EXECUTIVE COMPENSATION
EXECUTIVE
COMPENSATION:
DO SHAREHOLDERS
HAVE A VOICE?
Disgruntled shareholders shift litigation strategies
as 'say on pay' lawsuits continue to fail. Canadian
companies should learn from their US neighbors
and ensure they are protected
By Paul Davis, Richard Yehia and Anna Tombs; McMillan LLP
THE RECENT PROLIFERATION of Canadian companies adopting shareholder votes on executive compensation (so-called 'say on pay' votes) has the
potential to alter Canadian corporate governance policies. It also creates potential risk for
Canadian companies of litigation brought by enterprising shareholders, law firms or both.
This article discusses the potential litigation implications of failed say on pay votes. We focus
on recent say on pay votes in Canada, the experience in the United States with say on pay
litigation, the potential application to Canadian companies and what Canadian companies
can do to minimize litigation risk.
WHAT IS SAY ON PAY?
Say on pay is a non-binding, advisory vote by shareholders expressing their approval or
disapproval for a company's executive compensation policies. Unlike other countries, such
as the United States, United Kingdom and Australia, say on pay advisory votes are not
mandatory in Canada. In 2011, one of the principal securities regulators in Canada, the
Ontario Securities Commission, sought comments on a variety of shareholder rights issues,
including say on pay, but since then there has been no movement on this front, and there is
no indication that this will change anytime soon.
Nevertheless, say on pay is increasingly being voluntarily adopted by Canadian companies
seeking more transparent corporate governance practices: a recent report published by the
Shareholder Association for Research and Education (SHARE) indicates that the number of
Canadian public companies that have adopted advisory say on pay votes has increased from
71 companies in 2011 to 99 in 2012 and up to 129 in 2013. While the actual impact of say
on pay votes on executive compensation levels has been questioned (see, for example: Before
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