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Glass Lewis 2014 Proxy Season Policy Updates


Lawyer Jonathan Feldman
Area Corporate Finance and Securities, Litigation, Mining and Natural Resources, Asia Practice, Shareholder Rights and Activism


Proxy advisory firm Glass Lewis & Co. (GL) recently released its proxy voting policy updates for the 2014 proxy season.  The new guidelines address, among other things, corporate governance, shareholder rights and defences and executive compensation.  This update summarizes the significant changes to the proxy voting guidelines affecting Canadian issuers for 2014 shareholder meetings.

Corporate Governance

1.  Majority Voting for Controlled Companies

GL will no longer require controlled companies (entities where voting shares are more than 50% owned by a single individual or entity) that are S&P/TSX Composite Index members to adopt a majority voting policy.  GL will also not make a WITHHOLD recommendation regarding directors who are members of the corporate governance committee of these companies.

2.  Auditor Rotation

To promote auditor independence and integrity, GL’s new policy recommends voting in favour of proposals requiring auditor rotation every five to seven years.

Shareholder Rights and Defences

1.  Advance Notice Requirements

Previously, the acceptable timely notice requirement for advance notice provisions was between 30 and 65 days before the meeting.  GL will now support advance notice provisions that require between 30 and 70 days’ notice before the meeting.

2.  Share Issuances

GL clarified its position on proposals to issue shares with pre-emptive rights.  GL will generally support proposals with pre-emptive rights of up to 100% of the number of shares currently issued, and will only support proposals to issue shares without pre-emptive rights of up to 20% of the current issued share capital.

Executive Compensation

1.  Pay-for-Performance Analysis

GL changed its methodology for pay-for-performance analysis.  Previously, GL’s quantitative analysis compared a company’s pay and performance to a peer group of similarly sized companies in the same sector. GL will now use a pay-for-performance model that benchmarks executives’ pay and company performance against four peer groups across seven metrics. Companies will receive a grade of “A” to “F” based on  their quantitative pay-for-performance linkage.  This letter-grade system will inform GL’s voting
recommendations for say-on-pay proposals.  GL will generally recommend voting against say-on-pay proposals, and withholding from compensation committee members of companies with a pattern of failing GL’s new pay-for-performance analysis.

2.  Short-Term Incentives

GL expanded its policy on incentive-based compensation to include short-term incentives (STIs). GL recommends companies which have paid STIs disclose the extent to which an individual’s performance has been achieved against relevant targets. Similarly, where management received significant STIs but the company’s short-term performance is poor, an explanation for paying the STI should be given. GL expects companies to justify any non-disclosure of STIs.

Please contact any member of our Corporate Securities Group to discuss these latest developments.