Last month, the Canadian Coalition for Good Governance (CCGG) released the 2009 edition of its "Best Practices in Disclosure of Executive Compensation Related Information". The guide is intended to "improve the overall quality of executive compensation disclosure in annual proxy circulars" by reviewing best practices and providing examples of disclosure meeting the criteria set out in its guidelines. According to the CCGG, truly effective disclosure is easy to find, easy to understand, accurate and complete and given in context so that the information has meaning. Specifically, the CCGG considered executive compensation disclosure in five areas, discussed below.
1. Build an independent compensation committee
While the CCGG observed that many issuers have appointed a compensation committee of solely independent directors comprising of members with diverse backgrounds, opportunities for improvement were identified. Specifically, the CCGG suggests identifying the compensation expertise of the committee members and establishing and disclosing the committee's work plan.
2. Develop an independent point of view
On this point, the CCGG states that most issuers have retained the services of a compensation consultant, with some companies reporting the fees paid. Despite a CSA requirement to name the consultant, however, the CCGG notes that not all issuers did so and recommends disclosing the fees paid to the consultant for work performed on behalf of the compensation committee and management, as well as a breakdown of such fees.
3. Test pay to performance linkages
While many issuers included a detailed discussion in disclosure of the various metrics used to link pay to performance, the CCGG suggests that disclosure was inconsistent as to how the relevant metrics translated to the compensation amounts. Further, the CCGG recommends an explanation of the rationale behind the choice of the metrics, their appropriateness and how they align with the company's goals and strategy.
4. Establish share ownership guidelines
With respect to this recommendation, the CCGG suggests, among other things, prohibiting the monetization of unvested equity awards and requiring executives to hold equity in the company for a period of time after leaving the company.
5. Disclose all facets of the compensation regime
The CCGG cited the improving quality of disclosure under this criteria, but states that no company fully met this guidance. Specifically, the CCGG suggests that issuers need to "bring more clarity" to their disclosure and provided numerous examples of best practices.