Thought Capital

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.

Institutional Shareholders Services (“ISS”) and Glass Lewis (“GL”) recently released updates to their 2018 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, 2018, while those from Glass Lewis will apply to meetings held on or after January 1, 2018. This memo provides a summary of policy updates on compensation-related and board-related topics in both jurisdictions. Overall, the 2018 updates were less extensive than in previous years, with the Canadian updates focusing more so on board governance practices (e.g. board gender diversity, director overboarding), than compensation-related guidelines.

The shareholder community has turned its attention to environmental and social concerns – commonly referred to as “E&S”, or more broadly “sustainability” – so it’s little wonder the topic has made its way into boardroom discussions on a regular basis. Conversations between Hugessen and the institutional shareholder community across North America reveal a growing recognition that E&S factors represent a risk that should be managed like any other risk within a company.

On October 19, 2017, the TSX announced (relatively minor) amendments to Parts IV and VI of the TSX Company Manual

In Fall 2016, we published a review of CEO LTIP practices (reviewing 2015 pay data) among small- and mid-cap issuers on the TSX, which indicated, among other things, that stock options were the most prevalent instrument, although PSUs were increasing in prevalence. Our analysis this fall, of 2016 pay data, indicates that PSUs have now surpassed options in becoming the most prevalent LTIP instrument within the data sample. This “update” briefing provides a summary of these developments.