Executive Summary
Overall, it is a strong year for Say on Pay in Canada. With a majority of vote results in for the 2024 annual meeting cycle, key highlights from this proxy season include:
1. At the S&P/TSX Composite, the number of companies with 90%+ support are at the highest level, and companies that failed Say on Pay are at the lowest level, since 2020
2. Vote results suggest that institutional investor voting preferences are continuing to diverge from those of the proxy advisors
3. Among companies receiving an AGAINST recommendation from Institutional Shareholder Services (ISS), the median vote support for the Chair of the Compensation Committee has been declining since 2021, despite median Say on Pay vote outcomes remaining fairly constant. This suggests that investors are becoming more assertive in their voting practices
4. The Globe and Mail’s Board Games methodology for scoring Say on Pay changed to a graded system, with full marks provided for vote results greater than 95% (which exceeds the Canadian average)
Recap of Say on Pay Results at the TSX Composite
Based on 171 ballots held among S&P/TSX Composite companies (through the end of August), ~82% have received at least 90% support, with an average level of support of 93% (slightly higher than the average support of 92% last year).
ISS has recommended “AGAINST” Say on Pay at 5 Composite companies – vote support in brackets: BlackBerry Limited (53%), First Majestic Silver (49%) , GFL Environmental (64%), NovaGold Resources (84%), and Shopify (69%).
In addition to a pay-for-performance misalignment, key problematic pay practices identified by ISS include internal pay disparity, single trigger change in control, excessive severance and perquisites, tax gross-ups, and insufficient shareholder engagement and disclosure of engagement.
Influence of Proxy Advisors – ISS and Glass Lewis
ISS
ISS recommended AGAINST Say on Pay at 33% of the companies that failed or scored in the “yellow card zone” (50%-80% support). The impact of an ISS AGAINST recommendation on median vote results has been decreasing over the past 3 years, but ISS influence remains stronger than Glass Lewis.
Glass Lewis
Glass Lewis recommended AGAINST Say on Pay at 58% of the companies that failed or scored in the “yellow card zone”, and 4 companies that received 90%+ vote support. Similar to last year, Glass Lewis was much more likely than ISS to recommend AGAINST Say on Pay this year. Glass Lewis recommended AGAINST at roughly 3x the rate of ISS. A negative vote recommendation from Glass Lewis resulted in a median 16pt. lower vote outcome, about half the impact of ISS.
The decreased impact of proxy advisor vote recommendations suggest that institutional investor voting preferences are continuing to diverge from those of the proxy advisors. The influence of proxy advisors on median vote outcomes is declining, and many companies are scoring below 80% despite a positive recommendation from the proxy advisors, particularly ISS.
Combined Influence
The following table sets out the median vote results where one or both of the proxy advisors have recommended FOR or AGAINST Say on Pay. While both proxy advisors have some influence on vote results, the impact of a negative recommendation from ISS is more pronounced than Glass Lewis, independent of Glass Lewis’ recommendation.
Impact on Compensation Committee Chair Vote Outcomes
We also considered the impact of a negative Say on Pay recommendation from ISS on average vote outcomes for the election of the Chair of the Compensation Committee. Over the last four years, median vote support for the Chair of the Compensation Committee has been declining at companies receiving an AGAINST recommendation from ISS, despite median Say on Pay vote outcomes remaining fairly constant.
2024 Board Games Say on Pay Methodology Changes
One of the material changes to this year’s Globe and Mail Board Games methodology was related to Say on Pay – companies now only receive full marks for Say on Pay vote outcomes of at least 95% compared to the prior scoring of full marks for simply holding a Say on Pay vote.
Over the last 3 years, over 90% of companies in the S&P/TSX Composite received at least 80% support for Say on Pay proposals and this year, 57% of companies received at least 95% support. The new scoring approach spotlights those that achieve the highest levels of shareholder approval (95%+), driving better recognition of superior governance and shareholder alignment in executive pay practices.
This graduated scoring system more closely aligns with recent proxy advisor guidance that companies meaningfully engage with shareholders on Say on Pay and disclose these engagement efforts in the subsequent proxy when support drops below 80%.
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This Client Update is prepared by Meridian Compensation Partners, LLC, provides general information for reference purposes only, and should not be construed as legal or accounting advice or a legal or accounting opinion on any specific fact or circumstances. The information provided herein should be reviewed with appropriate advisors concerning your own situation and issues. www.meridiancp.com
Questions regarding this Client Update or executive compensation technical issues may be directed to:
Christina Medland at (416) 566-1919 or cmedland@meridiancp.com
Andrew McElheran at (647) 472-7955 or amcelheran@meridiancp.com
Andrew Stancel at (647) 382-7684 or astancel@meridiancp.com
Matt Seto at (647) 472-0795 or mseto@meridiancp.com
Andrew Conradi at (647) 472-5231 or aconradi@meridiancp.com
Rachael Lee at (647) 975-8887 or rlee@meridiancp.com
Kaylie Folias at (416) 891-8951 or kfolias@meridiancp.com
Krunal Billimoria at (647) 267-5869 or kbillimoria@meridiancp.com
Jason Chi at (647) 248-1029 or jchi@meridiancp.com
Gabrielle Milette at (905) 242-0503 or gmilette@meridiancp.com
Wali Ahmed at (647) 208-0132 or wahmed@meridiancp.com
Steve Li at (437) 451-2710 or sli@meridiancp.com