Thought Capital

Privately-owned companies enjoy many advantages compared to their publicly-traded counterparts in the current economic and regulatory environment. Their detachment from the public markets allows them to operate under less scrutiny and governance bureaucracy. Yet, it also creates some practical barriers when considering incentive compensation alternatives.

In December 2015, Hugessen Consulting and Steven Hall & Partners hosted a Director and Investor Roadshow in NYC, bringing together experienced North American directors and representatives from US institutional investors ($7 trillion in AUM) for a day of unfiltered discussion on a variety of executive compensation and governance topics.

Institutional Shareholders Services (“ISS”) and Glass Lewis (“GL”) recently released updates to their 2016 voting guidelines for Canada. ISS updates will apply to shareholder meetings for publicly traded Canadian companies on or after February 1, 2016. GL updates will apply to meetings held on or after January 1, 2016.

For some time now observers have recognized that executive compensation consultants can have a significant influence on the level of executive pay. As a result, the role and impact of these consultants has come under heightened scrutiny. Questions raised by stakeholders include: what is the nature of consultant influence, does consultant “independence” make a difference, and does it matter who hires the consultant – management or the board?

On November 20, during the new Liberal government's first economic and fiscal update, Minister of Finance Bill Morneau stated during the Q&A that the government has not yet made any final decisions with respect to the taxation of stock options. However, he also indicated that, once a decision is made (which should be "in the next few months"), the new taxation rules will apply to options issued from that date forward and will not apply to options issued prior to that date.

Shareholder engagement remains highly topical in boardrooms across North America. Issuers are recognizing the benefits of speaking directly with institutional shareholders on a broad range of topics beyond financial results, particularly in today’s environment of increasingly influential proxy advisors and the ever-present specter of activists.

Corporate boards and management teams of public issuers often bemoan the challenge of making effective long-term strategic business decisions in the face of short-term pressure from financial markets and investors to deliver quarterly results. Recently, however, there has been growing support in the business and investment communities to encourage focus on longer-term decision-making.

Shareholder engagement remains highly topical in boardrooms across North America. Issuers are recognizing the benefits of speaking directly with institutional shareholders on a broad range of topics beyond financial results – particularly in today’s environment of increasingly influential proxy advisors and the ever-present spectre of activists.

Anyone reading the headlines during the 2015 proxy season might think recent efforts to reform executive compensation in Canada have suddenly fallen off the rails with this year’s multiple say-on-pay failures. But judging by shareholder votes, we see that the vast majority of companies appear to have compensation well in hand and it is only a few high-profit-say-on-pay failures and low director election results causing most of the furor.

Separating the CEO and board chair roles continues to be a hot topic with fierce proponents on both sides of the debate. It is a contentious governance issue and, to date, there is no clear evidence that a non-executive chair improves financial performance.