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TSX60 Proxy Review, COVID-19 & Emerging Topics WebinarJune 2021

2021 PROXY SEASON REVIEW, COVID-19 OBSERVATIONS, AND EMERGING TOPICS & TRENDSHugessen TSX60 Webinar

June 2021

3

Michelle TanPartnerHugessen – Toronto

1 Welcome

2 Highlights from 2021 Proxy Season

3 COVID-19 & Emerging Topics

4 US Pay Trends

5 Q&A and Closing Remarks

Kevin ZhuAssociateHugessen – Toronto

Blair JonesManaging DirectorSemler Brossy - NYC

Speakers Agenda

If you have any questions, please submit them on Teams. Questions will be addressed at the end of this presentation

John SkinnerManagerHugessen – Toronto

EXECUTIVE COMPENSATIONPERFORMANCE AND PAY

Scope of Study:• Companies in the TSX60 Index• 2021 Proxies commenting on Fiscal 2020 (n=57)

5

2020 & YTD 2021 PerformanceStrong post-COVID recovery across most sectors

-80%

-60%

-40%

-20%

0%

20%

40%

60%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May

S&P/TSX CappedMaterials Index

S&P/TSX 60 Index

S&P/TSX CompositeIndex

S&P/TSX CappedFinancials Index

S&P/TSX Capped EnergyIndex

End of 2020

-50%

25%

100%

175%

TSX60 Index Constituents - 2019 Total Shareholder Return

-50%

25%

100%

175%

TSX60 Index Constituents - 2020 Total Shareholder Return

6

2019 – 2020 TSR

Energy

Materials

Non-Resource

A greater proportion of TSX60 constituents had positive TSRs in 2019 compared to 2020

22%

28%

-22%

23%

7

2020 YoY Median CEO TDC by IndustryCompensation in the majority of sectors saw YoY decline or stagnation in median TDC

-5%

-2% -1%

0.2%

4%

-10%

-5%

0%

5%

10%

15%

20%

Energy(n=7)

Materials(n=10)

Other(n=30)

All TSX60(n=57)

Financials(n=10)

Year-Over-Year Change in Median & Average TSX60 CEO TDC

Median Average

8

Median CEO Pay YoYMedian TSX60 compensation has seen a relatively stable increase over the last five years

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

All TSX60 (n=57) Same Constituent (n=50) Same Incumbent (n=25)

5 Year Trend in Median TSX 60 CEO TDC

2016 2017 2018 2019 2020

4% 4-yr CAGR5% 4-yr CAGR 4% 4-yr CAGR

0.2% YoY 0.2% YoY0.5% YoY

9

Actual vs. Target PayContrary to 2019, actual CEO Total Cash Compensation (“TCC”) and Total Direct Compensation (“TDC”) was less than target in 2020

$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000

TDC

TCC

Compensation (CAD '000s)

2019 vs. 2020 Change in Actual and Target Median Compensation

2019 - Target 2020 - Target

2019 - Actual 2020 - Actual

10

Compensation Levels: Top 5 PayTotal top 5 pay increased year over year, CEO share of total remains stable

Legend

P75

P50/ Median

P25

Average

CEO Pay as a Multiple of NEO Pay

2019 2020

CFO 2.93x 3.03x

NEO3 2.34x 2.52x

NEO4 3.14x 2.96x

NEO5 3.68x 3.45x$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

2019 2020

CA

D 0

00

's

Aggregate Top 5 Pay

EXECUTIVE COMPENSATIONPAY MIX AND PLAN DESIGN

Scope of Study:• Companies in the TSX60 Index• 2021 Proxies commenting on Fiscal 2020 (n=57)

12

Short Term Incentive Design

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%

STIP design remains relatively stable year-over-year, with modest increases to ESG weighting

Financial69%

Operational13%

Strategic8%

ESG6%

Other4%

2019 Corporate STIP Mix

Financial70%

Operational11%

Strategic8%

ESG8%

Other3%

2020 Corporate STIP Mix

13

Long Term Incentive Design

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%

LTIP mix continues to shift away from stock options and towards RSUs

PSUs52%

RSUs18%

Options29%

DSUs1%

2019 Average Target LTIP Mix

PSUs53%

RSUs21%

Options26%

2020 Average Target LTIP Mix

2020 SAY ON PAY RESULTS

Scope of Study:• Say on Pay results among the TSX Composite Index as of May 28, 2021 (n = 125)

15

Canadian Say on Pay ResultsThe number of companies scoring below 50% increased from none in 2020 to 5 in 2021

79%

12%6%

2% 0%

77%

14%

3% 2% 4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

>90% 80-90% 70-80% 50-70% Less than 50%

Say-on-Pay Approval Rating

Canada Say-on-Pay Voting Results 2021 vs. 2020

2020 2021

16

Canadian Say on Pay Results by IndustrySay on Pay results increased for most sectors in 2021 compared to 2020 results

91.0% 91.0%

88.0%

91.4%92.4% 92.4%

88.7%

93.4%

90.5%90.9%

89.5%

92.4%

85%

87%

89%

91%

93%

95%

Overall Materials Energy Financials

Average SOP Results by Industry(2019 - 2021)

2019 2020 2021

COVID-19 & EMERGING TOPICS

COVID-19 Observations

Implications for 2021 & Beyond• Widening of performance shoulders for financial metrics• Increased use of non-financial metrics and formal discretionary components• PSU design adjustments

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

Emerging Topics & Trends

Stock Option Taxation Changes

Environmental, Social, and Governance

Recent Initial Public Offering Activity

US PAY TRENDS

21

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.

Adjusted AIP payout approaches include applying discretion, adjusting metrics and/or targets, and widening performance ranges to accommodate potential variability.

Select S&P 500 Covid-Related Modifications

25%

9%

3% 2% 1%

Adjusted AIP Payout Granted Special Award Adjusted PSU Payout Modified OutstandingPSUs

Adjusted LTI Mix MoreTime Based

n=345

Covid Impact

22

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.

Retail Deep Dive

28%

23%

18% 18%

13%

7% 3% 11% 10% 8% 8% 5%

Select Retail n=61

23

Auto industry manufacturers also experienced the challenges of the pandemic.

Automotive OEM and Russell 3000 Deep Dive

22%

7%

11%

4%

15% 15% 4%

Applied Discretion ModifiedOutstanding

Awards

ModifiedPerformance

Period

Reset Goals ReducedTarget/MaxOpportunity

Canceled Plan

Select Automative OEM n=27

24

Lasting Impacts from 2021 Proxy Season

Seasonal annual plans—expect

prevalent in retail, food & food service,

hospitality

New metrics—indicators of

operational success and strategic milestones

Wider performance curves

Lower performance curves/governors on

the maximums

Rebalancing of LTI—less PSU, less risk

Enhancing 2021 LTI award size…but with

risk of Say on Pay backlash

Rebalancing of formula vs. discretion

Proportionality relative to all stakeholders

Ability to explain actions transparently

and credibly

▪ The current SOP failure rate is 2.9%. Initial evaluation of the likely reasons for failure indicates that fourteen of the forty-eight failed Say on Pay votes are due in part to Covid-19 related actions.

▪ The top chart indicates 48 failures thus far. 16 of these failures are S&P 500 companies

▪ The bottom chart shows SOP results by industry, with energy companies having the highest proportion of failures

Current Say on Pay (SOP) Results

As of June 8, 2021 25

92% 87% 85% 83% 79% 79% 77% 71% 71% 70% 68%

6% 11% 10% 11% 15% 10% 16% 21% 21% 22%

19%

2% 1% 2% 2% 4%

4% 2% 6% 2% 5%

8%

1% 3% 4% 2% 7% 4% 3% 6% 2% 5%

UtilitiesAvg: 94.4%

n: 65

Materials93.0%

93

Industrials92.3%

261

ConsumerStaples92.0%

53

Financials91.2%

370

Energy89.5%

71

Real Estate90.0%

134

Health Care89.4%

200

InformationTechnology

89.1%179

ConsumerDiscretionary

89.6%165

Comm.Services87.6%

37

90%+ 70 - 90% 50 - 70% Below 50%

72% 73% 76% 75% 76% 75% 78% 75% 76% 74% 76% 78%

21% 19% 15% 17% 16% 17% 15% 16% 15% 19% 18% 16%

6% 6% 6% 6% 6% 6% 5% 6% 6% 5% 4% 4%

1.4% 2.6% 2.5% 2.4% 2.8% 1.7% 1.5% 2.6% 2.7% 2.3% 2.3% 2.9%

201190.9%2,660

37

201289.8%2,226

57

201390.6%2,253

57

201490.9%2,545

60

201590.8%2,157

61

201690.9%2,116

35

201791.7%2,356

35

201890.2%2,153

57

201990.5%2,236

60

202090.5%2,396

56

2020YTD91.0%1,667

39

202190.8%1,628

48

< 50%

50-70%

70-90%

> 90%

PERCENTAPPROVAL

Avg:n:

Failures:

2021 Say onPay Season

1 Companies outlined in the boxes received low or failing vote support in 2021. 26

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.

Breakdown of Say on Pay Results

78%

16%

4% 3%76% 18% 4% 2%

100%-90% 90%-70% 70%-50% 50% & below

Say on Pay 2021 vs 2020

27

Themes Emerging from 2021 Say on Pay Season

Topic Detail

Spotlight on Large

Cap Companies

▪ Early evaluations of the 2021 Say on Pay season have revealed an increased focus on larger cap

companies from ISS and institutional shareholders (approximately a third of failures are

companies amongst the S&P 500)

New Challenges

with Litigation

Expenses

▪ Institutions and proxy advisors expressed new interest in greater disclosure regarding

Commitees’ incentive decision making process as it pertains to litigation expenses, with some

contending significant litigation expenses should not be excluded from incentive calculations

Special Awards

Panned

▪ Proxy advisors were critical of those who made special awards solely based on retention as well

as awards that did not have strong performance conditions or long-term vesting schedules

2021 Actions Carry

Over

▪ Some companies enhanced 2021 grants, modified go forward awards, and/or paid annual

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

1 Data is sourced from 2021 Proxy Statements 28

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

ESG Metric Prevalence in Incentives

38%

29% 26% 26%

20% 17%15%

10% 9% 8% 6%4% 4% 3% 3% 3%

22% 26% 20% 23% 9% 16% 14% 12% 5% 4% 4% 1% 2% 2% 2% 2%

Metric Prevalence at Top 200 and Bottom 300 S&P 500 Companies by Revenue1

(N=500; revenue as of 5/1/2021)

ESG Metrics

29

▪ 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

Trends in Tech-Industry Pay

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?

Digital Pay Practices

Q&AIf your question was not addressed during our Q&A session, please contact email@hugessen.com

CLOSING REMARKS

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TSX60 Proxy Webinar and DiscussionJune 2021