Why Canada Should Adopt Mandatory Say-On-Pay

Say-on-pay votes give shareholders a valuable opportunity to express their views on executive compensation. The goal of say-on-pay is to increase the accountability, transparency and performance linkage of executive pay and improve communication between shareholders and boards of directors. Among major Western nations, Canada is an outlier in not having adopted mandatory say-on-pay. About 60 per cent of Canada’s 100 largest companies have adopted say-on-pay, and the authors find that, on average, adopters are significantly larger than non-adopters in market capitalization and assets. They also find that the majority of non-adopters are family firms and that non-adoption prevails most in certain industries such as real estate. Stock-based compensation represents the greater proportion of pay for mandatory say-on-pay adopters, while cash compensation represents the greater proportion for non-adopters. The authors argue that stock-based compensation better aligns the interests of management and shareholders, and that the presence or absence of a say-on-pay vote is generally consistent with a firm’s overall governance strength. All but the most egregious pay packages are typically approved in say-on-pay voting, with negative votes providing a benchmark for what practices are deemed unacceptable. By not mandating say-on-pay votes, Canada is falling behind in corporate governance practices.