Proposed Form 51-102F6, Statement of Executive Compensation, is touted by the CSA as improving clarity and context regarding corporate compensation practices.
On March 29, 2007, the CSA announced that they had begun to accept comments on Proposed Form 51-102F6 Statement of Executive Compensation. The changes are intended to improve the transparency of executive compensation disclosure and to provide greater insight into this aspect of corporate governance.
The requirements for compensation disclosure have not substantially changed since the current obligations were introduced in 1994. According to the CSA, the current disclosure requirements provide investors with fragmented information, which makes assessing total compensation difficult. In support of increasing the requirements of disclosure, the CSA notes that many reporting issuers already provide executive compensation disclosure beyond that which is required under the current form.
In proposing Form 51-102F6, the CSA studied the new rules recently introduced by the Securities and Exchange Commission in the United States (the SEC). The CSA’s proposed rules, however, while similar to those of the SEC, do not adopt all of the changes made in the United States, and in many cases reflect standards tailored to meet the needs of Canadian capital markets.
Significant Changes to Disclosure Requirements
The following is a list of significant differences between the current disclosure form, and the proposed form:
- The summary compensation table will include a new column showing the total compensation, expressed in dollars, provided to each named executive officer (NEO). This amount will represent the total of the figures disclosed in the other columns in the table. Other aspects of the table have been revised and a narrative description of any material factors that are necessary to understand the information in the table must also be included.
- All equity compensation in the summary compensation table is required to be disclosed on the basis of the compensation cost of these awards over the requisite service period (as per the Canadian Institute of Chartered Accountants’ handbook requirements), as reflected in a company's financial statements. This deviates from the current form, which discloses items such as stock and options according to the number of shares or other securities granted.
- A new narrative compensation discussion and analysis section will be required to explain the rationale for specific compensation programs for executives. The CSA has identified six key principles that reporting issuers must discuss, including examples of the types of issues that could be addressed when explaining the principles.
- There is more specific disclosure of potential payments to NEOs upon termination of their position at the company, including more required details on retirement benefits.
- The proposed executive compensation form will require expanded disclosure of director compensation, including a summary table and equity disclosure similar to what is required for NEOs.
Implementation and transition
As stated above, the proposed executive compensation form is intended to replace the current form. The new form was originally proposed to apply to financial years ending on or after December 31, 2007. It was also proposed that venture issuers that do not send a management information circular be required to file a completed Form 51-102F6 within 140 days of the company’s financial year-end. The proposal was open for comments until June 30, 2007 and the Notice and Request for Comment stated that the intention was to have the proposed in effect at the end of 2007. However, according to CSA Notice 51-325, published on August 31, 2007, given the comments received on their original proposals, the CSA will be publishing further proposals for comment prior to implementing these changes.