Thursday, February 2, 2012

Teachers outlines position on executive compensation

The Ontario Teachers’ Pension Plan says it does not support advisory votes on executive compensation, preferring instead to let directors make decisions on compensation matters.

“We believe shareholders are better served by having boards comprised of competent directors make, and be accountable to shareholders for, executive compensation decisions,” Teachers said in a letter to 665 public companies in Canada, the United States and the United Kingdom.

Still, Teachers says it will review compensation disclosures to assess the executive compensation decisions made by directors, in a three-step, three-year process.

In the first year, Teachers says it will “generally support management on advisory votes and only follow-up with companies where we have identified significant issues with management’s proposal.”

Teachers says if any issues identified in the first year are not resolved by the second year, it will generally not support management on the advisory vote in that year and will again follow-up with the company, outlining its concerns.

If the concerns remain unaddressed by year three, Teachers will not support the re-election of the chair and/or members of the compensation committee.

Teachers adds that in circumstances where there is no advisory vote and where there are concerns about a company’s compensation practices, it will consider whether or not to support the election of the chair and members of the compensation committee.

Teachers says its ability to analyze a company’s compensation program is dependent upon the quality of disclosure provided in the Compensation Discussion & Analysis (CD&A) section of company meeting materials.

“We encourage issuers to draft their CD&A accurately, completely and in plain language so that it is clear and easily understood by the reader.”

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