What is “Say on Pay”?

“Say on pay” is a phrase that has been gaining currency in the past several years.  It refers to legislation that gives a firm’s shareholders the right to vote on the remuneration of executives.  This type of legislation is one of the responses to soaring executive compensation which is too often uncorrelated to company performance.

Some version of “say on pay” legislation has been introduced in a number of countries, including Switzerland, Australia and the UK.  The effect of ‘say on pay’ measures can differ from country to country.  In different countries, “say on pay” voting can be either binding or non-binding.  This can vary depending on regulatory requirements or internal corporate policy as determined by proxy votes.

What are some of the Pros and Cons of “Say on Pay”? 

In large, publicly listed companies, executive compensation is usually determined by a compensation committee composed of board members.  Advocates for “say on pay” argue that it strengthens the relationship between the board of directors and shareholders, which helps ensure that board members fulfill their fiduciary duties.  Critics of “say on pay” often point out that it does not effectively or comprehensibly monitor compensation.  This criticism is especially salient in jurisdictions where the votes are not binding.  Some critics view “say on pay” to be a reactionary policy rather than proactive policy because it does not immediately affect the Board of Directors.  Others argue that, by diminishing the authority of the Board of Directors, “say on pay” is actually counterproductive with respect to its goal of reigning in executive compensation.

Does Canada have “Say on Pay” Legislation?

Yes.  Significant amendments to the Canada Business Corporations Act (the “CBCA”) were proposed in the federal government’s 2019 budget implementation bill (Bill C-97).  One of these amendments requires CBCA corporations to develop and annually disclose their approach toward remuneration of directors and members of senior management.  They must also “place before the shareholders, at every annual meeting, the approach with respect to remuneration” for a non-binding vote.  The results of the shareholder vote are not binding, though the corporation must disclose the results to shareholders.  The vote and its disclosure would offer the opportunity to gauge and react to shareholders’ views on the board’s approach to executive compensation.  It could even possibly foresee shareholder activism.

Is the “Say on Pay” Legislation in Effect?

No. Bill C-97 received royal assent on June 21, 2019. However, as of July 2020, a date has not yet been set for the coming into force of the amendments.  There is no clear indication at the moment when that will be.  Significant questions are still unanswered and the actual details which will be crucial for implementation have not yet been filled in.  For example, the corporations and senior management members to which the obligation applies haven’t yet been defined.  This (and other questions) will only be clear after the federal government introduces and effects regulations following a public consultation period which will take between 12 and 24 months.

For more information on any of the above, or if you are seeking legal advice more generally, feel free to reach out to Alon Segev, managing partner at Segev LLP.  Alon can be reached directly at [email protected] or 604-629-5406.

Disclaimer: 

The above blog post is provided for informational purposes only and has not been tailored to your specific circumstances. This blog post does not constitute legal advice or other professional advice and may not be relied upon as such. If you require legal advice, you should contact a qualified lawyer.