Canada: New Rules On Executive Compensation Disclosure

The CSA has introduced new rules regarding the disclosure of executive compensation which are intended to improve the quality of such disclosure and provide the market with comprehensive information on the value of the total compensation payable to an issuer's executive officers and how such compensation is determined. The new rules are reflected in amendments to National Instrument 51-102 – Continuous Disclosure Obligations and Form 51-102F6 – Statement of Executive Compensation (the "New Rules").

The new disclosure requirements will apply in respect of financial years ending on or after December 31, 2008. Issuers with financial years ending on or after December 31, 2008 will be required to make disclosure in accordance with the New Rules in the upcoming proxy season.


New requirements introduced by the new executive compensation disclosure regime include:

  • disclosure in the summary compensation table (SCT) of a total compensation figure for each named executive officer (NEO)
  • a discussion and analysis of the issuer's compensation policies and objectives which supplements the issuer's compensation figures by explaining the rationale for specific compensation programs
  • comparison of trend in securityholder return and in the issuer's executive compensation over the same period
  • disclosure of grant date fair value of all share and option-based awards
  • disclosure of dollar value of non-equity incentive plans and pensions
  • enhanced disclosure of potential termination payments to NEOs, including retirement and change of control benefits and entitlements under pension plans
  • enhanced disclosure of directors' compensation in tabular form

Total Compensation Disclosure

The New Rules provide that an issuer must disclose in the management information circular prepared for its annual meeting all compensation payable to its NEOs. While the general requirement to provide an SCT currently exists, the disclosure prescribed in the SCT has been amended. Issuers will be required to present comparative information for each of the last three financial years in the SCT. To allow for a smooth transition to the New Rules, an issuer will not be required to make disclosure in respect of financial years ending on or before December 31, 2008.

The New Rules clarify that all compensation paid, granted or otherwise payable to the NEOs by an issuer or any subsidiary, either directly or indirectly, must be disclosed. Plans of compensation available generally to all employees, such as CPP or group health or life insurance plans, need not be disclosed.

The definition of NEO has not been amended and includes the CEO, CFO and each of the three most highly compensated executive officers (or persons acting in a similar capacity) whose total compensation exceeds $150,000. For the purpose of determining whether this threshold has been reached, all compensation, other than the value of pension benefits, overseas living allowances and change of control or termination benefits relating to events that occurred in the last financial year, must be included. Individual disclosure of the compensation of each NEO is required.

The New Rules clarify that compensation paid by an external management company rather than by the issuer directly must also be included. In addition, non-corporate issuers must disclose compensation paid to persons acting as CEO, CFO or other NEO even where such issuers do not themselves have any executive officers.

Compensation Discussion And Analysis

The SCT must be accompanied by a discussion and analysis of executive compensation (CD&A). CD&A is not intended to merely provide boiler-plate disclosure of the elements of compensation, but rather should outline the underlying principles of the issuer's compensation plan. The New Rules provide six principles which must be addressed in an issuer's CD&A:

  • the objectives of the compensation program or strategy;
  • what the program is designed to reward;
  • each element of compensation;
  • why the issuer chooses to pay each element;
  • how it determines the amount (and, where applicable, the formula) for each element; and
  • how each element and the issuer's decision regarding that element fit into the overall compensation objectives of the issuer.

The CD&A must discuss actions taken with respect to executive compensation after the end of the most recently completed fiscal year if they could affect a reasonable person's understanding of an NEO's compensation. The CD&A must also identify target levels for quantitative or qualitative performance-related factors in compensation. Where such targets are subjective, they must still be described without providing specific measures. Disclosure of a target need not be made where it would be seriously prejudicial to the issuer's interests. If a target is not disclosed, the issuer must still disclose how difficult it could be for the NEO, or how likely it will be for the issuer, to achieve such undisclosed targets. Finally, if quantitative targets are not disclosed, the percentage of an NEO's total compensation related to such targets must be stated.

Performance Graph

The New Rules require that issuers, other than debt-only and venture issuers, include a graph comparing the issuer's securityholder return over the past five years to the cumulative total return of at least one broad equity market index. An issuer who believes there are other relevant performance goals should disclose such goals. In order to allow readers to review the amount of executive compensation in light of the issuer's performance in the market, the New Rules require the issuer to discuss how the trend shown by this graph compares to the trend in executive officer compensation over the same period.

Summary Compensation Table

Key changes to the disclosure required in the SCT include the following:

Option And Share-Based Compensation

The New Rules require that an issuer disclose in its SCT the grant date fair value of share and option-based awards. Share-based awards include common and restricted shares, restricted share units (RSUs), deferred share units, phantom shares or units, common share equivalent units and stock. Option-based awards include options, stock appreciation rights and similar equity-based compensation with option-like features. The method used to determine the grant date fair value of such awards should be disclosed, together with an explanation of why the method was chosen. If the grant date fair value is different from the accounting fair value, a note should be added to the table which explains and reconciles the difference.

Non-Equity Incentive Plan Compensation

The non-equity incentive plan compensation column of the SCT must show the dollar value of all other amounts earned through non-equity incentive plans. This disclosure must be presented in two columns. The first column must include all annual non-equity incentive plan compensation and will include bonuses and other discretionary amounts. The second column must include all non-equity incentive plan compensation relating to a period longer than one year.


Issuers must disclose in the SCT perquisites provided to an NEO if the aggregate amount of such compensation is $50,000 or more or represents 10% or more of the NEO's total salary for the year. Each perquisite exceeding 25% of the NEO's total perquisites must be specifically identified in a footnote to the table. Whether or not something will be considered a perquisite will generally depend on whether it is directly related to the NEO's responsibilities; however, an item which is not directly related to such responsibilities will be a perquisite if it provides the NEO with a personal benefit.

Pension Value

The New Rules require disclosure in the SCT of the value of each NEO's accumulated benefit under all defined benefit and defined contribution pension plans. The value will include the service costs and other compensatory elements.

Incentive Plan Awards

Issuers will be required to complete two tables in respect of incentive plan awards, one disclosing the details of outstanding share and option-based awards and a second disclosing the value earned by each NEO under incentive plan awards. The first table will disclose, by NEO, the number of securities underlying options, the exercise price(s) and expiration date(s) of such options, the value of unexercised "in the money" options, the number of shares or units of shares that have not vested and the market or payout value of share-based awards that have not vested. The second table will disclose the value of option-based awards (assuming such options had been exercised on their vesting date during the last financial year), the value realized on vesting of share-based awards and the value earned on non-equity incentive plan compensation during the year. A narrative discussion of all incentive plan awards must be included.

Termination And Change Of Control Benefits

The New Rules require that disclosure must be made in respect of all payments or other benefits which an NEO would receive in the event of his or her termination, resignation or retirement or in the event of a change of control of the issuer or a change in the NEO's duties. Where appropriate, the estimated amount of payments and benefits should be disclosed.

Pension Plan Benefits

The New Rules will require issuers to disclose, in tabular form, the details of all defined benefit and defined contribution pension plans. The defined benefit plan table must include disclosure for each NEO of the number of years of credited service, the annual benefits payable (at year-end and at age 65), the accrued obligation at the start of the year and at year-end and compensatory and non-compensatory changes. The defined contribution plan table must include the accumulated value at the start of the year and at year-end and the compensatory and non-compensatory amounts.

Director Compensation

The New Rules require issuers to include a separate table setting out all compensation provided to each director in the last fiscal year. The information required in this table is similar to that required for NEOs in the SCT and will require issuers to disclose a total dollar value of all cash and non-cash compensation.

U.S. Reporting Issuers

U.S. issuers who make the necessary disclosure required by Item 402 of Regulation S-K do not need to disclose separately in accordance with the New Rules.

Additional Information

The above is a general overview of the new regime for executive compensation disclosure. To access a copy of the New Rules, click here. We would be pleased to provide further information or detailed advice on this proposed new regime.

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, 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 is the International Legal Alliance's Canadian Gold Award winner for 2008 in M&A and Corporate Finance.

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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