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Streetwise Shareholders’ Say on Pay to have strength of federal law behind it

Auto-parts maker Linamar has shown long-standing objections to Say On Pay, and urged shareholders to reject the proposals.

Mike Belleme/The Globe and Mail

A decade-long battle to make Canadian companies get their shareholders’ feedback on compensation plans will soon have the force of law.

Ottawa has introduced a mandatory “Say On Pay” provision for all federally incorporated companies as part of the Budget Implementation Act. Under the amendments to the Canada Business Corporations Act (CBCA), companies must present their “approach to remuneration” to shareholders each year, conduct a vote on it, and disclose the results.

The vote is non-binding, meaning the companies are receiving feedback, but are not forced to scrap a pay plan if shareholders say no.

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The Shareholder Association for Research and Education, or Share, has been one of the governance groups advocating for Say On Pay for years, joined by the Canadian Coalition for Good Governance. The movement started with proposals in 2008 on the proxies of each of the major Canadian banks. Today, Share estimates 220 Canadian companies conduct Say On Pay votes, including 71 per cent of the 200-plus members of the S&P/TSX Composite Index and 52 of the companies in the S&P/TSX 60.

“It’s come about because of continuing, year-on-year engagement,” said Kevin Thomas, Share’s executive director. “We’ve convinced a majority of the market to adopt it voluntarily, but there are still some holdouts. It makes sense to make this a market-wide phenomenon.”

The law applies to companies incorporated at the federal level, but not at the provincial level, meaning there might still be companies that do not conduct the votes even if the amended law comes into force. The next step to make it universal, then, would be at the provincial level.

Innovation, Science and Economic Development Canada spokesman Hans Parmar, responding to questions posed to the federal Department of Finance, said in a prepared statement the change is part of the broader goal of “a commitment to enhance Canadians’ retirement security. … The amendments are intended to establish better oversight of executive compensation by shareholders and impose more market discipline on compensation approaches."

The federal government conducted public consultations on the CBCA “on a wide range of corporate governance issues,” Mr. Parmar said, and then did a follow-up round of discussion and solicitation of comments on enhancing retirement security in late 2018 and early 2019, the department said. That included more than 4,400 written comments from individuals and interested groups.

Institutional investors that are members of Share have placed two proposals on proxies this spring asking holdout companies to adopt Say On Pay. One is at Imperial Oil Ltd., which is a federally incorporated company that would be subject to the new law, Mr. Thomas said. The other is auto-parts maker Linamar Corp., which is incorporated in Ontario and would not be, he said.

In urging shareholders to reject the proposals, the companies show many of the long-standing objections to Say On Pay. Linamar calls executive compensation “an increasingly complex area, requiring expertise and thoughtful deliberation over time and circumstances, to arrive at the right mix or balance.”

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Linamar said “In the Board’s view, it is also important to maintain clarity regarding the role of the Board as distinct from the role of shareholders. … Executive compensation is one of the Board’s most important responsibilities and the Board’s authority to determine executive compensation is vital to the Board’s performance of its overall duties.”

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