Thought Capital

Proxy advisory firms Institutional Shareholders Services (“ISS”) and Glass Lewis (“GL”) recently released updates to their 2015 voting guidelines. ISS has not changed existing or adopted any new compensation-related policies. Glass Lewis has made two compensation-related changes: i) clarified an enhanced policy regarding one- time equity. grants, and ii) expanded the list of considerations that may mitigate an ‘against’ vote recommendation when a company fails their pay-for-performance (“P4P”) test. Both ISS and GL have amended policies related to director elections.

To date, stock options have been the dominant form of equity-based compen- sation (or “equity pay”) for small and mid-size publicly-traded companies in Canada. As a result, stock options are generally very well understood, and it has become relatively simple to design and administer these types of compen- sation plans.

A board’s best defence in the say-on-pay era? Conduct an independent pay-for-performance assessment, then communicate it to your shareholders.

The frequency of shareholder proposals and their levels of support are gradually gaining steam in Canada. Directors are wise to pay heed. If your board isn’t a target today, it might be tomorrow.

With the 2014 proxy season now behind us, compensation committees may be feeling the pressure to respond to below-par Say-on-Pay results and/or director support levels and other criticism received from shareholders and their advisors. Adding to this pressure is the lack of a clear process for gathering the views of the shareholder community in order to inform the board’s review and decision- making process.

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.

Directors need to acknowledge the increasingly active role of shareholders and their advisers in executive compensation decision making—and then engage shareholders directly to hold sway over the agenda.

Prior to each proxy season, proxy advisory firm Institutional Shareholders Services (“ISS”) releases updates to its Corporate Governance Policies, specific to each market (e.g., Canada, United States). In addition to this year’s policy updates (released November 21, 2013), ISS has also announced an extended consultation period to receive comments on a number of additional subjects.

The SEC in the U.S. recently announced that it is moving ahead with the CEO pay-ratio rule contained in the Dodd- Frank bill. That rule requires public companies to calculate and disclose the ratio of the CEO’s pay to that of the median pay employee (the employee who has the same number of people earning more and earning less than him/her).

Strong board leadership is required to ensure a new CEO’s contract is effective, defensible, and sets the right standard for the whole organization