Clawback Provisions & Say-on-Pay in the Canadian Mid-Market

Two common risk mitigation features in executive compensation plans are clawback policies and say-on-pay voting. In this article, we will share statistics on typical clawback policies and say-on-pay votes at TSX mid-cap organizations.

Clawback Policy

A clawback policy enables organizations to recoup any incentive compensation realized or granted to executives based on erroneous information, typically due to financial restatement or misconduct. 84 percent of companies in the TSX mid-cap have clawback provisions, typically allowing for clawback of all variable or incentive compensation paid either in the year of financial restatement or up to 3 years prior. This represents a 9 percent increase in the number of organizations with clawback policies from last year.

Say-on-Pay Voting

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. 72 percent of companies in the TSX mid-cap held a “say-on-pay” advisory vote for their executive compensation policy in 2019, with 7 percent of companies holding a say-on-pay vote for the first time. In 2019, the average say-on-pay vote in the TSX mid-cap was 90 percent in support of the organizations’ executive compensation policies, with no organization failing their say-on-pay vote, down slightly from 2018’s average of 91 percent.

While the usage of say-on-pay is not mandatory for TSX-listed firms and is not regulated by the Canadian government, it is considered a corporate governance best practice for public issuers. Proxy advisors (Glass Lewis and ISS) also take these provisions into account when evaluating risk mitigation features, and the Canadian Coalition for Good Governance (CCGG) looks unfavourably on organizations lacking such provisions. Say-on-pay failures are also widely publicized in various news media.

*Note: CGP has collected qualitative information and key statistics regarding executive compensation practices in the 2019 proxy season, from approximately 115 publicly-traded mid-market Canadian organizations listed on the TSX. This analysis covers all 100 companies analyzed last year, less any companies that were delisted, with the addition of 20 companies which now fall within the TSX 100-200. The 24 companies from last year which have moved above or below the TSX 100-200 remain in the analysis for comparative purposes. 93 of the 115 companies in the 2019 analysis were included in the 2018 analysis.