In an environment where investors, public and private, big and small, are placing mounting pressure and expectations on Canadian companies, corporate directors are on the frontlines. Topics such as sustainability and social issues are slowly making their way into the boardroom, and to some extent into incentive plans, while IT risk mitigation and cybersecurity remain top-of-mind across industries as companies adapt to digital forces. This survey draws out prevailing topics and analyzes the results to understand how industry, company size, and even director tenure, are driving perspectives and practices.
On October 16, 2018, the day before recreational cannabis was legalized in Canada, the combined market values of Canada’s seven major licensed producers (“LPs”) was $41B, reflecting an average market capitalization to revenue ratio of ~200x . In aggregate, this group of companies experienced a 675% increase in their market values over the one-year period leading up to legalization day. However, two weeks after legalization, the combined market value for this set of cannabis companies had fallen over 30%.
News Flash: Royal Dutch Shell to Introduce Carbon Reduction Metrics in its Executive Compensation Program
As an indication of the increasing focus on environmental, social, and governance or “ESG” matters, one of the world’s largest oil & gas companies announced this week that it would incorporate Net Carbon Footprint targets in its executive compensation program.
Shareholders are becoming increasingly vocal on the relationship between shareholder interests and management behaviour, particularly in extractive industries. Ontario Teachers’ Pension Plan (OTPP) recently released an article entitled, “Is Management Compensation Rewarding the Right Behaviour?” where they outlined four considerations for E&P Boards in the face of heightened shareholder scrutiny. This article outlines Hugessen’s view of OTPP’s four recommendations and provides practical considerations for Boards as they contemplate how to address potential changes in incentive design. We note that while the article comments mainly on extractive companies, we believe the concepts to be applicable to Boards across all industries.
Hugessen has completed its annual review of the 2018 TSX 60 proxy circulars and we are pleased to share the highlights with you, including our summary of pay levels for TSX 60 CEOs, commentary on executive pay design and director compensation trends, results of this year's Say-on-Pay votes, and other governance trends. Some highlights include: - Median TSX 60 CEO pay increased by 13.0% year-over-year to $8.4M, led largely by the Financials and Materials sectors - The sharp increase in 2017 CEO compensation bucks the overall pay level trend within the TSX 60 over the previous 5 years, which has been relatively flat - Say-on-pay support this proxy season remains strong among TSX 60 issuers (92% average support), with a few notable exceptions - Shareholder engagement activity continues to expand, as does its disclosure
In June Hugessen hosted breakfast events in Montréal, 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.
Last week’s release of a new Ontario Teachers’ Pension Plan (“OTPP”) study is another example of an institutional shareholder setting out industry-specific concerns related to executive compensation, together with suggestions for improvement. Specifically, this report questions whether the oil & gas industry’s existing incentive structures are properly designed to reward desired behaviour from a shareholder perspective.
On December 20, 2017, Congress passed the final version of the Tax Cuts and Jobs Act
In November 2017, Hugessen Consulting hosted a dinner in New York City with investors and directors in our network to discuss and exchange perspectives on the ever-expanding role of investors in the governance of publicly-traded companies. Dinner was attended by a mix of experienced US and Canadian corporate directors and shareholder representatives across a spectrum of investing models: private equity, hedge fund, and active managers. We were also joined by members of our NYC-based partner, Steven Hall & Partners.
Director pay levels are rising, and shareholders and proxy advisers are taking note. But along with a few modest changes in oversight, basic good governance should be enough to keep excesses in check.