CCGG publishes model shareholder engagement and "say on pay" policy for boards
The Canadian Coalition for Good Governance (CCGG) recently published a model shareholder engagement and "say on pay" policy for boards of directors. The policy is intended to provide guidance on engagement with shareholders and on expected disclosure related to executive compensation. It also includes a recommended form of advisory “say on pay” resolution and addresses how the board should respond to such an advisory vote on compensation. While the CCGG stated that it recognizes that companies will want to customize a policy to address their specific circumstances, companies are urged to use the recommended form of resolution as closely as possible to ensure consistency among issuers.
Specifically, the model policy states that the board will develop policies to increase engagement with shareholders on governance matters. Examples of engagement include meeting with larger shareholders and establishing methods for hearing from smaller shareholders. Boards are also to consider emerging shareholder engagement practices in other jurisdictions. Further, the model policy outlines the information to be disclosed respecting a company's approach to executive compensation. Such disclosure includes two parts. First, information required by Form 51-102F6 is to be included in the management information circular for the company's annual meeting as a report to shareholders from the issuer. Second, a committee of the board is required to include a discussion of key strategic objectives of the company and how the executive compensation plan is designed to incentivize management to meet such objectives. Under the model policy, beyond disclosure required by Form 51-102F6, the compensation discussion and analysis (CD&A) is also to describe the approach to compensation for subsequent financial years, highlighting any changes made to the prior year’s compensation plan and where and why any discretion was exercised by the board in prior years.
The suggested policy also includes a recommended form of the advisory “say on pay” resolution, which would require an affirmative vote of a majority of votes cast for approval. The policy also requires that the results of the advisory vote be disclosed along with the company’s voting results for the meeting and, while the advisory vote is not binding, that the board will take the results of the vote into account when considering future compensation policies. The policy further states that where a significant number of shareholders oppose the resolution, the board will consult with shareholders to understand their concerns and review their approach to compensation in light of such concerns.
Director compensation as a policy matter has not been addressed in the model policy, but the CCGG indicated that it may do so in the future.
