Glass Lewis Releases 2020 Policy Guidelines for Canada

A Summary of Guideline Updates

On November 1, Glass Lewis released its 2020 Policy Guideline updates for the Canadian market. These changes are expected to be effective for shareholder meetings taking place on or after January 1, 2020. They have identified several updates in the areas of compensation and governance.

Updates in Compensation and Governance 

Meeting Attendance

For TSX companies, Glass Lewis will recommend that shareholders withhold votes from the Governance Committee Chair when board and committee meeting attendance is not disclosed in the annual proxy circular or similar document. Beginning in 2021, Glass Lewis will also hold the Governance Committee Chair responsible if the number of Audit Committee meetings has not been disclosed. The Audit Committee Chair will also be held responsible if the Audit Committee did not meet a minimum of four times during the year and will receive a withhold vote recommendation as well.We at GGA have noted increasingly more companies doing a better job of disclosing the attendance of board members at both board and committee meetings within their proxy circular and have successfully worked with our clients to incorporate this level of disclosure on an annual basis. We expect this to be a relatively easy improvement for companies to make for 2020. 

Board Skills

Since the 2019 proxy season, Glass Lewis has included board skills information as part of its report on S&P/TSX 60 Index companies. In this regard, Glass Lewis expects proxy circulars for TSX 60 companies to include meaningful disclosure regarding the skills possessed by the board as a whole and also on an individual board member level. It is indicated that if a board has failed to address material gaps regarding its mix of board skills and experience, Glass Lewis will view this negatively.

We at GGA have noted that many of Canada’s largest companies, by Market Cap, have started disclosing a formal board skills matrix within their annual proxy circulars. It is a governance best practice to identify areas for individual and broader board skills development and can be extremely useful in identifying the skill sets required of any new board members to be added as part of the regular board renewal process. If a company has not already done so, disclosing a board skills matrix should be an identified area for improvement in the 2020 proxy circular.  For a board member sitting on multiple boards that disclose board skills, the director should maintain a repository of skills they posses, so there is consistency at each company they are a director at.

Board Responsiveness

Glass Lewis has codified its approach to board responsiveness to significant shareholder opposition (deemed as 20% or greater) relating to Say on Pay votes. They have identified appropriate responses to opposition which include: 

    1. Engaging with large shareholders to identify concerns; and
    2. Enacting changes in the compensation program to address any concerns raised.

      Issuers who faced significant shareholder opposition must be able to provide evidence in the proxy circular that the board is actively responding to shareholder concerns. This is usually in the form of expanded shareholder engagement disclosure within the circular, which we at GGA have noted much more companies are adopting in recent years. Failing to clearly disclose shareholder engagement activities after facing significant opposition in a Say on Pay vote may result in Glass Lewis recommending withhold votes for the Compensation Committee Members responsible at the next AGM.

      GGA notes the importance of ongoing engagement with shareholders whether there has been significant opposition to a company’s pay programs or other governance concerns identified. It aids shareholders in better understanding the company’s strategy and rationale for why it has structured its pay plans and governance framework the way that it has. Proactive engagement should be preferred instead of reactive engagement to avoid situations such as those identified by Glass Lewis as companies should be striving for a 90%+ approval rate for Say on Pay and other governance matters.

      Companies that face Say on Pay scrutiny should also consider disclosing a table that summarizes what they learned from shareholder engagement in the prior year, what the board and management discussed and reviewed to address shareholder concerns, and finally what the board has ultimately decided that may address or not address the shareholder concern and a rationale for why they have done so.

    Contractual Agreements

    Glass Lewis has codified several provisions that it deems as problematic within executive employment agreements. These include:

    1. Excessively broad definitions of change of control;
    2. inappropriate severance entitlements;
    3. excessive sign-on arrangements without accompanying rationale; and
    4. guaranteed bonuses.

      Glass Lewis also expects double-triggered change of control provisions in all employment agreements, where the cash severance multiple is three times or less. The inclusion of long-term incentives in the severance multiple has also been identified as being problematic by ISS.

      GGA notes that the three times multiple sighted by Glass Lewis is higher than the limit used by Institutional Shareholder Services (“ISS”) which has historically been set at a two times multiple. In our consulting experience, we observe that most companies have trended towards the use of no higher than a two times multiple when setting new employment contracts, so we do not believe there will be a huge push towards moving the standard back to three, since the low watermark standard by most institutional shareholder vote guidelines remains capped at 2 times.

      When amending existing employment agreements or adopting new ones, we at GGA encourage companies to be aware of the problematic practices identified by both Glass Lewis and ISS and avoid including terms that could lead to negative sentiment from these groups, unless there is a business case to do so.

    Problematic Pay Practices

    Glass Lewis has also codified several new provisions that it deems as problematic and could lead to a negative Say on Pay vote recommendation or recommended withhold votes for Compensation Committee members where there is no Say on Pay vote. These include:

    1. Targeting overall compensation above median without adequate justification;
    2. Paying discretionary bonuses when short & long-term incentive targets are not met; and
    3. Applying upward discretion either by lowering short-term performance goals at mid-year or increasing calculated payouts from the original formula.

      In GGA’s experience, most companies targeted the median of the market for compensation, but in some cases, there may be a business case to justify why a company need to target above median. If a company is in this situation, while the threat of a withhold vote is heightened, they will need to do a great job in their proxy circular of explaining their company’s rationale which will help in justifying to shareholders why the approach makes sense, even if it still results in an Against recommendation from Glass Lewis or ISS. This explanation needs to go beyond just indicating that a specific executive or group of executives is performing above target. They will need to demonstrate this with clear evidence in the circular.

      Having participated in thousands of board meetings that included discussion on finalizing annual bonuses, we are not convinced that Glass Lewis got this one right. Discretion is something that we at GGA believe boards should have as there may be specific accomplishments made by an executive or group of executives that fall outside of the original scorecard formula and deserve to be recognized. On the flip side, the scorecard results may lead to higher results, but not necessarily take into account recent events at a company that are affecting its operations or underlying share price such as new trade wars, environmental incidents, safety incidents, labour disputes, etc. The board should retain the discretion to adjust calculated payouts downwards as well, so discretion has to work both ways. What is most important, given the new guidance from Glass Lewis, is that if a company chooses to use discretion to adjust payouts upwards, it must do an excellent job of explaining its rationale for doing so and why it is in the best interests of the company. 

    Excessive Non-Audit Fees

    Glass Lewis has clarified that in the second consecutive year where Non-Audit Fees have exceeded Audit or Audit Related Fees, they will hold the full Audit Committee responsible (not just the Audit Committee Chair), which may lead to recommended withhold votes. 

    Company Board Size

    Glass Lewis has identified that a TSX-listed company should be made up of no less than 5 board members and that TSX Venture-listed company should be made up of no less than 4 board members. They have also established a maximum board size of 20. For larger financial institutions such as Canada’s Big banks, they have indicated that they may make an exception on a case-by-case basis, but will require appropriate rationale for why a larger board makes sense. One exception to the minimum size rule is controlled companies, where Glass Lewis has indicated that it will waive the size threshold, but maintain the maximum limit of 20 board members.In GGA’s experience, most boards are made-up of no less than 5 members with the median ending up around 9, so we do not believe this new requirement will affect too many companies.

    Quantitative Pay for Performance Analysis

    While Glass Lewis’ 2020 guidelines did not discuss any material changes to their quantitative pay for performance model, it will be interesting to see how Glass Lewis responds to the recent move by ISS to include more Economic Value Added (“EVA”) metrics within their quantitative pay-for-performance model. While nothing has been formally announced, the new partnership between Glass Lewis and CGLytics should lead to some additional pay-for-performance analysis offerings to demonstrate the strength of this new formal arrangement. We at GGA will continue to monitor these trends and keep our clients informed on any new developments.

    GGA continues to monitor the evolving proxy voting guidelines on a regular basis and will be reporting on any changes coming out of ISS in the coming weeks as they are confirmed. Companies should be reviewing their compensation and governance practices against these updated guidelines to ensure that their current designs align to the updated guidelines as we move into the 2020 proxy season.


    For access to the full Glass Lewis’ 2020 Proxy Voting Guidelines for Canada, please click on the following link: 




    ISS Proxy Voting Guidelines Updates 2017

    What do these updates mean for Canada?

    Last week, ISS released the 2018 Americas Proxy Voting Guidelines Updates, detailing policy changes for U.S, Canada and Brazil.

    Changes for Canada

    Pay for Performance Evaluation – Relative Quantitative Screening

    Now incorporates the ranking of total pay for CEO and financial performance of a company within a peer group, each measured over a three-year period within the Relative Pay & Performance test under Quantitative considerations. A detailed white paper will be provided at a later date.

    Director Overboarding Policy

    (effective for meetings on or after February 1, 2019 for TSX-listed companies only. Does not apply to TSX Venture)

    Withhold votes for individual director nominees including:

    • Non-CEO directors serving on more than five public company boards; or
    • CEOs of public companies serving on the board of more than two public companies besides their own, i.e., votes to be withheld only at their outside boards.

    Gender Diversity Policy

    (effective for TSX Composite Index companies starting 2018. Applies to all TSX-listed companies starting February 2019)

    • Withhold votes for the Chair of the Nominating Committee where:
      • The company has not disclosed a formal written gender diversity policy; and
      • There are zero female directors on the board.

    Board Structure & Independence (TSX only)

    New language has been added relating to votes withheld for any Executive Director or Non-Independent, Non-Executive Director where the board:

    • Is less than majority independent; or
    • Lacks a separate compensation or nominating committee.

    Non-Independent Directors on Key Committees for TSX-listed companies

    Withhold votes for members of the audit, compensation, or nominating committees who:

    • Are Executive Directors;
    • Are Controlling Shareholders; or
    • Is a Non-employee officer of the company or its affiliates and among the five most highly compensated.

    Non-Independent Directors on Key Committees for TSX Venture companies

    Withhold votes for Executive Directors, Controlling Shareholders or a Non-employee officer of the company or its affiliates who is among the five most highly compensated, on condition that they:

    • Are members of the audit committee;
    • Are members of the compensation committee or the nominating committee and the committee is not majority independent; or
    • Are board members where the entire board fulfills the role of a compensation committee or a nominating committee and the board is not majority independent.
    ISS also made certain modifications to their policy on defining Director Independence, i.e. re-classification of certain situations under different categories, Majority-Owned Company policies and Advance Notice requirements.
    For more information, please refer to the link above.

    Paul Gryglewicz’s Take on Outgoing Rogers CEO Compensation: Globe and Mail

    Toronto-based Rogers Communications Inc. paid outgoing CEO, Guy Laurence, a total of $42.6-million over three years.

    In an interaction with The Globe and Mail, Paul Gryglewicz, Senior Partner, Global Governance Advisors, explained, “What we see highlighted here is the cost of turning over your Chief Executive is substantial to the shareholder.” However, he added that at just shy of three years, Mr. Laurence’s tenure with the company is in line with the median range of about three or four years for many Canadian CEOs.

    One somewhat unique feature of Mr. Laurence’s separation package, is the structure for his remaining stock options yet to vest. Mr. Gryglewicz noted that it is a shareholder-friendly move to provide for a continuation period – rather than accelerating the vesting period and allowing him to exercise the options immediately – because it means that whatever value Mr. Laurence receives for his options will be tied to the performance of the company’s shares, which is in part attributable to decisions he made when he was still at the company.

    Read Full Story Here