TSX60 Proxy Review, COVID-19 & Emerging Topics Webinar - June 2021 Thank you for joining us, the presentation will begin shortly
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
TSX60 Proxy Review, COVID-19
& Emerging Topics Webinar
June 2021
Thank you for joining us, the presentation will begin shortly
2021 PROXY SEASON REVIEW, COVID-19 OBSERVATIONS, AND EMERGING TOPICS & TRENDS Hugessen TSX60 Webinar June 2021
Speakers Agenda
Michelle Tan John Skinner 1 Welcome
Partner Manager
Hugessen – Toronto Hugessen – Toronto 2 Highlights from 2021 Proxy Season
3 COVID-19 & Emerging Topics
Kevin Zhu Blair Jones
Associate Managing Director 4 US Pay Trends
Hugessen – Toronto Semler Brossy - NYC
5 Q&A and Closing Remarks
If you have any questions, please submit them on Teams.
Questions will be addressed at the end of this presentation
3EXECUTIVE COMPENSATION
PERFORMANCE AND PAY
Scope of Study:
• Companies in the TSX60 Index
• 2021 Proxies commenting on Fiscal 2020 (n=57)2020 & YTD 2021 Performance
Strong post-COVID recovery across most sectors
60% End of 2020
S&P/TSX Capped
Materials Index
40%
20% S&P/TSX 60 Index
0%
S&P/TSX Composite
-20% Index
-40%
S&P/TSX Capped
Financials Index
-60%
S&P/TSX Capped Energy
-80% Index
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
52019 – 2020 TSR
A greater proportion of TSX60 constituents had positive TSRs in 2019 compared to 2020
TSX60 Index Constituents - 2020 Total Shareholder Return
175%
-22%
100%
23%
25%
-50%
Energy
Materials
TSX60 Index Constituents - 2019 Total Shareholder Return Non-Resource
175%
22%
100%
28%
25%
-50%
62020 YoY Median CEO TDC by Industry
Compensation in the majority of sectors saw YoY decline or stagnation in median TDC
Year-Over-Year Change in Median & Average TSX60 CEO TDC
20%
Median Average
15%
10%
5% 4%
0.2%
0%
-2% -1%
-5%
-5%
-10%
Energy Materials Other All TSX60 Financials
(n=7) (n=10) (n=30) (n=57) (n=10)
7Median CEO Pay YoY
Median TSX60 compensation has seen a relatively stable increase over the last five years
5 Year Trend in Median TSX 60 CEO TDC
5% 4-yr CAGR 4% 4-yr CAGR 4% 4-yr CAGR
$12,000,000
$10,000,000
0.2% YoY 0.5% YoY 0.2% YoY
$8,000,000
$6,000,000
$4,000,000
$2,000,000
$0
All TSX60 (n=57) Same Constituent (n=50) Same Incumbent (n=25)
2016 2017 2018 2019 2020
8Actual vs. Target Pay
Contrary to 2019, actual CEO Total Cash Compensation (“TCC”) and Total Direct Compensation (“TDC”)
was less than target in 2020
2019 vs. 2020 Change in Actual and Target Median Compensation
TCC
2019 - Target 2020 - Target
2019 - Actual 2020 - Actual
TDC
$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000
Compensation (CAD '000s)
9Compensation Levels: Top 5 Pay
Total top 5 pay increased year over year, CEO share of total remains stable
Aggregate Top 5 Pay
$35,000 CEO Pay as a
Legend
Multiple of NEO Pay
$30,000 P75
2019 2020
P50/ Median
$25,000
P25 CFO 2.93x 3.03x
CAD 000's
$20,000 Average
$15,000 NEO3 2.34x 2.52x
$10,000
NEO4 3.14x 2.96x
$5,000
NEO5 3.68x 3.45x
$0
2019 2020
10EXECUTIVE COMPENSATION
PAY MIX AND PLAN DESIGN
Scope of Study:
• Companies in the TSX60 Index
• 2021 Proxies commenting on Fiscal 2020 (n=57)Short Term Incentive Design
STIP design remains relatively stable year-over-year, with modest increases to ESG weighting
2019 Corporate STIP Mix 2020 Corporate STIP Mix
ESG Other Other
4% ESG
3%
Strategic 6% 8%
8% Strategic
8%
Operational
Operational
13%
11%
Financial Financial
69% 70%
2019 STIP Metrics 2020
5.3 Number of metrics used, on average 5.6
64% Scorecards with an individual component 67%
17% Board exercised discretion 47%
12Long Term Incentive Design
LTIP mix continues to shift away from stock options and towards RSUs
2019 Average Target LTIP Mix 2020 Average Target LTIP Mix
DSUs
1%
Options
Options
26%
29%
PSUs PSUs
52% 53%
RSUs
RSUs 21%
18%
2019 LTIP Metrics 2020
2.4 Average number of metrics used in PSUs 2.4
63% Relative TSR metric used 63%
32% Return metric used (e.g. ROE) 33%
132020 SAY ON PAY RESULTS Scope of Study: • Say on Pay results among the TSX Composite Index as of May 28, 2021 (n = 125)
Canadian Say on Pay Results
The number of companies scoring below 50% increased from none in 2020 to 5 in 2021
Canada Say-on-Pay Voting Results 2021 vs. 2020
100%
90%
79% 77%
80%
70%
60%
50%
40%
30%
20% 12% 14%
10% 6% 3% 4%
2% 2% 0%
0%
>90% 80-90% 70-80% 50-70% Less than 50%
Say-on-Pay Approval Rating
2020 2021
15Canadian Say on Pay Results by Industry
Say on Pay results increased for most sectors in 2021 compared to 2020 results
Average SOP Results by Industry
(2019 - 2021)
95%
93.4%
93% 92.4% 92.4% 92.4%
91.0% 91.4%
91.0% 90.9%
91% 90.5%
89.5%
89% 88.7%
88.0%
87%
85%
Overall Materials Energy Financials
2019 2020 2021
16COVID-19 & EMERGING TOPICS
COVID-19 Observations
Actions Taken in 2020
• Salary and board retainers cuts early on
• Challenge of balancing poor financial results and management performance
• Adjustments to financial metrics and application of overall discretion at year-end
• Equitable treatment across the organization
Shareholder & Market Reactions
• Increase in failed Say-on-Pay votes
• Negative proxy advisor commentary
• Increase in negative press
Implications for 2021 & Beyond
• Widening of performance shoulders for financial metrics
• Increased use of non-financial metrics and formal discretionary components
• PSU design adjustmentsEmerging Topics & Trends
Stock Option Taxation Environmental, Social, Recent Initial Public
Changes and Governance Offering ActivityUS PAY TRENDS
Covid Impact
Select S&P 500 Covid-Related Modifications
The most prevalent modifications involved adjusting annual incentive plan (AIP) payouts by changing metrics and/or goals,
using discretion, or setting wider performance ranges to accommodate potential variability in performance outcomes.
n=345
25%
9%
3% 2% 1%
Adjusted AIP Payout Granted Special Award Adjusted PSU Payout Modified Outstanding Adjusted LTI Mix More
PSUs Time Based
Adjusted AIP payout approaches include applying discretion, adjusting metrics and/or targets, and widening performance
ranges to accommodate potential variability.
21Retail Deep Dive
The retail industry struggled due to changes in consumer behavior, mandated closures, and supply chain disruptions resulting
from Covid-19. Most modifications occurred within the AIP rather than the LTIP.
Select Retail
n=61
28%
23%
18% 18%
13%
7% 3% 11% 10% 8% 8% 5%
22Automotive OEM and Russell 3000 Deep Dive
Auto industry manufacturers also experienced the challenges of the pandemic.
Select Automative OEM
n=27
22%
11%
7%
4%
15% 15% 4%
Applied Discretion Modified Modified Reset Goals Reduced Canceled Plan
Outstanding Performance Target/Max
Awards Period Opportunity
23Lasting Impacts from 2021 Proxy Season
Seasonal annual
New metrics—
plans—expect
indicators of Wider performance
prevalent in retail, food
operational success and curves
& food service,
strategic milestones
hospitality
Enhancing 2021 LTI
Lower performance
Rebalancing of LTI—less award size…but with
curves/governors on
PSU, less risk risk of Say on Pay
the maximums
backlash
Ability to explain
Rebalancing of formula Proportionality relative
actions transparently
vs. discretion to all stakeholders
and credibly
242021 Say on
Current Say on Pay (SOP) Results Pay Season
1.4% 2.6% 2.5% 2.4% 2.8% 1.7% 1.5% 2.6% 2.7% 2.3% 2.3% 2.9%
6% 6% 6% 6% 6% 6% 5% 6% 6% 5% 4% 4%
15% 17% 16% 17% 15% 16% 15% 19% 18% 16%
21% 19%
PERCENT
▪ The current SOP failure rate is 2.9%. Initial APPROVAL
< 50%
evaluation of the likely reasons for failure 50-70%
70-90%
indicates that fourteen of the forty-eight 72% 73% 76% 75% 76% 75% 78% 75% 76% 74% 76% 78%
> 90%
failed Say on Pay votes are due in part to
Covid-19 related actions.
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2020YTD 2021
Avg: 90.9% 89.8% 90.6% 90.9% 90.8% 90.9% 91.7% 90.2% 90.5% 90.5% 91.0% 90.8%
n: 2,660 2,226 2,253 2,545 2,157 2,116 2,356 2,153 2,236 2,396 1,667 1,628
▪ The top chart indicates 48 failures thus Failures: 37 57 57 60 61 35 35 57 60 56 39 48
far. 16 of these failures are S&P 500 90%+ 70 - 90% 50 - 70% Below 50%
companies 2%
6%
1%
1%
3%
2%
4%
2%
2%
4%
7% 4%
2%
3%
6%
6% 2%
5%
5%
11% 4% 2% 8%
10% 11%
▪ The bottom chart shows SOP results by 15% 10% 16%
21% 21% 22%
19%
industry, with energy companies having
the highest proportion of failures 92% 87% 85% 83% 79% 79% 77% 71% 71% 70% 68%
Utilities Materials Industrials Consumer Financials Energy Real Estate Health Care Information Consumer Comm.
Avg: 94.4% 93.0% 92.3% Staples 91.2% 89.5% 90.0% 89.4% Technology Discretionary Services
n: 65 93 261 92.0% 370 71 134 200 89.1% 89.6% 87.6%
53 179 165 37
As of June 8, 2021 25Breakdown of Say on Pay Results
ISS against recommendations (10%) are lower than they were in 2020 (11%); however, many large cap companies are
experiencing increased ‘Against’ recommendations and low vote support in comparison to 2020.
Say on Pay 2021 vs 2020
78%
16%
4% 3%
76% 18% 4% 2%
100%-90% 90%-70% 70%-50% 50% & below
1 Companies outlined in the boxes received low or failing vote support in 2021. 26Themes Emerging from 2021 Say on Pay Season
Topic Detail
Spotlight on Large ▪ Early evaluations of the 2021 Say on Pay season have revealed an increased focus on larger cap
Cap Companies companies from ISS and institutional shareholders (approximately a third of failures are
companies amongst the S&P 500)
New Challenges ▪ Institutions and proxy advisors expressed new interest in greater disclosure regarding
with Litigation Commitees’ incentive decision making process as it pertains to litigation expenses, with some
Expenses contending significant litigation expenses should not be excluded from incentive calculations
Special Awards ▪ Proxy advisors were critical of those who made special awards solely based on retention as well
Panned as awards that did not have strong performance conditions or long-term vesting schedules
2021 Actions Carry ▪ Some companies enhanced 2021 grants, modified go forward awards, and/or paid annual
Over incentives in stock in response to pandemic performance shortfalls. These actions have yet to
be evaluated
ESG Proposals ▪ Proposals have received an elevated level of support, often above 70%, involving matters such
as disclosure of EEO-1 statistics, diversity and inclusion efforts, board diversity, lobbying
payments, climate impact reporting, and emission reduction target disclosure
27ESG Metrics
ESG Metric Prevalence in Incentives
62% of the largest 200 companies incorporate ESG in incentives, compared to 55% for the smaller 300. This follows
expectations – high-profile companies face more public scrutiny and are often among the first to adopt new governance trends
Metric Prevalence at Top 200 and Bottom 300 S&P 500 Companies by Revenue1
(N=500; revenue as of 5/1/2021)
38%
29% 26% 26%
20% 17%
15%
10% 9% 8% 6%
4% 4% 3% 3% 3%
20% 9% 16% 14% 12% 5% 4% 4% 1% 2% 2% 2% 2%
22% 26% 23%
1 Data is sourced from 2021 Proxy Statements 28Digital Pay Practices
Trends in Tech-Industry Pay
▪ The technology sector talent market remains hyper competitive
▪ Pay levels for high-growth tech companies up 15% to 25% year-over-year for multiple senior-level roles—including individuals
receiving 50%+ premiums upon joining competitors
▪ IPO/ SPAC market creating a desire for “moonshot” awards that can be as large as $1B in grant date fair value
▪ Use of one-time special awards increasing as companies look for more ways to attract and retain top talent
▪ Continued shift towards equity as a time-based currency rather than a performance-based currency—acknowledging the continued
increasing proportion of pay delivered in equity as more and more tech companies eliminate cash bonus programs
▪ Bellwethers like Google, Facebook, and Apple continue to have significant impact on the talent market, though their
influence has receded somewhat under the backdrop of recent IPO successes
▪ Increased employee and stakeholder activism (e.g., Amazon employees supporting shareholder proposal) has garnered
significant media attention but has not had a noticeable impact on the overall talent market at FAANG companies
The technology talent market continues to be strong as companies “pay-up” for experienced talent. The two “unknowns” for
us to monitor over the coming year—and which could impact pay levels—include: (i) will the IPO/ SPAC market weaken,
strengthen, or stabilize, and (ii) how will companies “return to work” (or not) in the post-COVID environment?
29Q&A If your question was not addressed during our Q&A session, please contact email@hugessen.com
CLOSING REMARKS
TSX60 Proxy Webinar
and Discussion
June 2021
Thank you for joining us. If your question was not addressed during our Q&A
session, please contact email@hugessen.com.
Please take a minute to complete our survey.You can also read
