Quantum Shift: Engaging on Excessive Compensation & Pay Equity Michelle de Cordova Director, Corporate Engagement & Public Policy 1

NEI Investments 2 Canadian investment management company Owned by Desjardins Group and Credit Union Centrals of Canada Approximately $5 billion assets under management NEI Ethical Funds: Canada’s oldest and biggest SRI fund family ESG Services = Environmental, Social & Governance

Excessive focus on share price in “pay for performance”, although executive direct impact on share price is limited Many CEOs emphasize importance of ESG performance - but are not paid to improve performance in these areas Solution: Reward executives to improve performance in range of strategic & operational areas that contribute to long-term sustainable value mp_English_Final.pdf Stakeholder-based Compensation 3

: Engaging on ESG Compensation In 2006 we wrote to all TSX Composite companies asking for linkage between pay and performance against ESG metrics Only 5% of companies said they considered ESG metrics in pay, almost none provided evidence in the proxy circular Linking pay to ESG performance becomes a regular theme in our corporate engagement program Focus on progressive dialogue with financials and extractives companies – Greatest exposure to ESG risks – Most developed ESG metrics in sustainability reporting, but almost no ESG metrics in executive compensation frameworks By 2012, ESG metrics are established feature in these sectors 4

Continue five-year effort pushing companies to link compensation to performance on ESG metrics of long-term sustainable value Enhance discussion of risks relating to excessive pay, internal pay equity and income inequality 2013 Compensation Engagement Priorities 5

Does High Quantum Matter? Is high quantum the best way to attract and motivate talented, committed executives of highest integrity? How does high quantum executive compensation and increasing pay disparity between company levels affect employee retention, motivation and performance overall? How does high quantum executive compensation contribute to income inequality in the economy as a whole, and what are the consequences? 6

A Quantum Shift for Canada’s Banks? Fall 2012: Filed shareholder proposals asking Canada’s five biggest banks to explore risk of setting executive compensation levels based on horizontal comparisons with peer companies, and potential to integrate vertical comparisons with pay of other workers in the company or economy Why banks? Corporate governance leadership, stewardship role in the economy Progress so far: All five proposals withdrawn when the banks agreed to explore the issues raised 7

To Engage with the Engagement… 8