Reasonable Compensation: We Propose a Role for Investors in Taking on the Income Inequality Challenge

The following is a guest post by Michelle de Cordova, Director, Corporate Engagement & Public Policy, NEI Investments. The article originally appeared on the NEI Investments website and is reproduced here with permission from both the author and the firm. NEI Investments (NEI) is a mutual fund company that “makes excellent, independent portfolio managers accessible to Canadian retail investors through two award-winning fund families: Northwest Funds and Ethical Funds.” It also has Canada’s largest team of in-house socially responsible investing specialists.

If the average Canadian is finding it increasingly hard to make ends meet, how can we maintain prosperity and social cohesion over the long term? In the previous edition of this newsletter, we highlighted the systemic risks posed by growing income inequality — a concern shared by the World Economic Forum and the Conference Board of Canada. In December, TD Bank’s Chief Economist published a report on the Canadian situation that reinforces these concerns about the hollowing-out of the middle class.

In October and November 2012, we filed shareholder proposals at Canada’s five biggest banks (Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and The Toronto-Dominion Bank) asking them to review the practice of setting the quantum of executive compensation based primarily on horizontal comparisons with pay at peer companies. We suggested they explore additional approaches, including vertical comparisons with the pay of middle-income earners in the economy. We were joined in filing all of these proposals by corporate engagement pioneer William Davis, and in some of them by the United Church of Canada.

The banks have responded positively, and we have had a number of productive meetings with management and board members over the past months. We have been able to withdraw the proposals filed at all the banks because they have committed to actions that address the proposal request.

Income inequality is a complex issue, and addressing it requires action by many stakeholders. We think responsible shareholders can be a part of the solution and we will continue to engage companies on the quantum of top executive pay.

As an addendum, see Michelle de Cordova’s remarks made at the RBC AGM – RBC invited her to speak to the proposal although it was withdrawn due to positive movement. 

 

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