Executive Briefing Canada - Hay Group

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Executive Briefing Canada ● February, 2013 Shareholders have the right to approve the aggregate amount of board remuneration. CEO or other executives typically are not members of the board in this region. Shareholders are also asked to approve capital stock adjustments where employee stock options may often be included. Within the region, disclosure requirements are generally limited for executive remuneration, except the disclosure requirements for Abu Dhabi Stock Exchange listed companies. Netherlands Since 2004, Dutch Corporate Governance Code in the Netherlands provides shareholders of listed companies the right of binding votes on remuneration policy for executives and any major changes in remuneration policy. The amended version of the Code (2008) specifies that the supervisory board, with recommendations from the remuneration committee, shall determine the remuneration of the individual members of the management board within the scope of the remuneration policy adopted by the shareholders at the AGM. Singapore Investors in Singapore do not have direct SoP rights (either binding or advisory) on executive remuneration. Shareholders have the rights to vote on share compensation schemes according to the Listing Manual. That said, the election of directors and directors’ fees are subject to shareholders’ binding votes annually at the AGM, but executive remuneration is typically excluded. A recent study reveals that 20% of companies listed on the SGX provide their executive directors with directors’ fees, in addition to executive remuneration. Views on whether executive directors should receive directors’ fees are divided. Spain In 2011, Ley de Economía Sostenible aprobada en España (Sustainable Economy Act) was passed to strengthen the application of EU Directive CRD3 for the financial sector and provide similar regulations for all listed companies. Under part of the Act, issuers are obligated to submit director and senior executive remuneration policy to a non-binding vote at the general meeting of shareholders. Sweden & Nordics Swedish Code of Corporate Governance was first introduced in 2007. Revision of the Code came into effect in 2010, requiring listed companies to adopt formal remuneration policies. Shareholders are entitled to a binding vote on the remuneration policy, including the variable pay opportunity and performance measures for executives, severance pay, share-based remuneration plans etc. As a result, disclosure on the remuneration policy, the evaluation process and the explanation of the outcomes are enhanced. Company auditors are also required to make a statement at the AGM about the actual compliance of the remuneration policy. For some years, other Nordic countries such as Finland, Denmark and Norway have had Corporate Governance Code similar to Sweden; requiring companies to adopt formal remuneration policies and disclose incentives and performance measures. Shareholders in these countries are entitled to a binding vote at the AGM. Switzerland For many years, Swiss shareholders have delegated executive pay issues to the board of directors. Similar to Canada, Switzerland currently does not have legislation for SoP vote. However, an increasing number of Swiss companies, especially larger ones, have voluntarily included consultative / advisory votes on remuneration reports for shareholder (vote or information?) during the AGM. In 2007, Article 663b and 663c of the Swiss Code of Obligation (mandatory disclosure of executive remuneration disclosure for listed companies) came into effect. In 2008, the member of the Council of States, Thomas Minder, launched his initiative against abusive salaries. The initiative, if accepted by public voting, would amend the legal framework on executive compensation: • The aggregate compensation of the board of directors (plus any advisory board) & executive officers will be subject to shareholders’ approval on an annual basis. The shareholders’ vote is mandatory and binding. • Severance payments and advance payments will be prohibited. • Chair and board members will be individually elected by the shareholders on an annual basis.
Executive Briefing Canada ● February, 2013 After years of debates in an attempt to counter the Minder Initiative, the Swiss Parliament approved in March 2012 the final draft of a revision of the Swiss Code of Obligations that closely followed the Minder Initiative, but provided for a more balanced solution (counter proposal). Based on the Minder Initiative, the revision is intended to strengthen the position of the shareholders without going as far as the Minder Initiative. In June 2012, the National Council (lower chamber of Swiss Parliament) unexpectedly rejected the direct counter proposal. As a result, the Minder Initiative will be submitted to public voters in 2013 without a recommendation or a direct counter proposal from the Swiss Parliament. If accepted by voters, Switzerland will follow the Nordic countries and the Netherlands, giving binding rights to shareholders with respect to SoP. United Kingdom Since 2002, publicly listed companies are subject to nonbinding votes on executive compensation. The vote has become a proxy indicator of shareholders’ “satisfaction or dissatisfaction” with a corporation’s executive compensation. SoP movement in the financial industry is highly visible. Public scrutiny / media focus on executive compensation packages is creating challenges for the remuneration committees in companies such as Aviva, Standard Chartered and Barclays. United States Effective July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law, and is the most comprehensive financial regulatory overhaul in the last 50 years. The Act leaves the specifics of the new requirements to the Securities and Exchange Commission (SEC). Key areas of this Act related to shareholders’ right on compensation matters are: • Say on pay — this was fully adopted in 2012 and consists of advisory votes (non-binding) for shareholders with respect to compensation information disclosed in proxy circulars. A failure to respond effectively to a high level of dissatisfaction may result in “withhold” or “against” votes regarding the re-election of members of the compensation committee. • Say on parachutes — this was fully adopted in 2012 and consists of advisory votes (non-binding) for executive compensation payments and other benefits triggered by a change-in-control. The greater majority of US companies received a positive vote in 2012, although over 50 companies in the Russell 3000 failed (receiving less than 50% approval). In 2012, the Department for Business, Innovation and Skills (DBIS) proposed further changes to directors’ remuneration reports: • Policy report: a forward-looking report setting out all elements of a company’s remuneration policy and key factors taken into account when setting it. The votes on the policy report have to be cast every three years and will be binding. The proposed model also provides a binding vote on exit payments of more than one year’s base salary. • Implementation report: a backward-looking report setting out how the policy was implemented over the past financial year. The votes on the implementation report will continue to be cast annually and will be advisory in nature. These new disclosures will replace Schedule 8 of the Large and Medium Sized Companies and Groups (Accounts & Reports) Regulations 2008. Subject to finalization of details, new UK regulations will probably apply to financial years ending after October 2013.
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