Note: This proposal was withdrawn when the company agreed to implement it.
It is proposed that: Shareholders of Biovail Corporation (Biovail) urge the board of directors to adopt a policy that Biovail’s shareholders be given the opportunity at each annual meeting of shareholders to vote on an advisory resolution, to be proposed by Biovail’s management, to ratify the compensation of the Named Executive Officers set forth in the proxy statement. The proposal submitted to shareholders should state clearly that the vote is non-binding and would not affect any compensation paid or awarded to any Named Executive Officer.
Ever-improving executive compensation disclosure allows shareholders to become better informed with respect to the amounts to be paid to executives, the circumstances under which payments will be made, and the reasons for specific decisions about compensation structure. However disclosure is not a vote. It does not allow shareholders to provide any input on the decisions that have been made.
Shareholders are seeking assurance that directors are making serious efforts to ensure that executive compensation is linked to corporate performance. Many are also concerned about the arrangements made with executives under pension schemes and severance packages. An advisory vote provides shareholders with an opportunity to register their views on all elements of executive compensation.
Shareholders of Canadian issuers do consider and vote on the adoption of stock-based compensation plans and many types of amendments made to the plans after they are adopted. Most other elements of executive compensation are not subject to a direct shareholder vote.
In the absence of a pay vote at Biovail, shareholders who do not support some or all aspects of the corporation’s executive compensation packages can only register this view through the relatively imprecise methods of withholding votes from the entire board or the directors on the compensation committee. An advisory vote will allow shareholders to clearly express their views of executive compensation by voting on the matter directly.
The institution of an advisory vote on executive compensation implicitly acknowledges the expertise of the directors charged with making decisions regarding compensatory matters while allowing shareholders to provide their views of those decisions.
Most importantly, a shareholder vote on executive compensation has been found to improve communication between shareholders and issuers on executive compensation.
In the UK, virtually all public companies have been required to provide their shareholders with an advisory vote on executive compensation since 2003. Pension investment manager Railpen and proxy advisor PIRC recently reported that “Having a vote has been valuable in terms of increasing and enriching the dialogue between investors and the company. There is now a more sophisticated debate taking place.” *
A number of Canadian companies have agreed to provide their shareholders with an annual advisory vote on executive compensation, or ‘say on pay’, beginning in 2010. An advisory shareholder vote on executive compensation is now corporate governance best practice for public issuers in the Canadian market.
* Say on Pay Six Years On: Lessons from the UK Experience, Deborah Gilshan, Corporate Governance Counsel, Railpen Investments and PIRC Limited, p. 23.