Posted on 12 May 2009
Bring back equity between corporate officers and shareholders
OTTAWA, May 12, 2009 – Faced with the largest global economic crisis in the last 80 years, the member countries of the G-20 have recently set up wide-ranging assistance programs, totalling more than a trillion dollars.
These unprecedented financial stabilization and economic stimulus packages are funded by taxpayers’ money. Most governments have agreed to provide assistance to their financial and manufacturing sector, but have also, however, imposed strict obligations on the firms and their executives.
“In Canada, the current government is boasting that its stimulus program totals more than $100 billion. But, in contrast to the other industrialized nations, and particularly our American neighbours, Prime Minister Harper does not believe there is a need to impose strict conditions on the directors and officers of the companies that will receive public funds,” the Honourable Céline Hervieux-Payette, P.C., told today.
“Therefore, today I tabled in the Senate a bill entitled An Act to provide the means to rationalize the governance of Canadian businesses during the period of national emergency resulting from the global financial crisis that is undermining Canada’s economic stability.”
The bill S-235 has two important components. The first related to all firms that receive assistance from the government, and the second covers all companies listed on the stock market.
1. Limit on compensation for executives of government-aided companies
The bill contains important measures relating to setting compensation for managers, including:
• For companies receiving government assistance, executives’ annual salaries will be capped at $500,000 annually;
• BONUSES for executives may not exceed a THIRD of their total salary;
• During the relief period, no payment of dividends to shareholders will be authorized;
• These measures will apply to any business receiving financial aid, such as banks, financial services, the auto industry, those involved in the forestry and agri-food sector, shipbuilding and aerospace companies.
2. Limit on compensation for executives in publicly listed companies in relation to Canadian workers’ average salary
“The financial crisis has revealed that in many cases the company executives have failed to do their job properly, investing money from collective pension plans and individual retirement savings plans, entrusted to them by Canadians, in high-risk ventures,” said Senator Hervieux-Payette.
The time has come for executives to assume their full responsibilities toward their shareholders, to ensure that decisions made by boards of directors, specifically their decisions on executive compensation, are more transparent:
• No member of a board of directors may sit on more than four boards in public corporations;
• A board of directors must present shareholders with a plan setting out the principles and structures for the remuneration of its directors, officers and employees at the annual meeting. An advisory vote is obligatory;
• The board’s remuneration committee must, in setting the overall compensation for senior officers of the principal leaders, give consideration to the average annual industrial wage in Canada and limit executive salaries to a maximum of twenty (20) times that;
• All executive employment benefits, including those of members of the board of directors, must be recorded in the firm’s annual report distributed to the shareholders, such as travel expenses, meeting expenses, mileage, and so on.
“Some people will find that the measures set out in the bill are bold, but it should be emphasized that they are similar to and completely consistent with the provisions currently being implemented in the United States and Europe,” added the Honourable Céline Hervieux-Payette, P.C.
Senator Céline Hervieux-Payette is a member of the Standing Senate Committee on Banking, Trade and Commerce for more than 10 years. The senator played a key role in the major reforms to the Bank Act in 1997.