The CSA (Canadian Securities Administrators) has announced that it is implementing amendments to Form 51-102F6 - Statement of Executive Compensation, which will apply in respect of financial years ending on or after October 31, 2011. The purpose of these amendments is to assist investors in making more informed voting and investment decisions by improving the information companies provide to investors about key risks, governance and compensation matters. Some of the key substantive changes are:
- Risk Management – Companies will be required to disclose whether the board of directors (“Board”) (or a committee of the Board) considered the implications of the risks associated with the company’s compensation policies. If such implications were considered, the company will be required to disclose:
the extent and nature of the Board’s (or committee’s) role in the risk oversight of compensation policies;
any practices used to identify and mitigate compensation practices that could potentially encourage a named executive officer (“NEO”) or individual at a principal business unit to take inappropriate risks; and
any identified risks arising from the practices that are reasonably likely to have a material adverse effect on the company.
- Compensation Committee – If a compensation committee has been established by a company, more comprehensive disclosure will be required relating to the committee: the name of each committee member, whether they are independent of the company, whether the committee member has any direct experience relevant to his or her responsibilities in executive compensation, as well as a description of the skills and experience of the members to make decisions on the suitability of the company’s practices, and the responsibilities, powers and operations of the committee.
- Performance Goals – The amended rule limits the ability of a company to avoid disclosing performance goals. If a company decides not to disclose specific performance goals on the basis that such disclosure would “seriously prejudice the interests of the company” it must now explicitly state that it is relying on an exemption from disclosure and explain why such disclosure would seriously prejudice the company’s interest. The amended rule notes that a company’s interests are not considered to be seriously prejudiced by disclosing goals based on metrics such as earnings per share, revenue growth and EBITDA.
- Hedging – Companies will be required to disclose whether any NEO or director is permitted to purchase financial instruments designed to hedge against a decrease in the market value of equity securities granted as compensation or held, directly or indirectly by the NEO or director. It is possible that this will result in some companies adopting policies prohibiting hedging by officers and directors.
- Fees Paid to Compensation Consultants and Advisors – A breakdown of all fees paid to each compensation consultant and/or advisor for the two most recently completed financial years must be disclosed. The disclosure must include the name of the advisor, the mandate given and when he or she was originally retained.
- Additional Services from Compensation Consultants and Advisors – Services provided by a compensation consultant and/or advisor, other than compensation services, must also be disclosed, along with a brief description of the nature of the work. As well, if the Board is required to pre-approve services provided, other than compensation services, this must be disclosed.
- Benchmarking – In addition to describing any policies adopted by the Board to determine compensation, if a company used benchmarking to determine any element of compensation, this should be described, along with an explanation of why such a benchmarking group and the applicable selection criteria are considered relevant.
Please refer to CSA Notice – Amendments to Form 51-102F6 – Statements of Executive Compensation and Consequential Amendments published on July 22, 2011 for additional details.