Roundtable Discussion on Executive Compensation and Say on Pay

Transcription

1 Roundtable Discussion on Executive Compensation and Say on Pay Alberta Chapter of the Canadian Society of Corporate Secretaries January 21, 2010 Charles R. Kraus STIKEMAN ELLIOTT LLP

2 U.S. Developments for Canadian Issuers to Watch > New U.S. Rules Regarding Corporate Governance and Enhanced Proxy Disclosure > Recurring Issues in U.S. Executive Compensation Disclosure > The Federalization of Corporate Governance, including relating to: Say on Pay Golden Parachutes Inventive Compensation at Financial Institutions (i.e. Risk again) > 2010 Proxy Season STIKEMAN ELLIOTT LLP SLIDE 1

3 New U.S. Rules Regarding Corporate Governance and Enhanced Proxy Disclosure > NYSE Rules Prohibiting Broker Discretionary Voting in Director Elections > Proxy Disclosure Enhancements (Adopted: 12/16/09 / Effective: February 28, 2010) Additional disclosure about: Director qualifications (incumbent and nominees) Relationship between compensation and risk Board of director risk management Company leadership structure and diversity Fees to compensation consultants Equity awards at aggregate date fair value Only applicable to issuers subject to U.S. proxy rules FPI s are exempt under Exchange Act Rule 3a12-3(b). STIKEMAN ELLIOTT LLP SLIDE 2

4 Recurring Issues in U.S. Executive Compensation Disclosure > 3 years in, SEC staff continue to express concerns about the quality of disclosure regarding executive compensation, particularly with respect to: The origin and rationale for a company s stated compensation policies and decisions Lack of disclosure of performance targets Insufficient disclosure of peer groups and benchmarks > SEC staff have expressed that the current disclosure contains too much boilerplate and is too verbose. the CD&A needs to be focused on how and why a company arrives at specific executive compensation decisions and policies. This does not mean that disclosure needs to be longer or more technical; indeed shorter, crisper, and clearer would often be better. The focus should be on helping the reader understand the basis and the context for granting different types and amounts of executive compensation. From Staff Observations in the Review of Executive Compensation Disclosure (October 9, 2007). > Similar to CSA concerns in CSA Staff Notice STIKEMAN ELLIOTT LLP SLIDE 3

5 The Federalization of Corporate Governance > Wall Street Reform and Consumer Protection Act Passed by the U.S. House on December 11, 2009 (Title II is the Corporate and Financial Institution Compensation Fairness Act) Would require companies subject to U.S. proxy rules to provide shareholders: SAY ON PAY - an annual non-binding vote to approve the compensation of executives as disclosed pursuant to SEC rules (likely all disclosed in CD&A) SAY ON GOLDEN PARACHUTES - at any shareholder meeting where asked to approve an M&A transaction, a non-binding vote to approve payments to NEOs in such M&A transaction. Again, FPIs should be exempt since they are exempt from U.S. proxy rules. STIKEMAN ELLIOTT LLP SLIDE 4

6 The Federalization of Corporate Governance > Wall Street Reform and Consumer Protection Act continued Increased Disclosure by Financial Institutions about Incentive Compensation and Risk Mandates the appropriate Federal regulators to jointly prescribe regulations to require covered financial institutions to disclose the structures of all incentive-based compensation arrangements sufficient to determine whether the structures are aligned with sound risk management and do not have serious adverse effects on economic conditions or financial stability. STIKEMAN ELLIOTT LLP SLIDE 5

7 2010 Proxy Season What to Watch > Institutional influence on compensation policies being felt. As of January 1, RiskMetrics watch list was tracking 30 proposals seeking annual say on pay advisory vote. Say on pay votes are increasing: 2006: 7 proposals 2007: 50+ proposals 2008: 70+ proposals 2009: 90+ proposals Say on pay advocates say they plan to file about 100 proposals in In 2009, Fidelity Investments voted against: 55% of all executive compensation plans presented for vote; 23% of directors seeking election; and at least one management recommendation at 50% of the shareholder meetings at which it voted. STIKEMAN ELLIOTT LLP SLIDE 6

8 2010 Proxy Season What to Watch > Some U.S. companies are adopting less frequent advisory votes (triennial for Microsoft, bi-annual for Prudential and Pfizer). > Australia is considering a two strikes mechanism. Where a company's compensation report received a "no" vote of 25% or more, the board would have to explain how shareholder concerns were addressed in the subsequent report. Where the subsequent report also received a "no" vote of 25% or more, a resolution would be put to shareholders that the elected directors who signed the directors' report for that meeting stand for re-election at an extraordinary general meeting. If this resolution was carried by more than 50% of the votes, the meeting would be held within 90 days. STIKEMAN ELLIOTT LLP SLIDE 7