Holding a shareholder vote on executive compensation is "optional" in theory in Canada. Most companies pass the vote with a wide margin of support however, there's a growing number of failures in recent years.
Crescent Point Energy is one company that has had a particularlly difficult time since 2014 and we take the time here to visit their path and what your firm should learn from their experience.
Crescent Point's history of events:
- From previous AGM, <60% supported their executive pay program. Share-based awares were complicated with shorter vesting periods than industry norm
- 2014 - Reached out to major shareholders to improve the program. Changes include a 30% reduction in total pay, longer vesting and clearer milestones. 97% supported the new pay plan
- 2015 - Share price dropped significantly but total compensation stayed flat. Signaled that pay-performance link was too week. 31% support on say-on-pay vote
- 2016 - Company simplified short-term incentive plan, added performance-based vesting and rolled back CEO salary. 86% support on the annual say-on-pay vote
- 2017 - Share price plummted with total shareholder return falling 40%+. CEO pay remained flay while other executives received minor increases. 38% support on say-on-pay
While Crescent Point worked to address shareholder concerns at each point, they've failed twice on say-on-pay voting. And while, it's also correlated to the company performance and shareholder returns, we explore below what could they have done differently.
- Know your shareholders - It's more important that ever to profile all of your shareholders and to understand how they behave.
- Proactively engage shareholders - Don't wait for negative events but create straight-forward communication of management decisions and listen to their reactions.
- Stress test pay-performance linkages - Understand what messages are being sent and how shareholders are reacting - verbally, trading actiity and voting behavior.
Read the full article on the Calgary Herald here
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