Executive compensation disclosure requirements in Canada are changing for financial years ending on or after December 31, 2008. Amendments to the disclosure requirements are aimed at improving transparency surrounding executive compensation.
Issuers should be aware of the following significant changes:
Compensation Discussion and Analysis. Executive compensation disclosure must now include a compensation discussion and analysis section (to replace the former Report on Executive Compensation section for TSX issuers) which explains the rationale for specific compensation programs for executives. Issuers must describe and explain the significant elements of compensation for their named executive officers. Elements of disclosure include:
- the objectives of any compensation programs;
- what the program is designed to reward;
- each element of compensation and why the issuer has chosen to pay each element;
- how the issuer determines the amount for each element; and
- how each element fits into the overall compensation objectives.
Total Dollar Value of Compensation. The summary compensation table must now include a column showing the total dollar value of compensation for each named executive officer.
Named Executive Officers. Named executive officers continue to include each CEO, CFO and the three most highly compensated executive officers other than the CEO and the CFO whose total compensation, excluding pensions (no longer simply salary and bonus) exceeds $150,000.
Compensation Cost for Equity Awards. All equity compensation (i.e. grants of options or restricted share rights) in the summary compensation table must now be based on grant date fair value rather than simply stating the number of securities granted.
Enhanced Change of Control and Retirement Benefits Disclosure. More specific disclosure of potential payments to named executive officers upon termination or retirement must now be included. Issuers will be required to quantify such payments on the assumption that the triggering event occurred at the end of the most recently completed financial year.
Expanded Director Compensation Disclosure. A summary table (including equity disclosure) similar to the summary compensation table required for named executive officers must now be included for directors. However, such disclosure for directors is only required for one year as compared to three years for named executive officers.
Venture Issuers. Venture issuers will now be subject to the same executive compensation disclosure requirements as TSX issuers (other than the requirement to provide performance graphs). Previously, venture issuers were exempt from certain compensation disclosure requirements.
Transition. The new executive compensation disclosure requirements will only apply in respect of financial years ending on or after December 31, 2008. Accordingly, executive compensation disclosure that has been disclosed for prior financial years is not required to be restated.
In preparing for the 2009 proxy season, issuers should:
- review the new requirements with the compensation committee and/or board of directors to ensure they have an understanding of the new requirements;
- review existing executive compensation disclosure practices and consider what modifications need to be made to comply with the new requirements; and
- allow for additional time to prepare executive compensation disclosure to permit thorough review and input from the compensation committee and/or board of directors as well as outside advisors.