The powerful Canadian Coalition for Good Governance will not press regulators to introduce mandatory shareholder votes on executive pay packages.
The CCGG, which represents many of Canada's largest institutional investors whose assets total more than $1-trillion, released a paper yesterday concluding Canadian companies appear to be taking positive steps to improve their executive compensation practices, so shareholder votes are not necessary at this time.
"By and large, people are trying really hard to figure it out," CCGG managing director David Beatty said.
"There's a lot of work going on about how we link [compensation] to performance, and how we keep these numbers within reason. I think we're just at the first stages of rethinking how all of this is going to work."
Executive compensation has been a hot-button issue for investors as pay levels soar for top talent. In the United States, where compensation scandals have made headlines over the past few years, dozens of companies have been pressured by investors to hold non-binding annual votes on their compensation plans - which have been dubbed say-on-pay votes.
Canada has not seen any major companies adopt similar votes, however. And while some pay schemes have raised the ire of investors, Mr. Beatty said Canada hasn't had pay scandals of the same magnitude as the United States.
He said when concerns arise in Canada about pay practices, investors can deal with them on a case-by-case basis: "You just phone up the chairman and say, 'Look, I own 15-per-cent of you, and this is outrageous.' "
The coalition pointed to recent developments as evidence of a broad change in attitudes about compensation, including a trend toward providing far greater voluntary disclosure of compensation information.
As well, more than 80 major Canadian companies have adopted the practice of allowing shareholders to vote for each individual director on their proxy ballots, rather than requiring investors to vote for the whole board as a slate.
That means investors can target directors for a "no" vote when compensation is unwarranted - including members of the board's compensation committee. Mr. Beatty said that gives shareholders a way of registering unhappiness with compensation without requiring a say-on-pay vote.
As well, the CCGG said provincial securities commissions are expected to soon implement new disclosure rules requiring far more detail to be reported about compensation packages. The coalition said such reforms are in their infancy and should be allowed to develop before shareholders decide to take the more drastic step of demanding votes on compensation.
"It's an internal job that balances a huge number of factors, and it's probably one of the most difficult decisions that boards make," Mr. Beatty said. "And to second-guess them externally before we finish with all the disclosure requirements, which are still coming out, we felt was premature."
Mr. Beatty said the CCGG could still advocate for say-on-pay votes if progress on compensation reform stalls in the future. He added coalition members will also support such votes if companies voluntarily propose them.