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February 14, 2011 12:00 AM

Ontario Teachers supports triennial say-on-pay vote

Barry B. Burr
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    Ontario Teachers' Pension Plan, Toronto, will generally support having say-on-pay votes at companies every three years to avoid focusing on short-term objectives, according to a policy statement sent to more than 650 public companies worldwide.

    The OTPP oversees C$100 billion (US$101.2 billion).

    “Our concern with an annual advisory vote on compensation is that it may compel boards to adjust compensation programs every year to demonstrate that they are effectively managing the compensation process,” wrote Neil Petroff, executive vice president, investments, and chief investment officer, and Wayne Kozun, senior vice president, public equities, in the three-page letter dated Feb. 3. “We believe this approach could lead to a focus on short-term objectives rather than on more stable, long-term objectives, or lead to inconsistencies in the compensation program without a clear long-term focus. In our view, an advisory vote on compensation every three years would remove these biases and better facilitate the development of a compensation program focused on promoting the long-term success of the organization.”

    The Securities and Exchange Commission issued rules, as authorized under the Dodd-Frank Wall Street Reform and Consumer Protection Act, requiring companies to conduct say-on-pay votes at least every three years, permitting them discretion on whether to hold annual, biennial or triennial votes. Companies have to put the say-on-pay frequency question to a non-binding shareholder vote at least every six years, the first coming this year.

    In addition, Messrs. Petroff and Kozun said in the letter that OTPP supports disclosure by companies, whether required by regulation or not, of policies permitting executives to reduce their equity share ownership by either pledging their equity holdings to secure personal loans or margin accounts or hedging all or part of their equity holdings — and disclose which executives or directors are doing so.

    “Publicly reported ‘equity ownership at risk' can be overstated when the number of shares either pledged or hedged is not disclosed and is therefore misleading to investors,” the letter states.

    Canadian Securities Administrators, which coordinates and harmonizes regulation for the Canadian capital markets, proposed Nov. 19 requiring companies to disclose whether executives or directors are permitted to hedge the market value of their equity holdings. Comments on the proposal are due Feb. 17, according to a statement of the CSA.

    The Dodd-Frank Act authorized the SEC to issue rules on executive hedging of equity holdings. The SEC expects to issue proposed rules on the matter sometime in the second half of this year, according to an agency statement.

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