Corporate Governance: Clawback & Say on Pay in the TSX Mid-Cap

Two common risk mitigation features in executive compensation plans are clawback policies and Say on Pay voting. In this article, we share some statistics on typical clawback policies and Say on Pay votes at 100 TSX mid-cap organizations.

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. 75% of 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.

Say on Pay voting allows shareholders to vote on companies’ pay practices. Voting rights are binding in some countries and are non-binding (advisory) in others. 67% of organizations in the TSX mid-cap held a “Say on Pay” advisory vote for their executive compensation policy in 2018. In 2018, the average Say on Pay vote in the TSX mid-cap was 91% in support of the organizations’ executive compensation policies, with only 2% of organizations failing their Say on Pay vote.

While the usage of clawback and 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.