Thought Capital

With the evolving regulatory landscape and more clients holding their asset managers accountable for their voting records on governance, compensation and environmental, social and governance (ESG) matters, major institutional shareholders have stepped forward to play a significant leadership role in shaping the discussion on corporate governance and executive compensation matters. To get the latest perspectives on executive compensation and governance matters, Michelle Tan, Joseph Sorrentino and Steve Chan spoke with governance leaders at two major institutional shareholders: Yumi Narita, BlackRock, and Anne Sheehan and Aeisha Mastagni at CalSTRS.

Gender diversity (or lack thereof) is a hot topic in corporate Canada. For years, Canada’s largest companies have devoted time and resources to find effective ways to develop, retain, and promote female talent across all levels of their organizations. Despite these efforts, and Canada’s status as a global leader in women’s equality, the representation of women at the most senior levels of business remains far from parity.

On June 15 and 20, 2017, Hugessen hosted breakfast events in Toronto and Calgary to review executive pay trends and issues from this past proxy season. The events featured notable research findings from an analysis of the information circulars of the TSX 60 and a panel discussion to share insights and experiences from corporate directors and governance experts.

Amid a market rebound, median CEO total direct compensation ("TDC") levels among the TSX 60 decreased modestly by 2.0% year-over-year (y-o-y) to $7.4M. The decrease was slightly less when measuring the same incumbents (excludes four CEO turnovers), down 0.9%. Meanwhile, TDC growth within commodity sectors (oil & gas and mining) turned positive, after a steep decline in 2015. Interestingly, the overall pay level trend within the TSX 60 has been relatively flat over the past five years, rising less than 1% annually even when measuring the same incumbents in the role over the period.

With the heavy lifting over for another year, the next few months serve as an opportune time to review mandates and renew committee relationships

With no shortage of corporate crises in the headlines, now more than ever boards need to recognize that they play a key role in overseeing the cultural tone

In light of recent public scandals tied to executive compensation, Hugessen reached out to the shareholder community to discuss their expectations of directors when setting and evaluating performance-based pay decisions. Hugessen initiated conversations with select Canadian and U.S. institutional shareholders, including both pension funds and asset managers with assets under management aggregating CAD$4T. To guide the discussions, Hugessen asked shareholders what questions directors should ask themselves when: 1) Determining performance metrics, and 2) Adjudicating performance outcomes for determining pay decisions in respect of the prior year. All of the shareholders we reached out to are engaging with boards on these (and other) matters.

As boards face increasing scrutiny from investors, regulators and other stakeholders, director priorities and board practices are forced to adapt accordingly. Tracking prevailing views on boardroom issues provides valuable insights going into year-end decision-making. For example, directors recognize that issues like IT risk mitigation and talent management require increased focus. Meanwhile, executive compensation and shareholder engagement continue to play a fundamental role in how companies execute and communicate their strategies. In an effort to keep an ear to the ground in the director community, we created a survey to gauge directors’ opinions on hotbutton issues and their companies’ practices over the past year.

Institutional Shareholders Services (“ISS”) and Glass Lewis (“GL”) recently released updates to their 2017 voting guidelines for Canada and the U.S. The updated guidelines from ISS will apply to shareholder meetings for publicly-traded companies on or after February 1, 2017, while the ones from Glass Lewis will apply to meetings held on or after January 1, 2017. This memo provides a summary of policy updates on compensation-related and board-related topics in each of the two countries.

The significant increase in share buyback activity in the U.S. (US$166 billion in the first quarter of 2016 alone), and well-publicized debates on their utility, has put capital allocation programs and their relationship with compensation program into the spotlight. When buyback programs are contemplated, there are ways to ensure that shareholders understand the board’s process and perspective.