The CPP Investment Board released revised proxy voting guidelines on Monday that indicate how the board is likely to vote on corporate governance issues regarding companies in which it owns shares on behalf of 16 million CPP contributors and beneficiaries.

The guidelines are designed to encourage companies to adopt policies and practices that enhance long-term shareholder value.

The guidelines oppose stock options, support directors and management receiving performance-based stock grants to be held during their tenure with the company, support all public companies having a majority of independent directors and oppose management sitting on board committees.

The guidelines describe stock options as problematic in many areas, including their effectiveness in aligning management and shareholder interests, the potential dilutive impact on existing shareholdings, their tendency to focus management on short-term performance, their use as a cash rather than ownership incentive, and intractable accounting issues.

“While many aspects of granting stock options could be improved, the result in our view would still be inferior to direct share ownership,” the guidelines state.

The CPP Investment Board supports a portion of annual director compensation being paid in shares at market value, companies establishing minimum share ownership for directors, and directors being required to hold such shares while on the board and for at least one year after leaving the board. The guidelines suggest director compensation at least equal to the per diem paid to the company’s senior professional advisors.

In the case of management, the guidelines support a portion of total compensation being paid in shares with executives required to own a minimum value of shares as a multiple of base salary while employed by the company.

The guidelines support all public companies, irrespective of size, having a majority of directors who are independent of management with no direct or indirect material relationship to the company other than director’s fees and shareholdings, so that “the individual’s judgment is not compromised by other loyalties in serving the best interests of all shareholders”.

Board of directors are encouraged to evaluate annually their effectiveness and that of each director and to develop a process for asking under-performing directors to step down, instead of relying only on “triggers”, such as age limits, a director changing principal occupation, poor meeting attendance, or term limits, as a catalyst for reviews or automatic retirement.