The CSA’s executive compensation proposals reflect the regulators’ current focus on risk management. The regulators have provided specific examples of compensation practices that could encourage excessive risk-taking, such as weighting compensation toward short-term objectives or making performance-based payouts before the associated risks are likely to materialize. More generally, the CSA stated in its 2010 report on corporate governance disclosure (discussed further below) that risk-management practices are under increased scrutiny, and regulators are monitoring this area closely.
The same is true in the United States. At the end of 2009, the SEC adopted new proxy circular rules requiring companies to disclose, among other things, information about the board’s role in risk oversight and, in certain circumstances, how the company’s compensation policies and practices relate to risk management. More broadly, the Dodd-Frank Act mandates various new requirements pertaining to risk management, with the overall objective of reducing systemic risk in the U.S. financial markets following the recent financial crisis and subsequent government bailouts.