the chair of the compensation committee on issues surrounding executive pay programs.
  • Ahead of approving any compensation-related decisions, ask management for a draft of how the approved item will be reported in the proxy circular. Having the chance to see how the revised item will be communicated to a shareholder, and thus how the message will be interpreted, is critical.
  • Don’t make any changes for the sake of making changes, or to simply align to market practices. Every organization is unique and each decision must make sense for your respective entity. Compensation and governance best practices are constantly evolving, so be cautious of potentially becoming a “check-the-box” type of company.
  • Knowing your weaknesses is one of your greatest strengths. Have your compensation consultant conduct a forensic review of your overall compensation program, identifying any items that may be raised from shareholders. It is better to be proactive and communicate with shareholders why you have chosen not to meet the recommended “best practice” on a specific item.
  • An added level of prudency is to have an independent advisory firm review your programs from time to time – this added perspective can help to identify anything that those who are closer to the process may have missed.
  • Being prepared is so important – ensure that you have clear answers for why decisions have been made, and that you can refer to a defensible process that has been followed.

If you have any questions or would like more information please contact Jonathan Foster.

To find out more about executive compensation in Canada download this year’s Canadian Executive Pay Trends Report.