A coalition of Canadian institutional investors is quietly leaning on the country’s big banks to move away from the use of stock-based compensation.
Stephen Griggs , the executive director of the Canadian Coalition of Good Governance (CCGG) explains the organization is looking to corporate leaders—beginning with banks—to institute improved governance and disclosure practices in the hopes that it will positively influence the country’s corporate culture.
“We’re not targeting companies because they’re bad, we’re trying to get a sense of how boards—particularly good ones—are dealing with executive compensation and other principles we’ve set out,” he says. “The objective is to get the best of corporate Canada to move in the direction we think is appropriate, and that tends to trickle down to other companies.”
The coalition’s 41 members, which include some of the largest pension funds in the country, would like to see an end to executives at poorly performing banks being rewarded by rising stock prices, even if their institution is doing poorly.
Griggs says the first few years of the coalition’s work centered on disclosure but has since moved toward executive compensation. “As you know, much of executive compensation is so-called pay for performance,” he explains. “Well, what do we as investors mean by pay for performance? Our perspective is that a say-on-pay vote on its own is not a particularly helpful tool because it doesn’t give the board any indication as to what is bothering shareholders.”
The CCGG started its campaign last fall with the big banks and have since met with six other companies. Griggs says the banks have been very receptive to the coalition’s efforts and find the experience to be an efficient way to discover what their largest shareholders are thinking.
As for who is next, Griggs hints the energy sector may find the CCGG in their boardrooms soon.
“We’re looking at a number of leaders in other sectors,” he says. “The banks have generally moved away from stock options as a major part of compensation whereas in the energy business that’s still very much the practice. Why is that?”
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