The Canadian Coalition for Good Governance ("CCGG") recently released its 2013 Executive Compensation Principles (the "2013 Principles"), replacing the previous version originally published in 2009. The original principles were designed to provide enhanced guidance to boards and to promote compensation decisions aligned with long-term company and shareholder success. According to the CCGG, the 2013 Principles offer an updated take on the principles set forth in the original report to reflect the continued evolution of both compensation practices and regulatory disclosure requirements.
According to the CCGG, the 2013 Principles focus on the concept of "pay for performance" and "the integration of risk management functions into executive compensation philosophy and structure". The 2013 Principles are organized around six key principles:
1) A significant component of executive compensation should be "at risk" and based on performance.
2) "Performance" should be based on key business metrics that are aligned with corporate strategy.
3) Executives should build equity in the company to align their interests with those of shareholders.
4) A company may choose to offer pensions, benefits and severance and change-of control entitlements. When such perquisites are offered, the company should ensure that the benefit entitlements are not excessive.
5) Compensation structure should be simple and easily understood by management, the board and shareholders.
6) Boards and shareholders should actively engage with each other and consider each other's perspective on executive compensation matters.
The CCGG notes that while Canadian disclosure obligations regarding executive compensation are limited to the "top five" executives at a company, boards should ensure that the above principles are used in determining company-wide compensation philosophy and structure.
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