Don’t fear ‘say on pay’ votes (Editor’s notes)

Shareholders showing support for compensation plans

The results from some of the first so-called “say on pay” votes at Canada’s big banks — where shareholders give a non-binding thumbs up or thumbs down to executive compensation practices — are both interesting and surprising.

Given the tough economic times, a general backlash in the public against high compensation and a global recession that many commentators blamed on greedy financial institutions, one would have expected to see some low support for the way banks are paying top executives.

Instead the scores are off the charts, as outlined in one of our cover stories. (“‘Say on pay’ garners favourable results” ) Laurentian Bank clocked in at 99.2 per cent approval from shareholders. Canadian Imperial Bank of Commerce (92.9 per cent), Royal Bank of Canada (91.1 per cent) and Bank of Montreal (92.9 per cent) all received overwhelming support for executive compensation practices.

There are some obvious explanations for the high support. Perhaps the strongest is the way Canadian banks weathered the global financial storm. While banks south of the border and around the world were failing at a record pace, and had to be bailed out to the tune of hundreds of billions of dollars, Canada’s banks remained relatively solid. There was no government bailout, though Ottawa did buy $25-billion worth of mortgages from the banks to help ease the credit squeeze.

And Canada’s financial institutions not only survived the downturn, the country’s banking system was named the world’s soundest by the World Economic Forum. By comparison, Britain fell out of the top five to land in 44th place while the United States slid to 40.

Whether the performance of Canada’s banks was due to strong leadership or government regulation is up for debate. But, clearly, shareholders at least are content with the leadership and giving a green light to the compensation packages.

What can organizations learn from these votes? First and foremost is not to be afraid of them. If shareholders aren’t going to beat financial institutions — the poster children for excess — over the heads for executive compensation, they’re not likely to take other industries to task for paying executives fairly.

Second, shareholders obviously understand the concept and importance of rewarding top talent in the executive suite. Ask the average person on the street if a bank CEO is overpaid. The overwhelming answer will be, “Yes.” Ask a person who actually has a financial interest in the performance of the organization — the shareholder — and you’ll get a far different, reasoned response.

There has been a lot of resistance to say on pay, but the results from the recent bank votes should melt some of that resolve.

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