Growing Number of Underperforming Say-on-Pay Votes Reaffirms the Necessity of Executive Compensation Consulting Firms

In this article we will share our analysis of the Canadian Say-on-Pay landscape from 2018 to 2023 and the correlation between Say-on-Pay voting support with a company’s share price performance, ultimately demonstrating the increased scrutiny faced by firms when designing their executive compensation packages. Our previous Say-on-Pay article can be found here.

Say-on-Pay voting allows shareholders to vote on organizations’ pay practices. Voting rights are binding in some countries and are non-binding (advisory) in others, including Canada. While the usage of Say-on-Pay is not mandatory for TSX-listed firms and is not regulated by the federal and provincial governments, it is considered a corporate governance best practice for public issuers.

Say-on-Pay

From 2018 to 2023, CGP analyzed Say-on-Pay for mid-market Canadian companies listed on the TSX (TSX 100-300), as well as constituent companies of the TSX 60.

Consistent with previous years, the majority of companies received shareholder support within the range of 90% - 100%
3 of 167 companies failed¹ their Say-on-Pay vote
10 of 167 companies received low support² for their Say-on-Pay vote

From 2018 to 2023, the median of Say-on-Pay voting support for TSX 60 and Canadian mid-market companies has remained high but relatively flat, while the average has been on a net upwards trend, indicating an overall trend to higher Say-on-Pay scores.

That said, Canadian companies remain under intense scrutiny to consistently meet the desired threshold for shareholder support of their executive compensation packages due to pressures from proxy advisory firms, activist shareholders, and large institutional shareholders.

A growing number of Canadian mid-market companies held Say-on-Pay votes from 2018 to 2023 due to pressures from institutional investor groups.

The number of Canadian mid-market companies holding Say-on-Pay votes has grown from 37% (76) to 56% (115) from 2018 to 2023
The number of Canada’s largest companies (TSX 60) conducting Say-on-Pay votes grew from 73% (44) to 87% (52) over this same period

Proportionally, there is larger Say-on-Pay representation among TSX 60 companies relative to Canadian mid-market companies. This is to be expected considering the leadership role of the TSX 60 companies in Canada, and the good governance scrutiny they face.

Despite the continuing increase in the number of companies undertaking a Say-on-Pay vote, the percentage of companies failing their vote or receiving low support for their executive compensation packages continues to remain a small minority.

Historical Say-on-Pay Voting Failures and
Low Support of TSX 60 and Mid-Market Companies

Say-on-Pay Voting Support vs. Share Price Performance

CGP undertook an analysis to discover if there is a correlation between a company’s share price performance and their Say-on-Pay vote. While there is no statistical relationship between a high Say-on-Pay score and company performance, it may come as no surprise that a low Say-on-Pay voting score often follows a period of poor company share price performance.

Share Price Performance of the Lowest Scoring Say-on-Pay Companies in 2023

Below is a summary of the results of the analysis on an individual company basis:

In a rare occurrence, 2 companies failed their Say-on-Pay vote two years in a row
5 companies scored below 75% two years in a row
- One of which moved from a “low support” vote to a “failed” vote
3 of the 10 companies with low shareholder support in 2023 outperformed the market
- The relatively strong market performance of 2 of these companies can in part be attributed to a rise in oil and gas prices
- The third company showed strong results but had low Say-on-Pay support from shareholders resulting from lucrative compensation packages³

At least 1 of the 13 companies had low votes on direction from ISS and Glass Lewis related specifically to Executive Chair pay packages⁴

There are several potential causes for a low Say-on-Pay voting score. Regardless of a company’s current share price performance, firms must ensure that executive compensation is thoughtfully approached.

Rigour in Executive Compensation Decision Making Continues to Trend Upwards

While Say-on-Pay votes are not mandatory in Canada, the growing focus on governance is compelling companies to hold a Say-on-Pay vote and to strive for high support. With disappointing voting results often receiving negative press, companies who are underperforming the market must take extra consideration when reviewing their executive compensation packages, as they face an increased risk in suffering the public embarrassment of a failed or relatively lower performing Say-on-Pay vote.

Executive compensation consulting firms assist in the determination of a fair compensation package for executives. Moreover, we advise on how to best present and communicate executive compensation packages in a clear and succinct way within a company’s Management Information Circular. This advice remains essential in our current market, where proper governance and successful Say-on-Pay matters.

¹ A vote that received less than 50% of shareholder support

² A vote that received between 50% - 75% of shareholder support

³ David Milstead, “At these companies, anger lurks beneath successful shareholder votes,” The Globe and Mail, May 31, 2023, https://www.theglobeandmail.com/business/commentary/article-rbi-dentalcorp-nuvei-agm-shareholder-votes/

⁴ David Milstead, “Agnico Eagle shareholders rebuke company on pay practices for second year in a row,” The Globe and Mail, April 28, 2023, https://www.theglobeandmail.com/business/article-agnico-eagle-2023-annual-meeting/