Shareholder Control over Executive Compensation under Bill 101

Bill 101, An Act to Amend the Business Corporations Act (Bill 101), proposes a number of updates to the Ontario Business Corporations Act (OBCA). Introduced as a private member’s bill in early March, Bill 101 aims to shift power to shareholders through amendments in areas such as shareholder meetings, shareholder proxies, as well as the election and diversity requirements of directors. Among Bill 101’s most ambitious changes is to provide shareholders with power over executive compensation. These executive compensation amendments build on a trend in which many public companies are voluntarily providing shareholders with a “say-on-pay”. Bill 101’s proposal in this area, however, goes much further by providing shareholders with the unprecedented ability to both propose and approve executive remuneration policies. The implications of this power raises important questions regarding the respective responsibilities and duties of directors and shareholders.

Shareholders’ Current Say-On-Pay

Most Canadian business statutes, including the OBCA and the Canada Business Corporations Act, explicitly provide directors with the authority to fix compensation for directors, officers and employees, subject only to the company’s articles, by-laws and any unanimous shareholder agreement. Today in Canada there are no corporate or securities laws that provide shareholders with the ability to approve, much less propose, executive compensation.

While not legally required to do so, a trend in recent years has seen many publicly listed Canadian companies voluntarily provide shareholders with a vote on executive compensation. These say-on-pay motions are advisory only, with the results not binding the directors’ decisions. Although non-binding, the say-on-pay process is seen as providing shareholders with value by encouraging directors to consider and clearly explain compensation policies to shareholders.

While the voluntary adoption of non-binding advisory votes is steadily increasing, Canada lags behind certain other jurisdictions in both mandating say-on-pay votes and in providing teeth to the votes through binding outcomes (see a recent Timely Disclosure post). For example, the United Kingdom and Australia have mandated periodic shareholder votes on executive compensation policies.

Continue Reading A Radical Shift to Say-On-Pay under OBCA’s Bill 101

On December 15, 2016, the Canadian Securities Administrators (CSA) published CSA Staff Notice 33-318 Review of Practices Firms Use to Compensate and Provide Incentives to their Representatives (Notice) summarizing the results of a survey conducted in 2014 that gathered information relating to compensation arrangements and incentive practices that firms use to motivate their representatives (Survey).

The Survey was conducted as part of a larger framework of proposed reforms to enhance the client-registrant relationship, as set out in the CSA Consultation Paper 33-404 Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives toward their Clients, published on April 28, 2016 (Consultation Paper).  The Consultation Paper is part of the CSA’s initiative towards improving the relationship between clients and their advisers, dealers and representatives.

The Survey asked adviser and dealer firms to identify the compensation practices used to compensate their representatives.  The Survey was focused on the incentive practices used for retail representatives who fell under the oversight of the Mutual Fund Dealers Association of Canada (MFDA) and the Investment Industry Regulatory Organization of Canada (IIROC), as well as representatives with portfolio managers or exempt market dealers working with high net worth clients.

Continue Reading CSA Provides Results of Survey Reviewing Types of Representative Incentives

As we have noted in our previous post, a special committee appointed to lead a company’s response to an activist can expect to receive a greater degree of public scrutiny, but may take comfort from the fact that the legal standard against which its members will be judged will not change.  While that should

On November 28, 2013, the Toronto Stock Exchange (TSX) published proposed amendments to the TSX Company Manual (the Manual) and requested comments on the proposed amendments (the Amendments), such comments to be delivered by January 13, 2014. The proposed amendments would 1) amend Section 611 of the Manual to allow issuers listed on the TSX to adopt security-based compensation arrangements (Compensation Arrangements) for employees of a target issuer in the context of an acquisition without security holder approval under certain circumstances (the Compensation Arrangement Amendment); and 2) amend Section 626 of the Manual toclarify the definition of a “backdoor listing” (the Backdoor Listing Amendment).

Arrangement Amendment


Currently, Section 613 of the Manual provides that any Compensation Arrangement adopted by a listed issuer must be approved by its security holders. There are two exceptions to this rule: 1) listed issuers may provide a Compensation Arrangement as an inducement for employment to an officer, provided the number of securities issuable does not exceed 2% of the issued and outstanding securities over a 12-month period; and 2) listed issuers may assume a Compensation Arrangement of a target issuer in the context of an acquisition, in which case the number of securities issuable under such Compensation Arrangement will be taken into account to determine whether security holder approval is required for the acquisition. With the Compensation Arrangement Amendment, the TSX proposes to add a third exception.

The Proposed Amendment

The Compensation Arrangement Amendment would create a new exception that would allow listed issuers to adopt Compensation Arrangements for employees of a target issuer in the context of an acquisition without security holder approval, provided that the number of securities issuable under such Compensation Arrangement and the number of securities issuable pursuant to the acquisition (including any related Compensation Arrangement) does not exceed 2% and 25% of the number of issued and outstanding securities of the listed issuer, respectively.
Continue Reading Proposed Amendments to the Toronto Stock Exchange Company Manual