They're non-binding. Say-on-pay votes are non-binding in Canada, which means that companies are not obligated to make any changes, even if shareholders vote against their executive compensation resolutions. However, the advisory votes do allow shareholders the opportunity to send executives a message about their views on the company's compensation practices.
The say-on-pay movement is growing in Canada. The number of Canadian companies that allow their shareholders to vote on advisory say-on-pay resolutions increased by 19 last year, to a total of 147 companies, according to a report by business law firm Osler, Hoskin & Harcourt LLP.
Canada is lagging behind its peers. In Canada, companies can decide whether to offer shareholders the opportunity to vote on their compensation practices. That isn't the case in many other countries — including Switzerland, Australia and the U.K. — where companies are required by law to hold say-on-pay votes.
Attitudes are changing. It's uncommon for Canadian shareholders to vote against a company's compensation report. However, change does seem to be afoot, given recent votes by shareholders of CIBC (TSX:CM) and Barrick Gold (TSX:ABX). Corporate governance expert Richard Leblanc says big shareholders are starting to move away from the "Canadian, old-school, genteel mentality."
It's up to the board to determine what the vote means. Michel Magnan, corporate governance expert at Concordia University, says that say-on-pay votes involve shareholders voting for or against the compensation committee's report, which can be quite lengthy and include a number of issues. When shareholders vote against the report, directors may need to consult with investors to determine what aspect of the compensation report was the main source of contention.