Canada: New Executive Compensation Disclosure Requirements

Copyright 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Securities Regulation, September 2008

The Canadian Securities Administrators (CSA) have adopted an amended Form 51-102F6 – Statement of Executive Compensation (the New Requirements) under National Instrument 51-102 – Continuous Disclosure Obligations, which makes significant changes to executive compensation disclosure.

The CSA initially published for comment a proposed amended Form on March 29, 2007 (the 2007 Proposal), and re-published a revised proposed Form on February 22, 2008 (the 2008 Proposal). The New Requirements reflect changes resulting from comments on the 2007 Proposal and, to a lesser extent, comments on the 2008 Proposal.


The major changes in the New Requirements from the current requirements are:

  • the New Requirements require Summary Compensation Table disclosure of changes in pension compensation, disclosure of the grant date fair value of option and share-based awards, and a total compensation column
  • a new Compensation Discussion & Analysis to replace the Compensation Committee Report on Executive Compensation
  • the New Requirements change the test for excluding disclosure of performance goals or conditions for specific quantitative or qualitative performance factors to whether a reasonable person would consider that disclosure would "seriously prejudice" the issuer's interests from the current test of causing "competitive harm", increasing required disclosure of such targets
  • under the New Requirements, quantified disclosure of potential payments to Named Executive Officers (NEOs) is required for retirement, change of control, resignation and termination of employment
  • individual disclosure is required for director compensation

As discussed in our November 2006 Blakes Bulletin on Securities Law: New SEC Executive Compensation Disclosure Rules May Impact Canadian Public Companies, many Canadian issuers have already voluntarily adopted some of these changes in their proxy disclosure.


The New Requirements will apply to companies with financial years ending on or after December 31, 2008. As a transitional matter, an issuer is not required to provide comparative period disclosure in the Summary Compensation Table for financial years ending before December 31, 2008. In other words, for proxy circulars prepared for the next proxy season by issuers with a December 31, 2008 or later year end, under the New Requirements disclosure is not required for the preceding two financial years.


Similar to the current requirements, the New Requirements require disclosure of all compensation paid, payable, awarded, granted, given or otherwise provided, directly or indirectly, by the company or its subsidiaries, to each NEO and director, in any capacity, for services provided, directly or indirectly to the company or any subsidiary of the company. Also similar to current requirements, any compensation awarded to, earned by, paid to or payable to any NEO or director, in any capacity with respect to the company, by another person or company, is also required to be disclosed. The New Requirements clarify that disclosure is not required of CPP, similar government plans, group life, health, hospitalization, medical reimbursement and relocation plans that do not discriminate in scope, terms or operation and are generally available to all salaried employees, including plans that provide for such benefits after retirement.


As is currently the case, under the New Requirements NEOs include (i) a CEO, (ii) a CFO, (iii) each of the issuer's three most highly compensated executive officers (other than the CEO and CFO) serving as executive officers at the end of the most recently completed financial year, and, in addition, (iv) each individual who would be an NEO but for the fact that the individual was not an executive officer at the end of the financial year. Unlike the current requirements, the New Requirements include all compensation (with certain exceptions) for this purpose. Two exceptions are pension compensation amounts, and, in response to comments on the 2008 Proposal, incremental severance and termination benefits.


As under the 2007 Proposal, the New Requirements require a Compensation Discussion & Analysis (CD&A) which is to describe and explain all significant elements of compensation paid or payable to NEOs for the most recent financial year. The current requirement for a Compensation Committee Report on Executive Compensation is eliminated. The following are to be included in the CD&A:

  1. the objectives of any compensation program or strategy;
  2. what the compensation program is designed to reward;
  3. each element of compensation;
  4. why the issuer chooses to pay each element;
  5. how the issuer determines the amount (and, where applicable, the formula) for each element; and
  6. how each element of compensation and the issuer's decisions regarding that element fit into the issuer's overall compensation objectives and affect decisions regarding other elements.

If applicable, benchmarks are to be disclosed, explaining components, including the companies included in the benchmark group, and the selection criteria.

Performance goals or similar conditions based on objective, identifiable measures are to be disclosed if applicable. However, in a significant change, from both the 2007 Proposal and current requirements, the test for whether an issuer is permitted to exclude disclosure of performance goals or similar conditions in respect of specific quantitative or qualitative performance-related factors is no longer whether disclosing them would result in "competitive harm" to the issuer. Rather, under the New Requirements, the issuer may exclude disclosure of such performance goals or similar conditions only if a reasonable person would consider that disclosing the information would "seriously prejudice the company's interests". The New Requirements also provide that if a performance goal or similar condition has been publicly disclosed, this exemption cannot be relied upon. In addition, under the New Requirements as under the 2008 Proposal, if this information is not disclosed, the issuer must disclose what percentage of the NEO's compensation is related to this undisclosed information and how difficult it could be for the NEO, or how likely it will be for the issuer, to achieve the undisclosed performance goals or similar conditions.

In a change from the 2008 Proposal, the New Requirements provide that, if performance goals or similar conditions are subjective, the issuer is required to describe the performance goals or similar conditions without providing specific measures.

If applicable, any new actions, decisions or policies that were made after the end of the recently completed financial year that could affect a reasonable person's understanding of an NEO's compensation for the most recently completed financial year are to be described.

The commentary provides that the CD&A is to provide enough analysis to allow a reasonable person, applying reasonable effort, to understand the required disclosure. A description is required of the significant principles underlying policies and an explanation of the decisions relating to compensation provided to an NEO. The commentary provides that disclosure that merely describes the process for determining compensation is not adequate and that the information should give readers a sense of how compensation is tied to the NEO's performance.

The commentary in the New Requirements, like the 2007 Proposal, provides examples of items that will usually be significant elements of disclosure in the CD&A, such as:

  • the role of executive officers in determining executive compensation,
  • identification of benchmarking in determining compensation or any element of compensation,
  • contractual or non-contractual arrangements, plans, process changes or other matters that might cause the disclosed amounts for the current year to be misleading as to expected future compensation levels,
  • performance goals or similar conditions in respect of specific quantitative or qualitative performance-related factors for NEOs, and
  • any waiver or change to any specified performance goal or similar condition to payout.

Similar to the 2007 Proposal, the New Requirements require that the CD&A explain the process the issuer uses to grant option-based awards to executive officers including the role of the compensation committee and executive officers in setting or amending any equity incentive plan under which option-based awards are granted.


As in the 2007 Proposal, the New Requirements provide that the currently-required performance graph showing the cumulative shareholder return over the five most recently completed fiscal years compared to the cumulative total return of at least one broad equity market index be contained in the CD&A. Unlike current requirements, the New Requirements, as did the 2007 Proposal, require that an explanation be provided as to how the trend shown by the graph compares to the trend in the issuer's compensation to executives over the same period. The New Requirements contemplate that issuers may also include other relevant performance goals or similar conditions. The CSA did not accept a proposal that a pay-for-performance table be included.


The New Requirements do not significantly change the 2007 Proposal in relation to management companies. If one or more individuals acting as NEOs or directors of an issuer are employed or retained by an external management company, the issuer is to disclose the amount paid by the issuer directly to persons employed or retained by the external management company who are acting as executive officers and directors of the issuer and the amount that the external management company paid to these persons that is attributable to the services they provided to the issuer directly or indirectly. The New Requirements, as did the 2007 Proposal, provide that, if the external management company provides executive management services to other companies, the issuer is to disclose the portion of the compensation paid to the individual acting as an NEO or director that the management company attributes to services the external management company provided to the issuer or the entire compensation the external management company paid to the individual acting as an NEO or director.


Subject to the transitional provision described above, the New Requirements continue the requirement to disclose compensation in the Summary Compensation Table for each NEO for the issuer's last three completed fiscal years.

Bonus And Non-Equity Compensation

The 2007 Proposal contemplated that certain amounts that currently are required to be disclosed as bonus would be disclosed in a new Non-Equity Compensation column of the Summary Compensation Table and the Bonus column would only include discretionary cash awards that were not based on any predetermined performance criteria that were communicated to an NEO. The New Requirements, reflecting comments on the 2007 Proposal, eliminate this distinction between discretionary bonuses and non-equity incentives, and instead require disclosure of all payouts under non-equity incentive plans, and earnings under such awards, split into two columns based on the length of the associated performance periods. One sub-column will disclose annual non-equity plan compensation, such as bonuses relating to a single financial year, and the second sub-column will disclose other non-equity incentive plan compensation relating to a longer period than one year.

Stock Options And Share Awards

As in the 2007 Proposal, the Summary Compensation Table will include columns for Share-based awards (with the column name changed from Stock Awards) and Option-based awards. (Option-based awards include stock appreciation rights and share-based awards include restricted shares, restricted share units and deferred share units.) As under the 2007 Proposal, the Share-based Awards column will replace the current Shares or Units Subject to Resale Restrictions column. The 2007 Proposal contemplated that these columns would disclose the dollar value of each share and option award as recognized for financial statement reporting purposes. Again, reflecting comments on the 2007 Proposal, and current practices of many Canadian issuers, the New Requirements require disclosure of the grant date fair value of such compensation instead. The New Requirements require footnote or narrative disclosure as to whether the grant date fair value is different from the financial statement fair value, the amount, and explanation, of the difference and, in addition, the methodology used to calculate the grant date fair value, including disclosure of the key assumptions and estimates used for each calculation and the reason why the issuer chose that methodology. The commentary indicates the grant date fair values should reflect what the board of directors intended to award or pay.

Pension Value Increase

The 2007 Proposal contemplated a new column in the Summary Compensation Table for Pension value, which would disclose the increase in the actuarial present value of each NEO's accumulated benefit under all defined benefit and actuarial pension plans, as under the SEC requirements. Reflecting comments on the 2007 Proposal, the New Requirements require disclosure in this column of compensation relating to such plans, including service costs and other compensatory items such as plan changes. As under the 2007 Proposal, under the New Requirements this amount is included in the amount disclosed in the Total compensation column as noted below, but will not be included for the purposes of determining NEOs.

All Other Compensation

The "All other compensation" column in the Summary Compensation Table has been retained. Under the New Requirements, as under the 2007 Proposal, perquisites and personal benefits will be included in this column, as will items such as tax gross-ups, termination payments in the fiscal year, compensation costs for securities purchases, and dividends and other earnings paid on share or option-based awards that were not factored into the grant date fair value amount.

Perquisites And Benefits

The New Requirements, as did the 2007 Proposal, base the determination as to whether something is a perquisite on the new definition in the SEC rules, a change from current requirements. Issuers are to consider whether an item is intrinsically and directly related to an executive's duties and, where it is not so intrinsically and directly related to such duties, in the sense of it being necessary for a person to do his job, issuers must consider whether the executive receives a personal benefit from the item that is not generally available on a non-discriminatory basis to all employees. If it does provides a personal benefit and is not intrinsically and directly related to the job, under the New Requirements the item is a perquisite, even if it also has a business purpose or is for the issuer's convenience. As well, the amounts are to be valued on the basis of the incremental cost to the issuer and the issuer is to describe the methodology for computing such cost.

The New Requirements change in one respect the threshold for disclosing perquisites and other personal benefits. Under current requirements, perquisites and personal benefits need not be disclosed unless the aggregate amount of these is greater than the lesser of C$50,000 and 10% of the total annual salary and bonus of the NEO (the SEC lowered the threshold for this purpose to C$10,000). However, under the New Requirements, the test to be used for the purposes of determining whether the amount of perquisites and personal benefits will be required to be disclosed will be whether the aggregate worth of these is greater than the lower of 10% of the NEO's salary only and C$50,000.

Total Compensation

As in the 2007 Proposal, the New Requirements include a new column in the Summary Compensation Table showing Total compensation for the fiscal year, which will be the total of the amounts shown in all the other Summary Compensation Table columns.

NEO Directors

The New Requirements, as did the 2007 Proposal, provide that if an NEO is also a director, compensation received for services as a director is to be included in the Summary Compensation Table, with a footnote explaining which amounts relate to that role.

Narrative Disclosure

The New Requirements, similar to the 2007 Proposal, require narrative disclosure of any significant factors necessary to understand the information disclosed in the Summary Compensation Table.


As did the 2007 Proposal, the New Requirements require tabular disclosure of information on all outstanding equity-based awards, both option-based and share-based, for each NEO. This will include, for option-based awards, the number of securities underlying options, exercise prices, expiration dates, and the value of unexercised in-the-money options and, for share-based awards, the number and market or payout value of share-based awards that have not vested as at the most recently completed financial year. (The payout value of share-based awards is to be determined assuming a minimum payout, except where performance for the most recent year achieved that goal or condition, in which case the disclosure is to be based on that achievement).

The New Requirements require a second table showing for each NEO 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 an additional column to disclose non-equity incentive pay-outs for the year.

Similar to the 2007 Proposal, the New Requirements require issuers to explain in narrative form the significant terms of all plan-based awards, both equity and non-equity, such as the number of securities underlying each award, general descriptions of formulae or criteria used to determine amounts payable, exercise prices and expiry dates, performance goals or similar conditions, and information concerning non-equity incentive plan awards, including estimated future payouts. However, reflecting comments on the 2008 Proposal, no additional disclosure is required for awards disclosed under the New Requirements for the most recent year.


The New Requirements for retirement plan benefit disclosure hchanged significantly from the 2007 Proposal, and accordingly is different than the SEC rules. The format of the defined benefit retirement plan table has been changed to provide a continuity schedule for accrued obligations to date. The table requires disclosure for each NEO of the number of years of credited service as at year end, annual benefits payable, as at both year end and age 65, accrued obligations at the start of the year, compensatory changes to the accrued obligation, non-compensatory changes to the accrued obligation and the accrued obligation at year end. If the number of credited years of service is different than the actual years of service, related footnote disclosure is required.

In another significant change, from both the current requirements and the 2007 Proposal, the New Requirements require disclosure for defined contribution plans similar to that for defined benefit plans.

Narrative disclosure is also required for each NEO retirement plan of significant factors necessary to understand the tabular information, such as the significant terms and conditions of payment and early retirement provisions, benefit formula and eligibility standards, and company policies on topics such as granting extra years of credited service and why they are considered appropriate.


The New Requirements require disclosure for each contract, plan or arrangement providing for payments to an NEO at, following or in connection with termination of employment, or a change of control of the issuer, and to provide a quantification of estimated payments and benefits that an NEO will receive, assuming that the triggering event takes place on the last business day of the issuer's last completed financial year, for retirement, resignation, termination (whether voluntary, involuntary or constructive termination) and change of control. The New Requirements provide that disclosure is only required for estimated incremental payments and benefits that are triggered by, or result from, each of these scenarios. The commentary in the New Requirements clarifies that notice of termination or compensation in lieu thereof implied as a term of an employment contract under common law or civil law need not be disclosed. As under the 2007 Proposal, disclosure will be required as to, among other things, the circumstances that trigger payouts or the provision of benefits, including perquisites and pension plan benefits, and any significant conditions or obligations (such as a non-compete) that apply.


As under the 2007 Proposal, the New Requirements provide for a new table disclosing, for each director, the amount of each form of their compensation and their total compensation, similar to the Summary Compensation Table for NEOs. However, disclosure is not to be included for a director who is also an NEO if compensation for those services as director is reflected in the Summary Compensation Table and elsewhere pursuant to the New Requirements. In a new provision reflecting SEC requirements, disclosure is also required of programs where the issuer makes donations in a director's name. Disclosure of factors necessary to understand the director compensation disclosed in the table will also be required, which reflects current requirements to disclose standard compensation arrangements, such as those relating to retainer, committee, chairman and attendance fees.


The New Requirements provide that executive compensation disclosure remain in the management information circular and accordingly it is not subject as such to the disclosure controls certification requirements.


The New Requirements, like the 2007 Proposal and current requirements, provides that SEC issuers may satisfy these requirements by providing the information required by Item 402 of Regulation S-K.


The CSA declined to make changes in the New Requirements with respect to additional disclosure relating to compensation advisors, including breakdown of fees, and the compensation committee. However, the CSA referred to their previously published Staff Notice announcing their plan to undertake a broad review of National Instrument 58-101 – Disclosure of Corporate Governance Practices and the related National Policy in this regard. The CSA also declined to require an annual advisory shareholder vote on executive compensation as requested by some commentators.

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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