The recent global financial crisis has increased the attention of regulatory authorities on policies and guidelines with respect to executive compensation. 2009 has been a particularly robust year for regulatory and industry activity in crafting, implementing and reviewing executive compensation policies.

At the recent G-20 leaders’ summit in Pittsburgh, the G-20 endorsed the implementation of compensation principles by the Financial Stability Board (the “FSB”), an international body comprised of senior representatives of national financial authorities, international financial institutions, standard setting bodies and committees of central bank experts. The FSB was established to develop and coordinate regulatory and supervisory policies in the interest of financial stability. On September 25, 2009, the FSB issued the Implementation Standards for the FSB Principles for Sound Compensation Practices. These standards focused on the following areas which required progress: (a) independent and effective board oversight of compensation policies and practices; (b) linkages of the total variable compensation pool to the overall performance of the firm and the need to maintain a sound capital base; (c) compensation structure and risk alignment, including deferral, vesting and clawback arrangements; (d) limitations on guaranteed bonuses; enhanced public disclosure and transparency of compensation; and (e) enhanced supervisory oversight of compensation, including corrective measures if necessary. It is anticipated that the FSB will review actions taken by national authorities to implement its compensation principles by March 2010.

In step with the international initiatives instigated by the G-20 and the FSB, Canadian regulatory authorities have also turned their minds to executive compensation. They have not decided to impose limits or taxes on compensation as their U.S. and U.K. counterparts have done, but instead have focused on compensation disclosure. On December 31, 2008, a revised Form 51- 102F6 Statement of Executive Compensation (the “Form”) became effective across all participating jurisdictions of the Canadian Securities Administrators (“CSA”). The Form was adopted for the purpose of providing appropriate disclosure for what the CSA has described as “increasingly complex” compensation practices.

In the spring of 2009, the CSA reviewed 70 reporting issuers to assess compliance with the disclosure requirements of the Form. On November 20, 2009, the CSA released staff notice 51-331 (the “Staff Notice”) reporting its findings of the targeted reviews. In particular, the CSA noted deficiencies in the reviewed companies’ disclosure in their Compensation Discussion and Analysis (“CD&A”) and Summary Compensation Table (“SCT”). The CSA observed that the reviewed companies often did not adequately tie the disclosure in the CD&A to the disclosure in the rest of the companies’ executive compensation disclosure, including the SCT.

In the Staff Notice, the CSA gave multiple examples of disclosure deficiencies in the reviewed companies and gave suggestions on how to properly disclose in accordance with the Form. For example, one reviewed company disclosed a grant of a bonus to a named executive officer (“NEO”) but the CD&A did not explain that the company granted the bonus because performance goals were met. The CSA commented that the company should explicitly link performance goals in the CD&A with their NEOs’ compensation as disclosed in the SCT. The CSA encouraged companies to use the examples in the Staff Notice to assist them in the preparation of their executive compensation disclosure.

Industry groups have also taken the opportunity to release public statements to complement the forms and notices of their regulatory counterparts. In the first half of 2009, the Canadian Coalition for Good Governance (“CCGG”) issued six principles on executive compensation that focus on “pay for performance” and the “effective implementation of risk controls suitable for the particular business by directly linking risk management with the executive compensation structure”.

On October 22, 2009, the CCGG released a model “Say on Pay” policy to provide guidance to boards on their disclosure with respect to executive compensation and their engagement with shareholders. Momentum for the policy has been sustained in part by “say on pay” advisory votes granted earlier in the year by several Canadian banks to their shareholders in response to public anger over large compensation packages for bankers. The policy contemplates the engagement of the shareholders by the board by allowing the shareholders the “opportunity to fully understand the objectives, philosophy and principles the board has used to make executive compensation decisions” and to “have an advisory vote on the board’s approach to executive compensation”. To facilitate these goals, the policy contemplates the inclusion of the form of the policy in the company’s management information circular as a report to shareholders and a non-binding advisory vote in which the shareholders can formally provide their views on compensation policies of the company.

All these initiatives require companies to expend more effort in ensuring a greater level of executive compensation disclosure. Heightened attention to executive compensation disclosure will persist in 2010 as regulatory authorities review their initiatives and assess whether the changes adequately address current economic realities.