Canada: SEC Proposes Pay-Versus-Performance Disclosure Rules

On April 29, 2015, the Securities and Exchange Commission (SEC) proposed long-awaited pay-for-performance rules that would require most U.S. public companies to disclose the relationship between compensation "actually paid" to the company's named executive officers (NEOs) and the company's "financial performance." As discussed in this Osler Update, the proposed rules mandated by Section 953(a) of the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd Frank) establish a somewhat prescriptive, as opposed to principles-based, approach to disclosing the relationship between executive compensation and company performance. As a result of the SEC's use of the total shareholder return (TSR) metric for "financial performance" defined for purposes of preparing the already required five-year stock price performance graph, the proposed rules may have the effect of increasing company and investor focus on stock price movements over short-term periods and potentially reinforce further the use of this metric in awarding performance-based incentive compensation. The SEC is requiring these disclosures to assist shareholders when they are deciding whether to approve NEO compensation through the "say on pay" advisory vote, when making decisions on a compensation plan in which NEOs participate and when voting on the election of directors.

Historical Pay-For-Performance Voluntary Disclosures

In response to demands from investor and investor advisory firms to better demonstrate the relationship of corporate performance to compensation actually realized by a company's CEO based on the compensation decisions of the board of directors, and in anticipation of the SEC adopting rules to show such impact as mandated by Dodd Frank, a number of U.S. and Canadian public companies had already provided supplemental voluntary disclosure regarding the CEO's realized or realizable pay over a period of three to five years. However, there has been no agreed upon consistent method for calculating and disclosing such amounts or how to compare such amounts to company performance. The SEC's proposed rule does not address these practices.

Canadian Implications

The disclosures required by the proposed rules would not be applicable to Canadian companies that are foreign private issuers or to "emerging growth companies" as defined by the SEC. Despite inconsistencies in methodology for calculating and disclosing realized or realizable pay, Canadian companies which voluntarily provide such information on a supplemental basis are unlikely to change their approach in light of the SEC's proposed rule.

The Required Disclosure

The proposed rule, which would impose uniform definitions and methodologies for determining "financial performance" and compensation to be reported as "actually paid," would amend Item 402 of Regulation S-K by adding new Item 402(v). This would require most reporting companies to include a new "pay-versus-performance table" in any proxy and information statements for which executive compensation disclosure under Item 402 is required.

For each of the last five completed fiscal years (three years in the case of a smaller reporting company), the pay-versus-performance table would include columns presented in the following order:

  • total compensation of the company's principal executive officer (generally the CEO) as reported in the Summary Compensation Table (the SCT)
  • compensation "actually paid" to the principal executive officer, with footnote disclosure detailing each adjustment made to total compensation as reported in the SCT for purposes of calculating the amount "actually paid"
  • average total compensation of the company's named executive officers other than the principal executive officer (the Other NEOs"), based on total compensation amounts reported in the SCT
  • average compensation "actually paid" to the company's Other NEOs, with footnote disclosure detailing each adjustment made to reported total compensation for purposes of calculating the amount "actually paid"
  • company's cumulative total shareholder return (TSR), which would constitute "financial performance" for purposes of the proposed rules, using the same definition of and methodology for calculating TSR set forth in Item 201(e) of Regulation S-K that is used for preparing the stock performance graph required included in the company's annual report
  • cumulative TSR of the company's peer group (not required for smaller reporting companies), using either (i) the same peer group presented in the annual report stock performance graph or (ii) the peer group reported in the Compensation Discussion and Analysis (CD&A) for purposes of disclosing executive compensation benchmarking practices, including the identity of the issuers comprising the group if the selected peer group is not a published line of business or industry index

The SEC was aware that interest in pay-for-performance disclosure has historically been focused on the compensation of the CEO, but concluded that it was bound by Dodd Frank to address the Other NEOs. It has proposed using the average Other NEO compensation in order to minimize the extent of additional disclosure and reduce variability due to changes in the identities of, and numbers of, Other NEOs from year to year.

The proposed rules would also require, immediately following the foregoing table, narrative and/or graphical disclosure that would clearly describe in plain English, for each year covered, the relationship between (i) compensation "actually paid" to the principal executive officer and the Other NEOs and (ii) the cumulative TSR of the company, as well as a comparison of the cumulative TSR of the company to that of its selected peer group. The proposed rules would allow the company the flexibility to determine the most effective way of presenting these additional narrative disclosures. Disclosure could include, for example, a graph providing executive compensation actually paid and change in TSR on parallel axes, plotting compensation and TSR over the required time period. Alternatively, disclosure of the relationship could include showing the percentage change year over year in both executive compensation actually paid and TSR, together with a brief discussion of that relationship.

Companies may choose to supplement the disclosure required by proposed Item 402(v) by providing pay-versus-performance disclosure based on another appropriate measure of financial performance, such as "realized pay" or "realizable pay," if they believe it provides useful information about the relationship between compensation and the registrant's performance as long as the supplemental disclosure is not misleading and not presented more prominently than the required disclosure.

Calculation of "Actually Paid" Compensation

Compensation that is "actually paid" to a named executive officer, or "executive compensation actually paid," would be equal to the individual's total compensation as reported in the SCT, adjusted to account for amounts included that are specifically attributable to pension benefits and equity award valuations in order to more accurately capture compensation actually paid to the named executive officer in the applicable fiscal year.

Specifically, reported total compensation as set forth in the SCT would be adjusted to: (i) deduct the reported change, if any, in the actuarial present value of accumulated benefits under defined benefit and pension plans (column h of the SCT) based on changes in interest rates, executive age, and other actuarial inputs and assumptions (which may introduce significant volatility into this measure); (ii) add back the actuarial present value of service costs for services rendered in the applicable fiscal year (not required for smaller reporting companies); and (iii) replace the reported grant date fair values of option and restricted stock awards (columns e and f of the SCT) with vesting date fair values of option and restricted stock awards, if any, for which vesting conditions were satisfied during the applicable fiscal year, computed in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718, thereby treating equity awards as "actually paid" on the date of vesting.

The proposed rule provides that the term "executive compensation actually paid" should include all compensation actually paid, regardless of whether the compensation is awarded based on the registrant's financial performance. Accordingly, other compensatory amounts included in total compensation as reported in the SCT, such as incremental amounts triggered from a termination of employment or change of control payments during the financial year, perquisites, signing bonuses, etc. would not be excluded in determining the amount "actually paid." As a result, inclusion of these non-performance based compensation amounts may affect the comparability of yearly amounts and add a degree of variability to the analysis, potentially necessitating further explanatory disclosure, as many of such items result from unusual events or changes in NEOs.

When and Where the Disclosure is Required

The additional disclosures described above would be required in any proxy and information statements for which executive compensation disclosure under Item 402 of Regulation S-K is required. Accordingly, the proposed disclosure would be required in proxy and information statements for meetings at which directors are to be elected or shareholder approval is sought for any bonus, profit sharing, pension or retirement plan, or other contract or arrangement in which a director, nominee or executive officer will participate, or the granting or extension to such persons of options, warrants or rights to purchase securities on a pro-rata basis. The proposed rules, however, would not require the pay-for-performance disclosures in a company's Form 10-K or registration statements filed pursuant to the U.S. Securities Act of 1933, as amended, and would not be deemed to be incorporated by reference into its periodic reports or registration statements except to the extent specifically incorporated by reference.

The proposed rules do not require a specific location within the proxy or information statement for this new disclosure. While the disclosure item is related to the CD&A because it would show the historical relationship between executive pay and registrant financial performance, and may provide a useful point of comparison for the analysis provided in the CD&A, the SEC noted that including this disclosure in the CD&A might suggest that the company considered the disclosed pay-versus-performance relationship in its compensation decisions, which may not be the case. Thus, the proposed rules provide flexibility for companies in determining where in the proxy or information statement to provide the disclosure required by proposed Item 402(v).

Transition Period for Compliance

Following the adoption of this proposal, companies subject to the rules would be afforded a transition period for compliance, with the initial proxy or information statement to include three years (instead of five) of disclosure, with an additional year of disclosure to be included in each of the next two proxy or information statements for which executive compensation is required. A newly reporting registrant would be required to provide the pay-versus-performance disclosure for only the most recently completed fiscal year in any proxy or information statement in its first year as a reporting company, and in the two most recently completed fiscal years in any proxy statement or information statement in its second year as a reporting company. This treatment is consistent with the phase-in period for new reporting companies in their SCT. For smaller reporting companies, the initial proxy or information statement would be required to include two years of disclosure and an additional year of disclosure would be required in the following year.

XBRL Requirement

To facilitate analysis over time and comparison across companies, the pay-versus-performance table, accompanying footnotes and narrative or graphical disclosures described above would be required to be tagged and electronically formatted using eXtensible Business Reporting Language (XBRL). Additionally, the interactive data files would need to be included as an exhibit to the proxy or information statement filed with the SEC. The XBRL file would not be required for small reporting companies.

Practice Note

Generally, gathering the numerical disclosures that would be required under the proposed rules will, for the most part, involve adapting and repackaging information that has already been gathered and used for other reporting purposes. However, companies should be aware that it may be challenging to provide narrative disclosure about the relationship between compensation "actually paid" and "financial performance," as well as the comparison of the company's TSR to that of its peer group. This may be especially important where, for example, the company's compensation practices focus on performance factors that are not readily translated into or comparable to short-term changes in stock price or where certain compensation philosophies or strategies differ from that of other members of its peer group. Companies may want to begin preparing for implementation of the proposed rules as there is a possibility that the rules could become effective for the 2016 proxy season.

The comment period on the proposed rule ends 60 days after the proposing release is published in the Federal Register.

For further details, see the SEC Release No. 34-74835.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.