ISS released a preview of updates to its Canadian policies, with one change related to governance and none related to compensation. Glass Lewis also recently released its Canadian 2024 Policy Updates, which were more extensive and impact executive compensation and governance.
Summarized below are highlights of these ISS and Glass Lewis updates and Meridian’s commentary.
ISS 2024 Policy Updates
Board Racial and Ethnic Diversity: S&P/TSX Composite companies will be expected to have at least one racially or ethnically diverse director on the ballot for AGMs on or after February 1, 2024. In the absence of this diversity, ISS will generally vote against or withhold from the Chair of the Nominating Committee (or equivalent/Board Chair). ISS may elect not to recommend withhold if the company has provided a formal, publicly-disclosed written commitment to add at least one racially or ethnically diverse director by the next AGM.
Glass Lewis 2024 Policy Updates
Compensation-Related Policy Updates
Clawback Provisions: Glass Lewis has indicated that clawback provisions should include the ability to recoup incentive compensation where there is bad behaviour whether or not it results in a restatement of financial statements. Glass Lewis identifies bad behaviour as including: material misconduct; material reputational failure; material risk management failure; or material operational failure, which has not already been reflected in incentive payments. The scope of a company’s clawback provisions may be a qualitative factor in Glass Lewis’ Say-on-Pay analysis.
Executive Share Ownership Guidelines: Glass Lewis added a new section to its policy with expectations for executive share ownership requirements and for clear disclosure of guidelines in the CD&A. Glass Lewis comments that unearned performance-based awards and/or unexercised options should not count towards compliance absent a cogent rationale. A company’s executive share ownership guideline design may be a qualitative factor in Glass Lewis’ Say-on-Pay analysis.
Non-GAAP Incentive Metrics: Glass Lewis expects companies that use non-GAAP incentive metrics to disclose a reconciliation to GAAP (or IFRS in Canada). Failure to include this disclosure will impact the assessment of the quality of executive pay disclosure and may be a factor in Glass Lewis’ recommendation on Say-on-Pay.
Director-Related Policy Updates
Human Capital Management: Where a board has failed to respond to legitimate concerns with a company’s human capital management practices, Glass Lewis may recommend voting against the Chair of the Committee tasked with oversight of the company’s environmental and/or social issues, the Chair of the Governance Committee or the Chair of the Board, as applicable.
ESG-Related Policy Updates
Board Accountability for Climate-Related Issues: Glass Lewis expects companies with material exposure to climate risk from their own operations to provide climate-related disclosure in line with the recommendations of the Task Force on Climate-related Financial Disclosures and to have explicit and clearly defined Board oversight responsibilities for climate-related issues. Where either of these disclosures is lacking, Glass Lewis may recommend against the responsible directors, or the Chair of the Governance Committee. Beginning in 2024, Glass Lewis will apply this policy to TSX 60 companies operating in industries where the Sustainability Accounting Standards Board has determined that the companies’ GHG emissions represent a financially material risk.
The Client Update is prepared by Meridian Compensation Partners. Questions regarding this Client Update or executive compensation technical issues may be directed to:
Christina Medland at (416) 566-1919, or cmedland@meridiancp.com
Andrew McElheran at (647) 472-7955, or amcelheran@meridiancp.com
Andrew Stancel at (647) 382-7684, or astancel@meridiancp.com
Matt Seto at (647) 472-0795, or mseto@meridiancp.com
Andrew Conradi at (647) 472-5231, or aconradi@meridiancp.com
Rachael Lee at (647) 975-8887 or rlee@meridiancp.com
Kaylie Folias at (416) 891-8951, or kfolias@meridiancp.com
Jason Chi at (647) 248-1029, or jchi@meridiancp.com
Wali Ahmed at (416) 991-3532, or wahmed@meridiancp.com
Gabrielle Milette at (905) 242-0503, or gmilette@meridiancp.com
This report is a publication of Meridian Compensation Partners Inc. It provides general information for reference purposes only and should not be construed as legal or accounting advice or a legal or accounting opinion on any specific fact or circumstances. The information provided herein should be reviewed with appropriate advisors concerning your own situation and issues.