January 08, 2009
TORONTO - The Ontario Teachers' Pension Plan (Teachers') is urging boards and compensation committees not to change stock option plans and other forms of equity-based compensation in response to slumping markets.
"Executives should be rewarded for long-term sustainable returns," said Wayne Kozun, Teachers' Senior Vice-President, Public Equities, expressing concern that boards might make exceptions to re-pricing rules or other executive compensation practices in a period of lower markets.
"We believe it is important to protect shareholder value by clearly stating we are opposed to re-pricings, including accelerated grants, option exchange programs or resetting of performance targets," Mr. Kozun added. Re-pricing options would allow management and employees of public companies to exercise previously-awarded stock option grants at a lower price than originally set in performance targets.
"Shareholders can't re-trade the shares they bought for a lower purchase price. Preserving the terms of previously granted options means the rules are the same for shareholders and option holders, and ensures both groups are aligned to benefit proportionally when markets rebound in the future," said Mr. Kozun. Consistent with previous years, Mr. Kozun said Teachers' will carefully evaluate compensation programs approved by boards during the upcoming proxy season.
Teachers' sent its updated corporate governance policies and proxy voting guidelines to the boards of large Canadian companies, as well as to the boards of large international companies in which it invests, in December. The updated policies released in December also stress the importance of board independence.
"We're looking to boards for consistency during this compensation season. Compensation programs should be structured to last through business cycles and reward executives for good performance in their sector, not short-term market movements," Mr. Kozun said. He noted that Teachers' supports compensation models that focus on long-term results, risk awareness and value creation for shareholders.
Teachers' recently appointed Executive Vice-President and Chief Investment Officer, Neil Petroff, said that good corporate governance is good business during all economic cycles. "Good governance and executive compensation practices cannot be cast aside due to market conditions," said Mr. Petroff. "Teachers' long-term investment objectives make corporate governance, and particularly compensation programs, an important ongoing consideration," he said.
Teachers' is a member of the Canadian Coalition for Good Governance (CCGG), whose more than 40 members are institutional investors managing approximately $1.4 trillion of assets on behalf of Canadian investors.
CCGG has developed principles of executive compensation for public companies and will be monitoring 2009 proxy compensation disclosure by Canada's major public companies on behalf of its members.
"We hope to see a closer alignment of compensation practices with the long-term interests of shareholders, and the recognition of the important link between executive compensation plans and the risks assumed by companies," said Stephen Griggs, Executive Director of CCGG. "Boards need to recognize that good governance – and well designed compensation plans – contribute to the creation of shareholder value and that good governance can make a significant difference to shareholder returns, particularly in these challenging economic conditions."
Teachers' updated proxy voting guidelines are available online.
The Ontario Teachers' Pension Plan is the largest single-profession pension plan in Canada. An independent corporation, it invests the pension fund's assets and administers the pensions of 278,000 active and retired teachers in Ontario.
Representing the interests of institutional shareholders, CCGG promotes good governance practices in Canadian public companies and the improvement of the regulatory environment to best align the interests of boards and management with those of their shareholders, and to promote the efficiency and effectiveness of the Canadian capital markets. Please see http://www.ccgg.ca.
Canadian Coalition for Good Governance
Director, Communications and Media Relations
Ontario Teachers' Pension Plan