Effective Performance Planning

by | Dec 3, 2018 | Board Dynamics, Executive Compensation, Governance, Leadership

All About Motivating the Right Behaviour

There’s been a lot of talk in the market place today about the value of performance plans. The naysayers claim that they are not driving performance in the way they were originally intended, and the supporters argue that all compensation should not be a guarantee. A point of intersection is the fact that everyone agrees that employees should be recognized for the contributions they make and the performance they deliver.

Open the Conversation

Organizations are notoriously bad at having “hard conversations” which are discussions on performance, behavior, or anything that can be interpreted as judgmental in any way. This is a problem because all organizations need to deal with negative activities when they arise and, more importantly, inspire the lion share of their employees to perform at their highest level. By doing so, they can maximize outcomes (sales, profits, etc.) and keep stakeholders happy. When it comes to compensation and governance, stakeholders are relatively quiet when organizations are successful and driving higher returns, but when things go south, board pressures increase because stakeholders tend to place more scrutiny on things such as compensation plans and demand changes to corporate governance.

Establish a Schedule

To properly drive performance, organizations need to first establish a schedule and stick to it! You’d be surprised how many boards get around to first discussing annual performance objectives half way through or at the end of the first quarter. This would be like betting on a horse race after the horses are out of the gates and sprinting toward the finish line. Two things happen here, staff feel that first quarter performance is not considered important and agreed targets are easier to hit. If you want employees to perform for the entire fiscal year, logically you need to agree on the performance objectives and targets before the fiscal year begins.

Implement SMARTER Objectives

A reasonable set of SMARTER objectives; Clarity and focus are other elements that help to set an organization up for success. Laundry lists of objectives do little to keep employees focus on essential outcomes and instead, have them struggle with prioritizing their time between multiple objectives that will have minimal impact on their overall incentive reward. Therefore, to help to keep employees focused and driven concise one-page scorecards are ideal and should clearly outline:

  1. Clear performance target expectations; and
  2. All rewards associated with each objective.

Once the performance cycle properly begins, hard discussions should be replaced with proactive coaching conversations focused around the scorecards where employees go into every meeting with absolute clarity on their performance and can engage in win-win conversations in overcoming barriers and/or achieving higher performance levels. Moving away from judgmental conversations and focusing discussions on performance improvement, helps engage employees on a higher level and affirms that everyone wants the same thing – higher performance.

Performance management plan naysayers most likely develop their opinion on experiences and aspects associated with poorly executed and unclear plans that do little to motivate employees. Implementing simple things such as a schedule, scorecards, and win-win coaching conversations go a long way and help ensure that performance remains a priority and that stakeholder expectations are being met.

Glass Lewis Releases 2019 Clarifying Amendments

by | Nov 21, 2018 | Glass Lewis, Governance, Regulations, United States

Summary of Policy Updates

While Glass Lewis has not changed its current approach in the following areas, it has codified certain policies in the United States:

  1. Auditor Ratification Proposals at Business Development Companies (“BDCS”)
  2. Director Recommendations on the Basis of Company Performance
  3. NOL Protective Amendments
  4. OTC-Listed Companies
  5. Quorum Requirements

Auditor Ratification Proposals at Business Development Companies (“BDCS”)

Glass Lewis clarified why they do not recommend voting against members of the audit committees of business development companies for failing to include auditor ratification on the ballot alongside a proposal to issue shares below Net Asset Value.

Director Recommendations on the Basis of Company Performance

With regards to Glass Lewis’ voting recommendations based on company performance, they have clarified that in addition to a company’s share price performance, they will consider the overall corporate governance, pay-for-performance alignment and responsiveness to shareholders. This means that their recommendation is not based solely on share price performance falling in the bottom quartile of the company’s industry sector.

NOL Protective Amendments

Previously, when companies proposed the adoption of a NOL Poison Pill, in addition to a separate proposal seeking approval of “protective amendments” to restrict certain share transfers, Glass Lewis would generally support adoption of the NOL Pill while opposing the protective amendment, on the grounds that the pill itself would be sufficiently restrictive to protect the company’s deferred tax assets. Given that it is common practice in the United States to seek approval of both proposals simultaneously in order to appropriately protect such assets, Glass Lewis has clarified that in cases where companies propose adoption of both a NOL Poison Pill and an additional bylaw amendment restricting certain share transfers, they may support both proposals as long as they find the terms to be reasonable.

OTC-Listed Companies

Glass Lewis has added a section clarifying their approach to analyzing OTC-listed companies and their recommendations relating to a lack of enough disclosure. They have clarified that in cases where shareholders are not provided with information regarding the composition of the board, its key committees or other basic governance practices, Glass Lewis will generally hold the chair of the board’s governance committee responsible, or the chair of the board in cases where no governance committee is disclosed.

Quorum Requirements

Glass Lewis has also added a section clarifying their approach to analyzing quorum requirements for shareholder meetings. Glass Lewis generally believes that a company’s quorum requirement should be set at a level high enough to ensure that a broad range of shareholders is represented in person or by proxy, but low enough that the company can deal with necessary business during the meeting. They generally believe that having a majority of the company’s outstanding shares entitled to vote is an appropriate quorum for the transaction of business at shareholder meetings. However, should a company seek shareholder approval of a lower quorum requirement, Glass Lewis will generally support a reduced quorum of at least one-third of the shares entitled to vote, either in person or by proxy. When evaluating such proposals, Glass Lewis will also consider the specific facts and circumstances of the company such as their size and shareholder base.

Global Governance Advisors (“GGA”) continues to monitor the evolving proxy voting guidelines on a regular basis and will be reporting any changes coming out of ISS in the coming weeks as they emerge. 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 2019 proxy season.

For an overview of the Glass Lewis’ 2019 proxy voting guidelines for the United States and Canada, please click here.

Glass Lewis Releases 2019 Proxy Voting Guidelines

by | Nov 19, 2018 | Glass Lewis, Governance, Proxy Guidelines

Updates for Canada and the United States

Glass Lewis has recently published its 2019 proxy voting guidelines for the United States and Canada. While there are some differences observed between the two jurisdictions, Glass Lewis has provided clarity on changes in the following areas:

  • Corporate Governance Issues:
    • Board Gender Diversity (U.S. and Canada)
    • Board Skills (Canada)
    • Environmental and Social Risk Oversight (U.S. and Canada)
    • Ratification of Auditors (U.S. and Canada)
    • Virtual-Only Shareholder Meetings (U.S. and Canada)
    • Director and Officer Indemnification (U.S. and Canada)
    • Conflicting and Excluded Proposals (U.S.)
  • Executive Compensation Issues:
    • Contractual Payments and Obligations (U.S. and Canada)
    • Grants of Front-Loaded Awards (U.S. and Canada)
    • Recoupment Provisions “Clawbacks” (U.S. and Canada)
    • Other Executive Compensation Clarifications (U.S. and Canada)
    • Added Excise Tax Gross-Ups (U.S.)
    • Executive Compensation Disclosure for Smaller Reporting Companies (U.S.)
  • Housekeeping Changes

Corporate Governance Issues

Board Gender Diversity (U.S. and Canada)

Their policy regarding board gender diversity, announced in November 2017, will take effect for meetings held after January 1, 2019. Under the updated policy, Glass Lewis will generally recommend voting against the nominating committee chair of a board that has no female members. In addition, they may recommend voting against the nominating committee chair if the board has not adopted a formal written diversity policy. Depending on other factors, including the size of the company, the industry in which the company operates and the governance profile of the company, they may extend this recommendation to vote against other nominating committee members. When making these voting recommendations, Glass Lewis will carefully review a company’s disclosure of its diversity considerations and may refrain from recommending shareholders vote against directors of companies outside the Russell 3000 Index (U.S.) or S&P/TSX Composite Index (Canada), or when boards have provided a sufficient rationale for not having any female board members.

Glass Lewis has updated its guidelines to reflect their view with regards to an emerging best practice for boards to disclose their skills and competencies. They have shared their belief that companies should disclose enough information to allow a meaningful assessment of a board’s skills and competencies. From 2019 onwards, their analyses of director elections at companies in the S&P/TSX 60 Index will include board skills matrices in order to assist Glass Lewis and others in assessing a board’s competencies and identifying any potential skills gaps at those companies.

Environmental and Social Risk Oversight (U.S. and Canada)

For large cap companies, and instances where they identify material oversight issues, Glass Lewis will review a company’s overall governance practices and identify which directors or board-level committees have been charged with oversight of environmental and/or social issues. Glass Lewis will also note situations when such oversight has not been clearly defined by companies in their governance documents. If a company has not properly managed or mitigated environmental or social risks appropriately, they may consider recommending that shareholders vote against members of the board who are responsible for oversight of environmental and social risks. If explicit board oversight of environmental and social issues is unclear, Glass Lewis may recommend that shareholders vote against members of the audit committee. Glass Lewis will carefully review the situation, its effect on shareholder value, as well as any response made by the company in order to take corrective action before making any final voting recommendations.

 Ratification of Auditors (U.S. and Canada)

Glass Lewis will now include factors such as the auditor’s tenure, a pattern of inaccurate audits, and any ongoing litigation or significant controversies that call into question an auditor’s effectiveness in their review. In limited cases, these factors may lead Glass Lewis to recommend against auditor ratification.

Virtual-Only Shareholder Meetings (U.S. and Canada)

Glass Lewis’ policy regarding virtual-only shareholder meetings, announced in November 2017, will take effect for meetings held after January 1, 2019. Under this new policy, for companies that opt to hold their annual shareholder meeting exclusively by virtual means, without providing the option of attending the meeting in person, Glass Lewis will examine the company’s disclosure of its virtual meeting procedures and may recommend voting against members of the governance committee. An against vote will occur if the company does not provide disclosure assuring that shareholders will be afforded the same rights and opportunities to participate as they would at an in-person meeting.

Examples of effective disclosure to support a virtual-only meeting are:

  • addressing technical and logistical issues related to accessing the virtual meeting platform; and
  • procedures, if any, for posting appropriate questions received during the meeting, and the company’s answers, on the investor page of their website as soon as is practical after the meeting;
  • addressing the ability of shareholders to ask questions during the meeting, including time guidelines for shareholder questions, rules around what types of questions are allowed, and rules for how questions and comments will be recognized and disclosed to meeting participants;
  • procedures for accessing technical support to assist in the event of any difficulties accessing the virtual meeting.


Director and Officer Indemnification (U.S. and Canada)

While Glass Lewis has not changed its current policy, they have added clarity on their approach to analyzing indemnification provisions for directors and officers. Glass Lewis strongly believes that directors and officers should be held to the highest standard when carrying out their duties to shareholders, and they feel that some protection from liability is reasonable to protect directors and officers against certain suits so that these individuals feel comfortable taking measured risks that may benefit shareholders. As such, they find it appropriate for a company to provide indemnification and/or enroll in liability insurance to cover its directors and officers so long as the terms of such agreements are reasonable.

Conflicting and Excluded Proposals (U.S.)

Glass Lewis has now codified its policy regarding conflicting special meeting shareholder resolutions:

  • In situations where companies have excluded a special meeting shareholder proposal in favor of a management proposal ratifying an existing special meeting right, Glass Lewis will typically recommend against the ratification proposal as well as members of the nominating and governance committee.
  • In situations where there are conflicting management and shareholder special meeting proposals and the company does not currently maintain a special meeting right, Glass Lewis may consider recommending that shareholders vote in favor of the shareholder proposal and that shareholders abstain from voting on management’s proposal.
  • In situations where companies have both a management and shareholder proposal on the ballot requesting different thresholds for the right to call a special meeting, Glass Lewis will generally recommend voting for the lower threshold (in most instances, the shareholder proposal) and recommend voting against the higher threshold.
  • Glass Lewis will also note situations where the SEC has allowed companies to exclude shareholder proposals, which may result in recommendations against members of the governance committee. In recent years, the dynamic nature of the considerations given by the SEC, when determining whether companies may exclude certain shareholder proposals, has been witnessed by Glass Lewis. They understand that not all shareholder proposals serve the long-term interests of shareholders and value and respect the limitations placed on shareholder proponents when submitting proposals to a vote of shareholders, as certain shareholder proposals can unduly burden companies. However, in the event that Glass Lewis believes that the exclusion of a shareholder proposal was detrimental to shareholders, they may recommend against the members of the governance committee.

Executive Compensation Issues

Contractual Payments and Arrangements (U.S. and Canada)

Glass Lewis has extended its policy regarding contractual payments and arrangements as part of their analysis of executive compensation and clarified terms that drive a negative Glass Lewis recommendation. When evaluating severance and sign-on arrangements, they will consider general market practice (according to each jurisdiction), the size and design of entitlements.

Grants of Front-Loaded Awards (U.S. and Canada)

Glass Lewis has added a discussion of grants of front-loaded awards to their policy, which are often referred to as “mega grants”. They believe that there are certain risks associated with the use of this type of granting structure for long-term incentives. When evaluating such awards, Glass Lewis will consider the quantum, design and the company’s rationale for granting awards using a front-loaded structure.

Recoupment Provisions “Clawbacks” (U.S. and Canada)

Glass Lewis has clarified its policy regarding clawbacks as they are increasingly focusing attention on the specific terms used as part of these policies by companies. They have stated that their view on the adequacy of clawback policies will not directly affect their voting recommendations with respect to Say on Pay votes, but the terms of a policy will inform their overall view of a company’s compensation program.

Other Executive Compensation Clarifications (U.S. and Canada)

Glass Lewis has formalized several aspects of their executive compensation policies, which includes re-framing how peer groups contribute to their voting recommendations, a revised description of their pay-for-performance model and consideration of discretion in incentive plans. They have also added an explanation of the structure and disclosure ratings used in their Proxy Papers and addressed certain recent developments in their discussion of director compensation and bonus plans.

Added Excise Tax Gross-Ups (U.S.)

When analyzing the performance of the board’s compensation committee, Glass Lewis will now include new excise tax gross-up provisions, as an additional factor that may contribute to a negative voting recommendation from them. When new excise tax gross-ups are provided for in executive employment agreements, Glass Lewis will consider recommending against members of the compensation committee, particularly in situations where a company previously committed not to provide any such entitlements in the future.

Executive Compensation Disclosure for Smaller Reporting Companies (U.S.)

When analyzing the performance of a board’s compensation committee, Glass Lewis will now consider the impact of a material reduction in the amount of CD&A disclosure provided by a company when formulating their recommendations and may consider recommending against members of the committee where a reduction in disclosure substantially impacts shareholders’ ability to make an informed assessment of the company’s executive pay practices. This update takes into account the SEC amendments, made in June 2018, that raised the thresholds in the definition of a “smaller reporting company” (or “SRC”), thereby significantly expanding the number of companies eligible to comply with reduced disclosure requirements. Under the updated lower disclosure standard from the SEC, a company defined as an SRC is only required to disclose two years of summary compensation table information rather than the standard three years. It also only has to report on compensation for only the top three named executive officers rather than the standard five. SRCs are also not required to provide a compensation discussion and analysis or tables detailing grants of plan-based awards to executives.

Housekeeping Changes

Glass Lewis has also made several minor edits to its U.S. and Canadian policies, including the removal of several outdated references, in order to enhance clarity and readability for readers.

Global Governance Advisors (“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 emerge. 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 2019 proxy season.

For access to the Glass Lewis’ 2019 U.S. Clarifying Amendments please click here: Glass Lewis Release 2019 U.S. Clarifying Amendments  

For access to the full Glass Lewis’ 2019 Proxy Voting Guidelines for the United States and Canada, please click on the following link: http://www.glasslewis.com/2019-policy-guideline-updates-united-states-canada-shareholder-initiatives-israel/

Attracting & Motivating a High Performance Executive Team (Mining)

by | Nov 12, 2018 | Board Dynamics, Governance, Leadership

An Interview with Corporate Director, Peter Gillin

Peter Gillin is a Corporate Director who currently serves on the Boards of several public companies, including: Turquoise Hill Resources Ltd., Sherritt International Corporation, Dundee Precious Metals Inc., TD Mutual Funds Corporate Class Ltd. and Wheaton Precious Metals Inc. He was a Director of HudBay Minerals, Inc., and was Vice Chair of N.M. Rothschild & Sons Canada Limited, an investment bank. Peter was President and CEO of Zemex Corporation and Chairman and CEO of Tahera Diamond Corporation.

Peter holds an HBA degree from the Richard Ivey School of Business at Western University and is a Chartered Financial Analyst. He is also a graduate of the Institute of Corporate Directors – Director Education Program at the University of Toronto Rotman School of Management and has earned the designation of ICD.D from the Institute of Corporate Directors.

Follow Peter Gillin on LinkedIn.

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GGA: What are the key factors in developing incentive plans?

Peter Gillin: Boards focus on the motivation and attraction of new executives, but a key element is also the retention of existing executives. Boards need to have a clear idea of what they want to pay for – in other words, what is the job and what are the important elements of that job for which the candidate will get compensated. And that, of course, involves the specific goals and objectives for the executives and the time horizons for accomplishing them. In any package of compensation, you must mix and match the incentives, obviously salary, plus short-term bonus (typically in cash) and then various other equity related instruments. In order to motivate people in the proper way you must offer a diverse portfolio. It’s also important to start early. Incentive plans require careful consideration, and so much of the planning is driven by specific goals, objectives, and an element of subjectivity. There needs to be time for the executives to provide input – of what they think they’ve accomplished or not. Bench-marking for senior executives is a very widespread practice, but it’s inherently inflationary and sometimes people lose sight of that fact. All in all, you determine what you want to pay for, how you’re going to pay for it and then you compare that to the rest of the world to see if it’s fair.

GGA: What about the considerations needed when building effective incentive plans, specifically within the mining space?

Gillin: In my experience, the greatest single difficulty in formulating any of these plans, in the mining space, is the movement of commodity prices and whether that creates a financial windfall or financial penalty. Ideally you want to have your compensation system designed to operate exclusive of the performance of the company itself because the companies have absolutely no control over that. You cannot forget to factor in the alignment with the shareholders. They suffer when the commodity prices decline, and they are happy as clams when prices increase. What you want to avoid is generously awarding executives when things are bad – that doesn’t sit well with the shareholders. Usually, senior executives have substantial equity awards, and when you compensate them there is an expectation that they have done a first-class job – met all of their objectives and goals (in terms of production).

GGA: You mentioned equity awards. As of late, equity has become obviously more complicated. How do approach equity awards?

Gillin: Well. Cash is the really the easiest approach. As you know, equity participation incentives for executives are of utmost importance and performance share units around the ascendancy options are on the decline. Interestingly, there’s a difference between Canada and the United States and the utilization of those more so in Canada than the U.S. In fact, the mining industry tends to utilize them a great deal more than other industries, particularly smaller mining companies. But, as I said, when things get complicated cash becomes king.

GGA: What about technology? Do your boards use any when developing incentive plans?

Gillin: Absolutely. There is a new trend of incorporating board management software into the executive compensation planning process. One of my companies, in particular, installed a balanced scorecard system and it’s an outstanding piece of technology. It doesn’t do all of the work – determining what compensation is fair – but it works with the board’s subjective judgement to design incentive plans. The board is responsible for using the technology to generate some numbers and then deciding if those numbers feel right, under that circumstance. Ultimately, when it comes to consideration, it’s very valuable to have the combination of the board and the technology.

GGA: How has the role of directors changed (regarding compensation)?

Gillin: Well certainly from the general board perspective, the overall evolution of governance, the improvement of governance techniques, criteria and behaviors have evolved. It’s just been a massive increase over the last 15 or 20 years, if not longer. I mean, I know the first board I ever went on, years and years ago, somebody suggested using a dartboard when determining how you compensated people. It wasn’t sophisticated. But that’s no longer the case. I mean, everything must be well designed, well-structured, very transparent and fully defensible. And that applies to compensation, but also board behavior – meaning board outreach. Specifically, shareholder outreach by the members of the board. I’ve done that in several companies and the agenda is always one of three topics: governance, compensation and strategy formulation. It’s very often focused on compensation. And ordinarily, if the shareholder calls the company and wants to have a conversation, then you know you’re already in trouble. So, if you do it proactively you get a much better response. That’s a relatively new development, but none of this is going to stop. It’s just the way of the world these days.

GGA: What would be the key takeaway from what we’ve covered today. If readers were to walk away with only one piece of information, what should it be?

Gillin: That’s hard. We’ve covered a lot of important information. Compensation is a very important element in this discussion, the main focus, and how companies work to determine it. It’s often the trigger for activism, and all of the other elements flow from it, together with stock price performance.

Risky Business & Board Oversight

by | Oct 29, 2018 | Board Dynamics, Governance, Leadership

Good board members ask good questions.

Risk exists in every organization and it is a board member’s role to probe until they are convinced that management is not incurring any undue risk or risk that is outside of the boundaries they helped to establish. Board members must be cognizant of the lengthy list of risks that exist. Be it:

  • financial risk,
  • legal risk,
  • human resource risk,
  • governance risk,
  • political risk,
  • cyber risk,
  • social media risk, or
  • headline risk.

Overall, board members need to make sure that they are successfully overseeing risk, asking good questions, and ensuring there are other elements of good governance and risk management are place.

Guiding charters, bylaws, mandates, strategic plans, policies and procedures need to be formulated, implemented and updated regularly because they provide focus and direction to proper oversight and establish a framework and safety net for your board to operate within. Operating without these documents, or failing to update them, will not only put your organization at risk but will also increase your board’s liability. Often, board members don’t realize that guiding documents can help protect board members, if something was ever to go wrong. If something did go wrong, your Board must be able to answer “yes” to the following questions – it will go a long way in protecting board members and the stakeholders they serve.

  • Did the board members act with loyalty, prudence and impartiality?
  • Did the board members act within the guidelines of the existing and relevant policy or procedure?

Given the evolution of cyber threats, protecting confidential or sensitive information is an area that is relatively new to organizations. Over the last decade, many boards have evolved away from printing out and shipping board meeting packages to every member.

  1. With the emergence of email, many boards began to send out board materials electronically.
    • This opened risks to email hacks, the ease of forwarding sensitive material, and fact that material remained accessible on lost or stolen devices.
  2. The provision of document repositories then enabled boards to store and access electronic documents on the internet.
    • Many of these services were not secure which made them vulnerable to hacks.
  3. The emergence of secure digital platforms now enables boards to improve their document security while simultaneously enhancing access to electronic materials and inter-member and stakeholder communication tools.
    • With enhanced security around access, and control, this next evolutionary step is proving to be the logical next step for boards that are concerned about mitigating risk.

Risk is a reality in all organizations and board members need to remain vigilant in its oversight. As seen in guiding frameworks and board materials distribution and communication, things will continue to evolve, and related risks will continue to change. Therefore, board members need to continue to ask good questions, and continue to ensure that their organizations are managing risk in a proactive way and doing what is necessary and required to safeguard themselves, as fiduciary leaders and the organizations they are entrusted to oversee.