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There's been a fair amount of effort – with arguably mixed results – to get companies to improve the ways they go about awarding their executives' pay. As an example, the compensation committees of boards of directors are now often composed of independent directors who are not corporate insiders. Situations where CEOs sit on each other's comp committees, raising the appearance of back-scratching conflict, have disappeared at the largest companies.

There's still a feeling, however, that there's a clubbiness about the whole process, with a bunch of high-earning white-collar types setting each other's compensation. The concept of benchmarking pay to a peer group of similarly-sized companies – particularly if companies are always hoping to be at or above the median – can make matters worse, critics say.

To date, there hasn't been a shareholder-driven effort that's found a way to get at this problem. But William Davis, a retired chartered accountant, has a suggestion. And he's placed it on the proxy at BCE Inc. for a vote next week.

Mr. Davis, the former chief financial officer of the United Church of Canada, is disappointed by the answers BCE gave last year when he questioned why it wasn't making more use of "vertical" pay metrics in its compensation decisions. Vertical metrics are the ones that compare executive pay to that of, say, an average worker, or the lowest-paid workers, at a company. "Horizontal" metrics, by contrast, compare executive pay at BCE to compensation at the highest levels of Rogers Communications Inc., Canadian Tire Corp. Ltd. and Air Canada (to name just three of the 22 TSX companies BCE uses for comparative purposes).

BCE's focus on peer-company executives rather than making greater use of internal pay measures, Mr. Davis argues, "demonstrates that lack of diversity on the compensation committee is a serious concern. The present compensation committee is composed entirely of like-minded members who benefited directly from the application of narrow metrics that apply only to a small exclusive group."

His proposal: Reconstitute the BCE compensation committee so at least two of the five members have not benefited in the past or present from a horizontal-pay model. In other words, get some people on the committee who are not current or former C-level executives.

Mr. Davis's proposal is a leading-edge approach because BCE's compensation committee is properly structured under current governance norms. All five members are independent directors. None are currently working for a TSX-listed company that's in BCE's peer group, so it can't be suggested that approving a big raise for BCE executives will help boost their pay when it's their turn. The Canadian Coalition for Good Governance has expressed concern in the past about current CEOs sitting on comp committees, but didn't extend that view to retired ones.

But Mr. Davis's observation about how the compensation committee members have benefited from the way big corporations set their pay? Essentially spot on, as all five are retired C-level executives of major Canadian or U.S. corporations. Gordon Nixon is the recently retired chief executive officer of Royal Bank of Canada. Ian Greenberg was CEO of Astral Media Inc. before BCE acquired it. Robert Brown was CEO of CAE until 2009, when he joined the BCE board. Ronald Brenneman ran Petro-Canada and served as an executive at Suncor Energy Inc. And Barry Allen was an executive vice-president at U.S. telecom Qwest Communications International Inc. a decade ago.

Mr. Davis's proposal, actually, may be more bleeding-edge than leading-edge. BCE opposes it, of course, noting the directors' independence, its rigorous compensation-setting process, and the need to set compensation so that it may compete for executive talent.

But Mr. Davis has also failed to enlist the support of either of the two major proxy advisory services, Institutional Shareholder Services Inc. and Glass Lewis & Co., as both have recommended "no" votes on the proposal. Neither firm has significant issues with BCE's pay practices, and both feel the proposal is unnecessarily restrictive, with Glass Lewis expressing concern that it will be too difficult to find qualified directors if it passes.

Canada's Shareholder Association for Research and Education, however, is recommending its customers vote "yes" on the measure. SHARE has a policy to withhold votes from compensation committee directors who are CEOs of other companies "unless those companies are privately held and very small." Peter Chapman, SHARE's executive director, finds the Glass Lewis question about qualified directors "interesting. … Does the answer depend upon what you think those qualities are?"

Mr. Davis, in an interview, grants that he will be pleased if his measure garners 5 per cent of the shareholder vote, a number that will strike many as a failure. However, many of today's best practices in governance started out as odd, outlier opinions. It will be interesting to see how the conversation continues from here.

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