The shareholders’ concern with executive compensation is on the rise. Regulators, issuers, independent advisors, shareholder activist groups, and stakeholders at large in Canada collectively seek clarity on the executive pay packages to address transparency and accountability (Pachner, 2016) . The issues of concerns include the pay structure that focuses on comparing the executive pay and corporate performance and the level of executive pay enquiring whether executives should earn excessive compensation. Executive compensations concern stakeholders because its structure tends to focus on rewarding performance on short-term financial indicators instead of creating incentives that focus on building long-term value and company’s sustainable performance for all stakeholders. Companies should get what they pay for, and shareholders are concerned with the excessive quantum of executive compensation and getting too little in return. High pay disparities within the company considerably impact employee retention, motivation, and overall performance of the organization, a key risk to the global economy (Pachner, 2016) .
Most corporate firms are led by chief executive officers and are committed to actions and policies stimulating economic growth and fostering investors' confidence as well as public trust in the business. The executives take their responsibilities seriously and focus on improving the corporate governance and promoting the ethical and accountability standard behavior. The executives are also leaders in developing the well trained and productive organization’s workforce desired for future competitiveness. The executive compensation plays a critical role in attracting, motivating, and retaining employees at all levels and the executives. The public and the investors, however, are concerned that the higher executive compensations not always comparable performance. The executives sometimes enjoy substantial financial rewards even when the stock prices are low with considerable losses to employees and shareholders (Pachner, 2016) .
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Corporate organizations are faced with the problem of maximizing profits and the limited capacity and willingness of the states to implement and enforce laws controlling the corporate practice. The organizations contribute positively to the society by providing employment, providing goods and services, and transfer of technology. The existing market systems offer corporations with financial incentives that exploit market failure under inferior regulatory systems that negatively impact shareholders. The market economy lacks credible alternatives, and the role of the state is displaced by large institutional investors who are motivated by a materialistic interest in influencing organizations' environmental, social, and governance performance despite attention to re-regulation in the financial sector.
The legal environment for engagement in Canada is less supportive when compared to other jurisdictions (MacDougall, 2018) . The shareholders are denied authority to interfere with decisions of the corporation on regular business operations under the Canadian Law. Most specific matters that are considered crucial to the financial success of a corporation require stakeholder’s approval under the corporate statutes, but the areas are insufficient and often unclear whether environmental and social performances fall under the category. Canada has had limited public policy discussion primarily on the shareholder vote on executive compensation (Say on Pay), although the Ontario Securities Commission was said to be monitoring international community developments on the policy and considering whether the state can consider introducing the mandatory vote (MacDougall, 2018).
The stakeholders in Canadian markets have challenges voicing their concerns regarding behaviors of their firms and attempting to improve performance through dialogue and pressure. The stakeholders are interested in mitigating firm’s externalities where they invest instead of divesting. The executive pay levels have increased in Canada for the past few years because of the increased equity-based compensation. The most contentious approach to address the excessive executive compensation has been the Say on Pay. The shareholder advisory vote provides stakeholders with critical engagement and monitoring tools over the executive compensation and enhances governance in the corporate by communication improvement between managers and shareholders.
Despite Canada lacking formal regulations, several firms still support the say on pay incentive with 129 companies adopting it as of mid-2013 (Sapp, 2015). The Say on Pay initiatives potentially promote activism among stakeholders and give owners more influence and voice in shaping boardroom pay arrangements. The incentive provides shareholders with the opportunity to express opinions before making decisions on taking more drastic choices in voicing displeasure. The displeasures that challenge stakeholders include selling shares, voting against directors’ reelection or pursuing more activist agendas such as battling proxies, and shareholder litigations and resolutions. However, despite the many benefits of the incentives, say on pay votes are non-binding and voluntary in Canada.
The objectives of say-on-pay voting among stakeholders increase transparency, performance, and accountability linkage of executive pay. The chief executive officers in the Canadian 100 largest firms in 2011 ranged from $ 7.7 million (Sapp, 2015). The public and private companies put more resources into developing executive compensation plans that are tax efficient and attractive as well as aligning to the corporate and executive interests while remaining consistent with a focus on shareholder value. The common legal issues in the executive compensation context in Canada include issues relating to employment law, security law, and intellectual property.
Shareholders in Canada are denied their fundamental rights in the election of directors, and also in removing cheerleaders, replacing complacency, and disrupting "group thinks". The majority voting policy for director elections does not equate a withheld vote with a vote against. The board of directors has the responsibility for compensation practices and policies, and shareholders do not exercise the business judgment determining corporate wages. The board and the compensation committee assume accountability for their actions and accountability demands consequences. The firm’s stakeholders cannot vote against the election of individual directors, and their superficial and ineffectual alternative rights of withholding their rights are restricted.
The stakeholders believe executive compensations should match the performance of the business and also serve the objectives of the corporation. The component and structure of a reasonable corporate compensation should vary among organizations with regard to industry, size, culture, and competitive challenges. Appropriate executive compensation programs should adhere to reflecting the core principle of pay for results, and the corporation’s performance. The compensations should not reward success only but also incorporate elements of risk, and also reflect the corporation’s performance rather than just the stock market.
The objectives and goals for executive compensation program in publicly traded corporations should be formulated and monitored by committees made up of independent managers and directors, who also determine whether the goals and objectives are achieved. The compensation committee is required to have the awareness about aspects of their corporation’s executive compensation and ensure the arrangements are in line with shareholder’s interests. Corporations in Canada should adopt the best practices for designing, implementing, and providing oversight to executive compensation programs as the stakeholders wait for say-on-pay voting to be made mandatory to ensure increased accountability, performance, and transparency (MacDougall, 2018) .
References
MacDougall, A. (2018). The Current State of Say on Pay in Canada. Retrieved from https://www.osler.com/en/resources/governance/2011/the-current-state-of-say-on-pay-in-canada-en
Pachner, J. (2016). How corporate boards can set executive pay more fairly. Retrieved from http://www.canadianbusiness.com/innovation/building-better-boards-compensation/
Sapp, S. G. (2015). The impact of corporate governance on executive compensation. European Financial Management , 14 (4), 710-746.
