The Canadian Securities Administrators (CSA) have finalized changes to the executive compensation disclosure requirements and these changes will apply to reporting issuers with respect to financial years ending on or after October 31, 2011.  These amended requirements will therefore be in place for the 2012 proxy season.

The final changes announced by the CSA are generally consistent with the original CSA proposals that were published in November, 2010 and reflect changes put forward by the U.S. Securities and Exchange Commission for reporting companies in the United States.  They also reflect the CSA’s targeted compliance reviews of executive compensation disclosure.

New Requirements

The new substantive changes to the existing Canadian executive compensation disclosure requirements include the following:

  • Compensation Committee Disclosure - Companies will be required to provide more detailed disclosure concerning  the issuer’s compensation committee, if it has one.  The names of each committee member, whether or not the member is independent and their experience relevant to their committee responsibilities must be disclosed.  Disclosure will also be required regarding the responsibilities, powers and operation of the committee and its skills and experience that enable it to determine the suitability of the issuer’s compensation policies and practices.
  • Risk Disclosure Associated with Compensation - Companies must disclose whether the board or the compensation committee has considered the risks associated with the issuer’s compensation policies and practices.  If those issues have been considered, disclosure is required regarding the board or committee’s role in risk oversight of the compensation policies and practices, any practices that the issuer uses to identify and mitigate the risk that a named executive officer (NEO) or individual at a principal business unit or division might take any inappropriate or excessive risks, and any identified risks that are reasonably likely to have a material adverse effect on the company.
  • Restrictions on Omitting Disclosure of Performance Goals Due to Serious Prejudice - Companies must now specifically state that they are relying on the exemption from disclosing performance goals on the basis that this disclosure would be seriously prejudicial to the company and also describe why this disclosure would be seriously prejudicial.  There is commentary from the CSA with these changes stating that a company will not be considered to be seriously prejudiced if the performance goals are based on various broad corporate-level financial performance indicators.
  • Compensation Advisors and Consultants - Companies will be required to disclose the name of any compensation consultant or advisor that is retained and their mandate.  Disclosure will also be required of, among other items, a breakdown of all fees paid to the consultant for the services provided and a description of the work performed.
  • Ability to Hedge - Issuers will be required to disclose whether any NEO or director is permitted to purchase financial instruments that are designed to hedge against declines in the market value of equity securities granted as compensation to, or that are held directly or indirectly by, the NEO or director.
  • Significant Changes to Compensation Policies - If an issuer has determined that it will make any significant changes to its compensation policies or practices in the next financial year, it will likely need to disclose those intended changes.
  • Value of Vested Share-Based Awards - Disclosure will now be required of the aggregate value of any share-based awards that have vested but which have not yet been paid out.
  • Prohibition on Additional Columns in Summary Compensation Table - Issuers will be prohibited from adding any columns to the mandated contents of the Summary Compensation Table.
  • Board Discretion Regarding Awards or Payouts - There will now likely be required disclosure as to whether the board can exercise discretion to award compensation (even where the relevant performance goals were not attained) or increase or reduce payouts or awards with respect to performance-based compensation.

These amendments to the executive compensation disclosure rules and the resulting consequential amendments to the applicable disclosure forms for executive compensation and corporate governance disclosure will result in most reporting issuers having to carefully review and update their disclosure in order to ensure compliance with the new requirements.