RiskMetrics Group is coming out in favour of advisory votes on executive compensation in its latest proxy voting guidelines for Canada.

The firm released its 2009 proxy voting policies Tuesday, representing its latest thinking on certain shareholder issues. It notes that the three main areas of focus for its policy updates are executive compensation, board structure, and audit practices.

“Both issuer and investor respondents to RiskMetrics policy survey demonstrated little tolerance for outsized pay packages with 70% of investors and 85% of issuers specifying pay relative to performance as “very important” in evaluating executive compensation practices,” it says. So, RiskMetrics’ policy guidelines on executive compensation have been expanded to examine practices that divorce pay from performance.

For Canada, RiskMetrics is introducing a Poor Pay Practices Policy to reflect the additional disclosure that is now available in that market. It is also moving in favour of non-binding advisory votes on executive pay.

Currently, it takes a case-by-case approach to recommendations on shareholder proposals requesting shareholder ratification of executive compensation. The new policy position is that it will generally recommend a vote for shareholder proposals requesting the adoption of an advisory shareholder vote to ratify the report of the compensation committee.

It says it supports non-binding shareholder advisory votes on pay in principle and views a shareholder advisory vote on compensation as the superior method for shareholders to register approval or disapproval of compensation arrangements.

It will generally recommend a vote against shareholder proposals requesting a binding vote on executive or director compensation as being overly prescriptive and which may lead to shareholder micro-management of compensation issues that are more appropriately within the purview of the compensation committee of the board of directors.

IE