'Say On Pay' — Coming To A Shareholders' Meeting Near You?

Author:Ms Vanessa Grant
Profession:McCarthy Tétrault LLP

With current economic conditions and reports of executive

compensation in the media, measures addressing executive

compensation issues are drawing increasing attention. Several of

these issues are discussed in

another article. One measure that has received considerable

press in Canada and the United States and is being implemented by

some companies is 'say on pay,' an annual shareholder

advisory vote on a company's compensation practices.

'Say on Pay' in Canada

Under Canadian corporate law, how much a company pays its

executives is within the exclusive authority of its board of

directors. Canadian securities laws require extensive disclosure of

how much has been paid to a public company's top executives,

and the basis upon which that compensation has been calculated.

Shareholders do not have any direct input into the process, nor do

they have any right to approve or disapprove. As with other

decisions that may be taken by a board, shareholders who object to

a company's executive compensation practices may seek to change

the directors, make a shareholder proposal to express their views,

or assert a breach of the directors' fiduciary duties.

Over the past few years, various shareholder proposals have been

made to seek a shareholder vote on executive compensation, with the

result that as of the end of April 2009, 12 of Canada's largest

companies have agreed to give their shareholders a non-binding vote

on executive compensation.

'Say on Pay' Outside of Canada

Since 2003, shareholder advisory 'say-on-pay' votes have

been mandatory in the United Kingdom. Australia and some European

countries have also had legislation in place requiring shareholder

votes on executive compensation for a number of years.

Starting in 2007, the United States has seen a steady increase

in support for 'say-on-pay' votes. This has been reflected

in the press, in the United States Congress, and in the number of

shareholder proposals being made. Indeed, in a significant number

of recent shareholder meetings, non-binding 'say-on-pay'

proposals have received substantial support and have been approved

in many instances. In February of this year, in response to public

pressure, issuers receiving financial assistance from the Troubled

Asset Relief Program (TARP) were required to put their executive

compensation to an advisory shareholder vote.

Is 'Say on Pay' a Reality for Canadian Companies?

While a dozen large Canadian public companies have agreed to

give their shareholders...

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