Securities regulators across Canada have introduced new rules governing the disclosure of executive compensation. These rules are intended to improve the quality of disclosure, provide the market with detailed information on the value of the total compensation payable to an issuer’s executive officers and provide insight as to how compensation decisions are made. The new rules are set forth in amendments to National Instrument 51-102 - Continuous Disclosure Obligations and in a new Form 51-102F6 - Statement of Executive Compensation (the "New Rule") and replace the old Form 51-102F6, which has been in force since March 30, 2004 (the "Old Rule"). The New Rule applies to disclosure in respect of all financial years ending on or after December 31, 2008.

The New Rule requires issuers to disclose all direct and indirect compensation awarded to Named Executive Officers ("NEO"), in connection with services they have provided to the issuer or a subsidiary of the issuer. The definition of NEO includes the CEO, CFO and the three most highly compensated executive officers other than the CEO and CFO whose total compensation for the year exceeded $150,000, as well as individuals employed by external management companies and performing the role of a NEO.

To comply with the New Rule, it is anticipated that most issuers will have to undertake a significant amount of work involving legal, accounting and human resource advisors. Therefore, we recommend that issuers get an early start on their 2008 annual disclosure with a view to leaving ample time for feedback, review, and comment. This Focus on Securities is intended to provide the reader with a brief overview of the New Rule and is not intended to be a fulsome discussion thereof. For questions of a specific nature, please contact Fraser Milner Casgrain LLP as indicated below.


The New Rule applies to disclosure in respect of all financial years ending on or after December 31, 2008. Issuers are not required to disclose comparative period disclosure in any form for years ending before December 31, 2008. For instance, an issuer preparing an information circular or annual information form in respect of the year ending December 31, 2008 is required to provide compensation disclosure in accordance with the New Rule for the year ended December 31, 2008, but not required to provide disclosure in any form for the years ended December 31, 2007 or 2006.

Compensation Discussion and Analysis

The New Rule introduces a requirement to provide Compensation Discussion and Analysis ("CDA"). CDA is intended to supplement the disclosure contained in the compensation table by describing and explaining the significant elements of the issuer’s compensation plan for NEOs. The CDA requirement replaces the requirement under the Old Rule to provide a Report on Executive Compensation. The CDA should discuss:

  • the objectives of the issuer's compensation program or strategy;
  • what the compensation program is designed to reward;
  • each element of compensation;
  • why the issuer chooses to pay each element;
  • how the issuer determines the amount for each element; and
  • how each element of compensation and the issuer's decisions about that element fit into the issuer's overall compensation objectives and affect decisions about other elements.

CDA is intended to give readers a sense of how compensation is tied to a NEO's performance. In the majority of cases, it will include disclosure of issuers' performance goals and benchmarks or similar conditions for performance-related factors in compensation. In certain circumstances, issuers are not required to disclose their performance goals if a reasonable person would consider such disclosure to be seriously prejudicial to the issuer's interests. If specific performance goals or similar conditions are not disclosed, the issuer must indicate what percentage of the NEO's total compensation relates to the undisclosed information and how difficult or likely the undisclosed performance goals or similar conditions will be to achieve. If performance goals or similar conditions are related to non-GAAP financial measures, the issuer should disclose how the performance goals or similar conditions are calculated from its financial statements. Issuers should consider the disclosure requirements of the New Rule when planning compensation.

The CDA must also provide a discussion of the process used by the issuer to grant option-based awards to executive officers, including the role of the compensation committee and executive officers in setting or amending equity incentive plans, and whether previous grants are taken into account when considering new grants.

As with the Old Rule, under the New Rule, issuers are required to provide a performance graph showing the cumulative shareholder return over the five most recently completed financial years, compared to the total return of at least one comparable market index. In addition to the graph, issuers are now also required to provide a narrative discussion of how the trends in the graph compare to trends in the issuer's executive compensation for the same period. This requirement does not apply to venture issuers, issuers that have distributed only debt securities or non-convertible, non-participating preferred securities to the public, and issuers that were not reporting issuers in any jurisdiction in Canada for at least 12 months before the end of their most recently completed financial year, unless they became new reporting issuers as a result of a restructuring transaction.

Disclosure of Total Compensation  

The issuer is required to disclose all compensation paid, payable, awarded, granted, given, or otherwise provided, directly or indirectly, by the issuer or any of its subsidiaries, if any, to each NEO. Total compensation includes not only salary and bonus but also all plan and non-plan compensation, direct and indirect pay remuneration, economic or financial awards, rewards, benefits, gifts and perquisites. All compensation must be disclosed in the total compensation column of the summary table other than the value of pension benefits, overseas living allowances, change of control payments, severance and the value of benefits generally available to all salaried employees. Compensation for NEOs who also act as directors should be included here, with explanatory footnotes for amounts relating to the director role, and not in the director compensation table, discussed below.

The summary compensation table required by the New Rule expands the minimum disclosure required by the Old Rule by introducing new disclosure requirements for share-based awards, option-based awards, pension value and total compensation. Share and option based compensation is to be reported in dollars rather than share or option numbers and is to be calculated at grant date fair value. The New Rule also requires a narrative discussion of any significant factors necessary to understand the information disclosed in the summary compensation table.

Incentive Plans  

The New Rule requires disclosure of information in respect of non-cash based compensation plans. Issuers must provide this disclosure in tabular form for both NEOs and directors. The first table must disclose the number of securities underlying unexercised options, the exercise price and expiration date of the options, the value of unexercised options, the number of securities that have not vested and the market or payout value of share-based awards that have not vested. The second table must disclose the value that would have been realized if options had been exercised on their vesting date during the last fiscal year, the value realized on vesting of share-based awards and the value earned on non-equity incentive plan compensation during the year. Details of outstanding share and option awards must be based on grant date fair value. The disclosure concerning option-based awards required by the New Rule must be made on an award-by-award basis which differs from the aggregate values basis required under the Old Rule. The issuer must also provide a narrative discussion of the significant terms of all plan-based awards.

Pension Value  

The New Rule requires disclosure in tabular form for each NEO's accumulated benefit under all defined benefit and defined contribution plans. Issuers must disclose accrued obligations or values at the start of the year and at the end of the year, and any compensatory and non-compensatory changes. The New Rule also requires narrative discussion of any significant factors necessary to understand the information disclosed in the defined benefit and/or the defined contribution plans tables. In contrast, under the Old Rule, the estimated annual benefits payable upon retirement to the NEOs is required to be disclosed by non-venture issuers only.

Termination and Change of Control Benefits  

Issuers must provide narrative disclosure of each contract, plan or other arrangement under which a NEO is entitled to payment as a result of termination, resignation, retirement, change of control or change of responsibilities. This disclosure is required regardless of the amount paid. Conversely, under the Old Rule, this disclosure was only required for payments in excess of $100,000. This discussion must cover triggering events, estimated payments and other significant conditions to receiving benefits, and other significant factors relating to the arrangement. The issuer must also disclose the estimated payments and benefits payable assuming that the triggering event took place on the last business day of the issuer's most recently completed financial year.

Director Compensation  

The New Rule requires disclosure in tabular form of fees, share and option-based awards, non-equity incentive plan compensation, pension value and all other compensation granted to directors for the issuer's most recently completed financial year, along with narrative discussion of factors necessary to understand the information disclosed in the table. This requirement replaces the requirement under the Old Rule to provide narrative disclosure of director compensation.

Exemptions under the New Compensation Rules  

Under the Old Rule, venture issuers were exempt from several compensation disclosure requirements including the requirement to provide disclosure concerning defined benefit or contribution plans, the report on executive compensation and the performance graph. Most of these exemptions are removed from the New Rule and as a result, the disclosure obligations for venture issues will be more onerous for financial years ending on or after December 31, 2008. Venture issuers, debt-only issuers, and issuers of non-convertible, non-participating preferred securities will not be required to provide a graph comparing the return on shareholders' equity and the issuer's executive compensation.

As is the case with the Old Rule, SEC issuers who fully comply with the U.S. executive compensation disclosure rules are not required to disclose executive compensation again under the New Rule.