Select Highlights from 2014 Proxy Season in Canada

June 2014

With most of the large issuers in Canada having completed their annual general meetings, Hugessen has summarized our high-level observations of key executive compensation and governance trends from the 2014 proxy season. This briefing highlights broad findings from the following areas:

  • Results from 2014 shareholder advisory vote on executive compensation (“Say on Pay”)
  • Pay levels for the CEO positions at TSX 60 companies
  • Noteworthy disclosure of compensation policies and practices from 2014 management information circulars
  • Governance and regulatory environment – proxy advisors and institutional shareholders

For clients who are interested in more in-depth and customized analysis, please contact any Hugessen consultant to find out how we can delve deeper to provide market data-based insights relevant to your organization’s compensation advisory needs. 

Improvement in Overall Say on Pay Results 

As of June 13, all 47 TSX 60 companies that held their Say on Pay vote in 2014 passed, with an average score of 91%, compared to 1 failure and average score of 88% in 2013

  • A breakdown of the results shows that 2014 saw a higher percentage of companies achieving 80% support or better and a lower percentage below the 80% threshold:


  • The improved SoP results of the TSX 60 coincided with: 1) a general improvement in their total shareholder return performance (median TSR of +17.8 in 2013 vs. +10% in 2012); 2) moderate increase in CEO compensation (see below)

Median CEO Pay Levels: Flat to 2012 Overall, Slight Increase Based on Same Incumbents  

For the current constituents of the TSX 60, median actual Total Direct Compensation (“TDC”) in 2013 was $7.5 million, an increase of 0.5% from the 2012 median

  • This observation reflects changes in the composition of the TSX 60 as well as the inclusion of 9 companies that had a change in CEO between 2012 and 2013
  • For companies that were in the TSX 60 in both years and had the same incumbent in the CEO role (n=49), median TDC increased by 3.9% between 2012 and 2013
    • For these CEOs, a 1% decrease in median LTI was offset by a 26% increase in STI 
  • In comparison, the median CEO compensation for the Standard & Poor's 500 reached $10.5 million, an increase of 8.8% from $9.6 million in 2012

Trends in Compensation Policies and Practices 

Based on disclosure in the companies’ information circular, the following observations stand out as manifestations of ongoing trends or the start of new ones:

  • Adoption or expansion of clawback policy – more than 10 issuers either adopted a clawback policy for the first time or broadened its application in 2013
  • Use of Board discretion – a growing number of TSX 60 companies are describing discretion as a key element of their compensation decision making process; there were several instances in 2013 of Boards applying negative discretion to bring down incentive awards
  • Growing popularity of PSUs – while stock options, part of the LTI program at 80% of TSX 60 companies, remain the most prevalent LTIP instrument, the use of performance share units (“PSUs”) continues to rise, with 78% of the group disclosing the use of PSUs.  The average use of options as part of LTI mix continues to moderate (now stands at about 34%)
  • Disclosing compensation beyond reporting requirements – there are now more than a half dozen TSX 60 companies that disclose and show the value of compensation realized or realizable by the executive over time, in addition to the required disclosure on compensation valued at the date of grant

Governance and Regulatory Environment

  With few significant recent regulatory developments in Canada, the most notable feature in the governance/regulatory landscape over the past year has been the growing influence of proxy advisors (principally Institutional Shareholder Services, or ISS, and Glass Lewis) on executive pay and governance matters.  Indeed, in one of the more notable steps taken by regulators over the past year, the Canadian Securities Administrators published for comment its proposed regulation of proxy advisory firms in April, citing a need to provide them “with recommended practices and disclosure” in order to “heighten transparency and maintain a high degree of confidence in the quality of the voting process.”

  • The influence of the proxy advisors appears to be evident in the voting results: TSX companies with negative recommendation from Glass Lewis (GL) this year had average SoP support of 82.4%, compared to 94.1% for those receiving a positive GL recommendation
  • During this proxy season, GL has issued negative Say on Pay recommendations against 10 out of the 28 TSX 60 companies with SoP and fourteen Canadian companies in total -- compared to just one TSX 60 and two Canadian companies overall for ISS 
    • This follows a similar pattern in the U.S.: GL voted against ~17% of SoP vs. ~9% for ISS 
    • One factor appears to be GL’s approach to peer group selection and pay-for-performance testing – in many cases, companies selected by an issuer solely for pay benchmarking purposes end up being used by GL to assess the relative financial performance of the issuer
      • This has tended to produce unfavourable pay-for-performance results for companies in struggling sectors (e.g. mining) that had to select general industry companies as pay peers due to a lack of similar-sized firms in its industry
      • Of the ten TSX companies GL recommended against on SoP, half were gold companies 
  • For issuers, the negative SoP vote from GL is further exacerbated by GL’s unwillingness to share its performance measurement methodology, its policy of not providing advance draft reports for the issuer to comment, and the negative and judgmental tone of their reports 

In reflecting upon the 2014 proxy season, it is clear that while companies will need to continue to monitor compensation trends and best practices and apply that market knowledge to inform their decision making, the effective communication of those decisions to shareholders has become as critical as the decisions themselves. Four years after its introduction in Canada, Say on Pay is now a permanent and inescapable fact of life for most Boards, the most visible criterion by which the compensation decisions of most large issuers is judged. As the actions of Glass Lewis demonstrate, threats to a company’s SoP results can seemingly strike from anywhere. The surest line of preventive defense would be for Boards to proactively engage with shareholders to explain their pay decisions and rationale and to understand the issues and concerns that shareholders have. As another annual compensation cycle begins, we expect shareholder engagement to be among the top items on Boards’ agenda.

For further information on the contents of this briefing, or to obtain access to Hugessen’s more comprehensive data and analysis on TSX 60 trends, please contact any of the following professionals:


Ken Hugessen 416-868-4422
Georges Soaré 416-868-4416
David Crawford 416-868-4418
Damian Yu 416-868-4423 


Scott Munn 403-441-6297 

Hugessen Consulting is an independent consulting firm dedicated to meeting the executive compensation consulting requirements of boards and their compensation committees. With offices in Toronto and Calgary, the firm's mission is to be the leading provider of advice on executive compensation, performance measurement and assessment, and related governance to the compensation committees of medium and large companies in Canada, the U.S., and the U.K.