Mercer Key Observations and Recommendations
Over the past few years, companies have been taking a more proactive approach to shareholder engagement in light of shareholder votes on executive compensation in the US, UK and Canada. Instead of reacting to specific challenges, companies are speaking directly with shareholders to determine their concerns. What are typical shareholder engagement practices? How has the type of shareholder base influenced shareholder engagement? Who typically initiates dialogue, and who participates from the company and on the investors’ side? Are there typical topics for engagement or ones to avoid?
How does each country's approach to say on pay influence executive pay engagement?
US: Companies are pushing back on investors for relying too heavily on proxy advisors and not engaging in dialogue.
UK: Companies are becoming more conservative, focusing on getting the DRR disclosure right and trying not to change plans too much. Ironically, because the appetite to change pay plans has lessened, the dialogue has decreased.
Canada: Say on pay in Canada is non-binding has not affected the prevalence of say-on-pay votes among large and midsize companies. Most major issuers in Canada understand that this is now an expected practice.
As engagement increases, does this put less power in the hands of the proxy advisors?
US: Many investors are required to apply a consistent voting policy, and if they veer from the policy, they have to document the reason. This handcuffs some investors.
UK: It would be good if proxy advisors had less influence, but institutional shareholders don’t have the resources to liaise effectively with all the companies that might wish to engage.
Canada: Notwithstanding an expected increase in board/shareholder dialogue, it’s hard to foresee their power diminishing in the near future.