Executive Briefing Canada - Hay Group

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Executive Briefing Canada ● February, 2013 Belgium Prior to 2011, remuneration votes in Belgium were mainly resolutions on stock option plans and stock option grants, and were compulsory. The approval of a remuneration report by shareholders was voluntary and uncommon. Under new legislation in Belgium (The Law on Corporate Governance and Executive Remuneration), all listed companies will now have an advisory (non-binding) SoP vote commencing in the 2012 proxy season. Companies will be required to annually seek shareholder approval of the remuneration report; consequently, there is increased disclosure on remuneration policies and pay practices. The Law also provides for best practices on severance pay and on variable pay. If companies want to deviate from these guidelines (e.g., providing severance payments in excess of 18 months of total pay, focus variable pay on short-term rewards, or provide variable remuneration to independent directors), these companies will need to put forward the deviated policies for a binding shareholder vote. Canada Currently, there is no specific legislation or Canadian Securities Administrator (CSA) policy granting shareholders the right to a vote that influences director and executive compensation. In January 2010, the Canadian Coalition for Good Governance (CCGG) published SoP policy for boards of directors. CCGG recommends that boards voluntarily add to the agenda for each annual meeting a shareholder advisory vote on the board’s and company’s reports on executive compensation. Although not mandatory, SoP in Canada has picked up pace since 2009. Voluntary SoP was adopted by almost 100 companies in 2012 (an increase from 70 in 2009). There are indications that several other companies are keen on adopting this policy in the future. There have been no significant changes in the overall results of the vote, despite the influx of companies that made a beeline to adopt the policy in 2012. Despite being a non-binding vote, most companies take the SoP vote very seriously, actively trying to engage with shareholders to improve voting results. The average vote for 2012 was 92%, with a median of 96% in favour. France AFEP-MEDEF Code (Corporate Governance Code of listed companies) in its 2010 amended version specified the best practices of remuneration policy for board of directors and executive directors. Shareholders of French companies are currently entitled to vote on resolutions on equity-based incentives and severance payments. After a new regulation limiting CEO pay was imposed on state-controlled companies, France’s new government is now considering reforms for all listed companies. In a recent consultation paper released by the Finance Ministry, interest groups were asked to comment on executive pay, seeking best practices to voice shareholder concerns over poorly designed pay policies and the opinion of the nature of vote (binding or nonbinding). In the future, France might join other European countries by providing SoP rights. Germany Since 2010, the VorstAG (Act for the appropriateness of executive board members compensation) has been in place. The Act introduces important changes concerning the composition of management board remuneration and the manner in which it is determined by the supervisory board. The Act also provides shareholders of listed companies with the rights of non-binding votes on both remuneration policy and the pay amount for executives. The Act is comprehensive and has many specific provisions that promote better corporate governance on remuneration, such as:
Executive Briefing Canada ● February, 2013 • There must be an appropriate relationship between the remuneration of the management board of a public limited company and the management board’s performance. • The remuneration structure of listed companies must be oriented towards sustainable corporate development. • Share options may only be exercised at the earliest four years after the option was granted. This is intended to give managers who benefit from such schemes a greater incentive to act with sustainable goals in mind, and in the interests of the company. • The supervisory board has the right to adjust (including reduce) remuneration levels according to the company’s situation. India According to Section 309 of Companies Act, 1956, executive/director remuneration requires board approval and a majority binding vote by shareholders at the AGM. However, given the level of governance and the ownership structure (e.g., owner CEO majority holding) at publicly listed organizations in India, executive/ director pay approval is a mere formality. To a large extent, executive/director remuneration has historically been restricted in quantum. The restriction of executive pay is subject to various factors such as: • Financial performance of the company. • Shareholders’ approval. • Compliance with regulatory requirements according to sections 198, 269 and 309 and Schedule XIII of the Companies Act. In particular, the Act has specified that remuneration payable by a public company, or a subsidiary of a public company, to its directors and its manager in respect of any financial year shall not exceed a pre-determined percentage of profit. Italy Effective in 2011, shareholders of banks and insurers (regardless if they are listed or not listed) have to hold a binding SoP vote on the remuneration report related to “material risk-taking staff”, not only for directors and senior executives. Effective in 2012, regulations from the Corporate Governance Code of Italian Stock Exchange require all listed companies to submit a remuneration report at the AGM for shareholders’ approval. The report covers the remuneration of the individual board directors and the aggregate compensation for senior executives. The SoP vote is non-binding. A highly concentrated ownership structure and the nature of the peripheral market for large institutional investors have contributed to keeping Italian companies intact from the “shareholders’ spring”. During the 2012 proxy season, remuneration policies and incentive plans obtained an average of almost 90% favourable votes at Italian large companies. Japan According to Japanese Corporate Code, investors are given the right (binding vote) to approve the change in directors’ compensation amount and compensation policy (including any formula). In actual practice, shareholders are typically asked to approve the upper limit of aggregated directors’ compensation in the AGM. If the upper limit does not change, shareholder votes are generally not necessary, even if there is a change in the compensation scheme. In addition, approval by shareholders is required when companies issue stock options or provide retirement payment to directors. In Japan, most directors are executive officers of the companies and independent directors are a minority. Current ISS policy is to generally recommend FOR increases to aggregate compensation ceilings for directors, unless there are serious concerns about corporate malfeasance. Middle East Gulf Cooperation Council (“GCC”) countries — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE — currently do not have any legal requirements granting shareholders binding or advisory vote rights with respect to SoP. Generally, there is a lack of shareholder “activism” in this region. In most of the companies listed on the regional stock exchanges, the majority of equity remains in the hands of a few parties, often the governments or state-owned entities or families, giving independent shareholders or institutional investors limited opportunity to make an influence.
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