Canada: Proposed Amendments to Executive Compensation Disclosure Rules

The Canadian Securities Administrators ("CSA") recently published for public comment proposed amendments to Form 51-102F6 - Statement of Executive Compensation and consequential amendments to Form 58-101F1 - Corporate Governance Disclosure and Form 58-101F2 - Corporate Governance Disclosure (Venture Issuers) (collectively the "Proposed Amendments"). The release of the Proposed Amendments follows the CSA's compliance review of executive compensation disclosure and publication of their findings in CSA Staff Notice 51-331 - Report on Staff's Review of Executive Compensation Disclosure (the "CSA Disclosure Review").

In developing the Proposed Amendments, the CSA also considered recent U.S. developments in executive compensation disclosure. The purpose of the Proposed Amendments is to improve disclosure to the market about compensation practices, valuation of equity-based awards and arrangements between issuers and their compensation advisors. Comments on the Proposed Amendments must be received by February 17, 2011.

Compensation Disclosure and Analysis Requirements

The Proposed Amendments include the following new disclosure requirements which must be included in an issuer's Compensation Discussion and Analysis ("CD&A"):

  1. Serious Prejudice Exemption. The current disclosure rules require an issuer to identify in its CD&A any target levels for quantitative or qualitative performance-related factors in compensation arrangements. The rules provide an exemption from this requirement if the disclosure would "seriously prejudice the issuer's interests." The CSA Disclosure Review revealed that it was often difficult for an investor to recognize whether an issuer was relying on this exemption. Therefore, the Proposed Amendments require an issuer to explicitly state when it is relying on the exemption and to explain why disclosing the relevant performance goal or similar condition would seriously prejudice its interests.
  2. Risk Management and Compensation. Recent amendments to U.S. executive compensation disclosure require enhanced disclosure about the issuer's compensation policies and practices for all employees if these arrangements create risks that are reasonably likely to have a material adverse effect on the issuer. Following this example, the Proposed Amendments introduce the following disclosure requirements:

    1. an issuer must disclose whether the board of directors considered the risk implications of its compensation policies and practices;
    2. if this exercise has been undertaken by the board, the issuer must disclose:

      1. the extent and nature of the board's role in the risk oversight of the issuer's compensation policies and practices;
      2. any practices the issuer uses to identify and mitigate its compensation policies and practices that could potentially motivate an executive officer or individual at a principal business unit to take inappropriate or excessive risks; and
      3. the risks arising from compensation policies and practices that are reasonably likely to have a material adverse effect on the issuer.

  3. Examples of compensation practices and policies the CSA cites as potentially encouraging officers to take inappropriate risks include arrangements at a principal business unit or for certain executive officers that differ from the rest of the compensation arrangements within the issuer, policies where the compensation paid to executive officers is a significant percentage of the issuer's revenues, and those performance goal or conditional compensation arrangements that are heavily weighted to short-term objectives.
  4. Disclosure of Fees Paid to Compensation Advisors. The Proposed Amendments introduce a requirement to disclose which compensation advisors have been retained by the issuer and a description of their mandate and any other work they have performed for the issuer (including a breakdown of fees paid to the compensation advisor for each service provided). The CSA is specifically seeking public comment on whether such disclosure should have a materiality threshold.
  5. Hedging by Named Executive Officer and Directors. The Proposed Amendments require disclosure of whether any named executive officer or director is permitted to purchase financial instruments whose purpose is to hedge the risk of a decrease in value of any equity securities held by him or her.

Summary Compensation Table

The following amendments have been made to the disclosure requirements for an issuer's summary compensation table ("SCT"):

  1. Format of the SCT. While the current form permits an issuer to add tables, comments and provide other information in its SCT, the CSA Disclosure Review revealed that certain issuers were relying on this requirement to present the SCT in a different format than that mandated by the form. The Proposed Amendments state that an issuer must make disclosure in accordance with the form and must not alter the presentation of the SCT by adding columns or other information. Additional disclosure may be made by the addition of another table and other information provided it does not affect the format and information presented in the SCT.
  2. Reconciliation of Grant Date Fair Value and Accounting Fair Value for Share-Based and Option-Based Awards. Currently an issuer is required to reconcile any difference between the grant date fair value ("GDFV") set out in its SCT and the accounting fair value of its share-based and option-based awards. Issuers must provide an explanation of the difference between the values, a description of the methodology used to calculate GDFV and the key assumptions and estimates used in the calculations, together with an explanation of why a particular methodology was chosen. The Proposed Amendments extend this requirement and will require all issuers to provide this disclosure in respect of the GDFV of all equity-based awards, whether or not there is any difference between the GDFV and the accounting fair value of an award.

Pension Plans

The CSA is seeking comment on whether the requirement to disclose non-compensatory amounts for defined contribution plans should be retained.

Additional Information

The above is a general overview of the Proposed Amendments. The CSA intends to put the amendments in place for the 2012 proxy season and issuers will be required to comply with the rules in respect of financial years ending on or after October 31, 2011. We will be pleased to provide further information or detailed advice on the amendments.

About Ogilvy Renault

Ogilvy Renault LLP is a full-service law firm with close to 450 lawyers and patent and trade-mark agents practicing in the areas of business, litigation, intellectual property, and employment and labour. Ogilvy Renault has offices in Montréal, Ottawa, Québec, Toronto, Calgary and London (England), and serves some of the largest and most successful corporations in Canada and in more than 120 countries worldwide. Find out more at

Ogilvy Renault joins Norton Rose Group on June 1, 2011.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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