Barrick Gold Corp. is incurring growing shareholder anger over its pay for chairman John Thornton not just because investors feel his 36-per-cent raise in 2014 was unwarranted, but because the move appeared to fly in the face of low say on pay votes in past years.
While say on pay votes are advisory and do not require companies to change their pay practices, compensation experts say companies ignore the results at their peril because major investors expect reforms, even if the results are above 50 per cent.
Compensation consultant Ken Hugessen said a small number of high-profile cases such as Barrick give a misleading impression that companies are not responding decisively to say on pay votes. He said most boards are unhappy with any vote below 90-per-cent support and there is "angst" if their vote falls below 80 per cent.
He added he knows of directors in Canada who cannot get on a major board again if they are involved in a compensation scandal.
"If you get associated with a major failure on say on pay and with being a bit deaf to the shareholder community, and then you show up wanting to join another board, that board says, 'We don't need this,'" Mr. Hugessen said.
Against that backdrop, large investors in Canada have been surprised that Barrick raised Mr. Thornton's pay last year after concerns about his compensation were a key factor behind Barrick's 15-per-cent say on pay vote result in 2013, the lowest vote ever recorded by a major company in Canada.
Barrick made substantial reforms to its pay practices afterward to win more investor support, raising its vote result to 80 per cent in 2014. But investors are now complaining that the board appeared deaf to their complaints when it raised Mr. Thornton's compensation by 36 per cent last year to $12.6-million.
"We believe the company continues to inadequately address key shareholder concerns related to its chair's compensation," the Canada Pension Plan Investment Board, Canada's largest pension fund manager, said in a statement Friday.
CPPIB is joining the ranks of investors publicly opposing Barrick's compensation, along with the Ontario Teachers' Pension Plan, British Columbia Investment Management Corp., OPTrust and Dutch pension fund PGGM.
OPTrust, which invests pension funds for OPSEU union members in Ontario, also said Friday is is disappointed that prior complaints appear to have been ignored.
"Given that our concerns about Mr. Thornton's pay structure and pay levels have been ongoing for three years, OPTrust has decided to also withhold votes from returning compensation committee members," the fund said in a statement.
Hay Group Ltd. compensation consultant Christopher Chen, who advises boards on executive pay, said his firm's research on say on pay votes across North America has found most companies make major changes to their compensation in the year following a low vote – and most see a large rebound in their say on pay vote in the following year.
He said every public company he works with discusses how compensation decisions will be assessed by investors and how they will impact the company's say on pay vote.
Mr. Hugessen said "the vast majority response" for companies with low pay votes is a major revamp of compensation practices.
Kinross Gold earned 75-per-cent support in its say on pay vote last year, yet said it was concerned by the result and launched a consultation with shareholders to find out what they wanted changed. The company published a chart in its proxy circular this year itemizing all of the shareholder concerns it received, and listed 18 actions it has taken to respond to each.
Crescent Point Energy Corp. got 57-per-cent support in its say on pay vote last year – the lowest support level among Canada's 100 largest companies – and also launched talks with shareholders to reform its pay plans, leading to the introduction of a new long-term incentive plan at the company.
"Although this is advisory for the board and therefore non-binding, the board takes feedback from our shareholders very seriously," Crescent Point said in its response to shareholders.
Investors will carefully watch the response from Canadian Imperial Bank of Commerce, which got just 43-per-cent support from shareholders for its compensation plan in its say on pay vote at its annual meeting this week. Shareholders complained about the bank's postemployment pay packages for former chief executive Gerry McCaughey and former chief operating officer Richard Nesbitt.