Say on pay campaign gains momentum

Canada’s big banks will be under the microscope at their upcoming annual meetings, once again facing shareholder proposals on executive compensation.

Meritas Mutual Funds, with assistance from SHARE (Shareholder Association for Research and Education), has filed shareholder resolutions at all five of Canada’s big banks asking for shareholders to be able to provide to the boards of directors an advisory vote on executive compensation. Similar proposals have been filed with Sun Life Financial, the TMX Group, Nortel Networks and Potash Corporation.

“You can’t pick up any newspaper’s business section without there being some kind of commentary on executive compensation,” Meritas CEO Gary Hawton said in an interview with SRI Monitor. “And I think it’s important that we establish a dialogue with boards of directors.”

“They do report to us as shareholders and it’s a hot topic right now.” Hawton adds. “There’s a perception that pay and performance have not been linked in the past; sometimes you get paid for success and you also get paid for failure.”

The votes are non-binding – boards will still retain jurisdiction on compensation. “We’re just looking to be able to provide them with feedback that they can take or leave,” Hawton stresses.

Last year, Meritas sponsored similar resolutions at the big banks, which averaged 40.5% support. But because this is a shareholder proposal, there is no magic number. “Even if we get 100%, the board could still ignore it,” Hawton notes.

Hawton says he’s optimistic the resolution will receive more support this year. “There are a number of institutional investors who said last year it was too early, but got nowhere in their discussions with management, so they are now on board with this proposal. So that could push us over the 50% mark. And what do the boards of directors do when the majority of shareholders are asking for this?”

By next year’s proxy voting season, Hawton believes there will be some Canadian companies on board with the resolution, but adds he’s disappointed it hasn’t happened yet. “It’s already happening in the U.K. and a number of U.S. companies have voluntarily said we will provide this opportunity. It’s recognized around the world as a sign of good governance.”

“Everyone is afraid to be the first mover on this,” he says. “We need someone to understand this is an opportunity to be applauded for being a governance leader in this area.”