The SEC has published a report summarizing its review of 350 proxies filed under the U.S. new and enhanced rules for executive compensation and related disclosure. The Canadian Securities Administrators (CSA) proposed changes to Canadian executive compensation disclosure rules earlier this year reflecting many of the new U.S. rules. In late August, the CSA announced that it would issue a revised proposal for comment later this year and any changes to executive compensation disclosure would not be effective with respect to fiscal years ending before June 30, 2008.

The SEC report will undoubtedly guide all future U.S. issuer proxy disclosure. As a result, it should be useful to issuers who are required to comply with U.S. proxy rules. Canadian issuers who are not subject to such rules may find the SEC Report helpful in considering ways in which they might enhance their disclosure prior to the implementation of changes to Canadian executive compensation disclosure rules. In particular, Canadian issuers with a significant U.S. shareholder base may wish to enhance their executive compensation disclosure to meet the expectations of U.S. investors who have become accustomed to the heightened level of disclosure under U.S. rules.

Among the key points the SEC emphasizes in the report are the following:

  • Improve emphasis about the “how” and “why” of compensation decisions, not just the “what.” For example, not just what is the compensation philosophy of the company, but how did the company’s compensation philosophy affect resulting compensation?
  • Explain differences in compensation levels of named executive officers. Why are some paid much more than others?
  • If additional tables are added to clarify compensation or make the required disclosure easier to understand, the SEC generally liked the addition, as long as they were not more prominent than the required tables.
  • Disclose performance targets, particularly when external benchmarks are used, explain who are the peer companies, and where the item of compensation falls against the benchmark or performance target.
  • If achievement of individual performance targets affected compensation, describe what the targets were and explain how the individual's compensation was affected.
  • Explain how the compensation package interacts: whether the determinations made with regard to one compensation element may or may not have influenced decisions on other compensation elements.

View the SEC Staff Observations in the Review of Executive Compensation Disclosure report.