Canada: New Executive Compensation Disclosure Rules

Last Updated: November 14 2008
Article by Dolores Di Felice

Most Read Contributor in Canada, September 2016

The Canadian Securities Administrators have adopted a new Form 51- 102F6 Statement of Executive Compensation (the New Form) which, subject to ministerial approvals, will come into force in Ontario on December 31, 2008 and will apply in respect of financial years ending on or after December 31, 2008. The New Form will expand disclosure of executive compensation in key areas. The stated purpose of the changes to the executive compensation disclosure form is to improve the quality of executive compensation disclosure, resulting in better communication of the board of directors' intentions and insight into a key aspect of a company's overall stewardship and governance.

The current Form 51-102F6 has been in place since 1994, substantially unamended. In the fall of 2006, the U.S. Securities and Exchange Commission adopted new rules for executive compensation disclosure. On March 29, 2007, the CSA published a notice and request for comments for the replacement of Form 51-102F6 (see the Summer 2007 issue of The Material Change Report for a summary of this proposal) and on February 22, 2008 the CSA published a revised proposal for comment. The following will highlight some of the more significant changes that have now been adopted by the CSA in the New Form.


The principal changes under the New Form from the existing form requirements include the following:

  • the determination of the named executive officers (NEO) will be based on total compensation, rather than salary and bonus alone;
  • a new Compensation Discussion and Analysis section is required;
  • the Summary Compensation Table will disclose total compensation, grant date fair value of share-based awards and option-based awards, and the dollar value of all non-equity incentive plan compensation;
  • disclosure is required of amounts which may be payable in the event of a termination of an NEO or change of control of the company; and
  • a new table is required for disclosure of all director compensation, similar to the summary compensation table for executives.

The changes are significant enough that very little of a company's executive compensation disclosure based upon the existing form can be relied upon as a basis for the disclosure under the New Form.

General Provisions

The New Form includes some changes to definitions and general provisions. The definition of NEO will essentially remain the same, and will include the chief executive officer, chief financial officer and each of the three most highly compensated executive officers whose total compensation is greater than $150,000 per annum. Note, however, that this measurement will now be determined based on total compensation, rather than on salary and bonus alone. In calculating total compensation for the purpose of determining if an individual is an NEO, paragraph 1.3(6) of the New Form excludes incremental payments, payables and benefits to an executive officer that are triggered by, or result from, a termination or change of control.

Compensation Discussion And Analysis (CD&A)

One of the key changes in the New Form is the introduction of a compensation discussion and analysis section, or CD&A, which will disclose the rationale for specific compensation programs for executives. The CD&A requires a discussion and analysis of all significant elements of executive compensation provided to NEOs in the most recently completed financial year. The intention is that the CD&A will provide meaningful analysis of factors relevant to actual compensation decisions and provide readers a sense of how compensation is tied to NEO performance. Therefore boilerplate language is to be avoided.

The CD&A must include the objectives of any compensation or strategy, what the compensation program is designed to reward, each element of compensation, why the company chooses to pay each element, how the company determines the amount or formula for each element and how each element of compensation and the company's decisions about it fit into the company's overall compensation objectives.

The CD&A must disclose performance goals or similar conditions that are based on objective, identifiable measures, and if the performance goals or similar conditions are subjective, the company may describe them without providing specific measures. Companies are not required to disclose performance goals or similar conditions in respect of specific quantitative or qualitative performance-related factors if a reasonable person would consider that disclosing them would prejudice the company's interests. This exemption would not apply if a company has publicly disclosed the performance goals or similar conditions.

A performance graph is to be included in the CD&A for companies other than venture issuers, companies that have distributed only debt securities or non-convertible, non-participating preferred shares and companies that were not reporting issuers in any jurisdiction in Canada for at least 12 calendar months before the end of the current financial year (other than new reporting issuers resulting from a restructuring transaction). The performance graph requirement is similar to the current requirement for performance graphs and must show cumulative total shareholder return over the last five fiscal years compared to cumulative total return of at least one broad equity market index. However, the New Form requires an additional level of analysis to explain how the trend shown in the graph compares to the trend in the company's compensation of executive officers over the same period.

The CD&A must also describe the process the company uses to grant option-based awards, including the role of the compensation committee and executive officers in setting or amending any equity incentive plan under which options are granted.

Summary Compensation Table

There are a number of key changes in the summary compensation table. The summary compensation table includes compensation of NEOs for the last three completed fiscal years ending on or after December 31, 2008. Note, however, that a company is not required to disclose comparative period disclosure in respect of a financial year ending before December 31, 2008. The summary compensation table is to be accompanied by a narrative description of any significant factors necessary to understand the information in the table. These factors may include the significant terms of each NEO's employment arrangements, any repricing or other significant changes to the terms of any share-based or option-based award program and the significant terms of any award reported in the summary compensation table.

In addition to the column for salary, which must include the dollar value of cash and non-cash base salary an NEO earned during a financial year, the table includes columns for share-based awards, option-based awards, non-equity incentive plan compensation, pension value, all other compensation and a total. Share-based awards include common shares, restricted shares, restricted share units, deferred share units, phantom shares, phantom share units and other similar instruments that do not have option-like features. The value to be disclosed in the columns for share-based awards and option-based awards is the dollar amount based on the grant date fair value of the award. This value should reflect what the board of directors intended to award or pay as compensation to the NEO.

The column relating to option-based awards must also include the incremental fair value if the company has modified the exercise price of options previously awarded to an NEO. This requirement does not apply to any repricing that equally affects all holders of the class of securities underlying the options and that occurs through a pre-existing formula or mechanism in the plan or award that results in the periodic adjustment of the option exercise or base price, an antidilution provision in a plan or a recapitalization or similar transaction. A footnote to the table must be included quantifying the incremental fair value of any modified options included in the table.

The next column in the summary compensation table is for non-equity incentive compensation plans, which discloses the dollar value of all amounts earned through non-equity incentive plans. The column is divided between annual incentive plans, which includes disclosure relating to annual non-equity incentive plan compensation such as bonuses and discretionary amounts; and long-term incentive plans, which includes disclosure of compensation relating to a period longer than one year. Amounts earned for the financial year, even if not payable until a later date, are required to be disclosed. A footnote describing and quantifying amounts earned on non-equity incentive plan compensation but deferred at the election of an NEO must be included.

The pension value column in the summary compensation table provides disclosure of all compensation relating to defined benefit or defined contribution plans, and relates to all plans that provide for the payment of pension plan benefits. The amount to be disclosed includes service costs and other compensatory items such as plan changes and earnings that are different from the estimated earnings for defined benefit plans and above-market earnings for defined contribution plans. The amounts in this column should align with the amounts disclosed in the pension plan tables also required by the New Form, which are discussed below.

The "all other compensation column" discloses all other items that do not fit under any other column. These include perquisites and other personal benefits, which are to be valued on the basis of their aggregate incremental cost to the company. The threshold for disclosure of these items has not changed: disclosure is not required unless the aggregate of all perks and personal benefits is greater than $50,000 or 10% of total annual salary and bonus, and each perk or personal benefit exceeding 25% of the total must be identified. Incremental payments, payables and benefits to an NEO that are triggered by or result from a termination or change of control that occurred before the end of the covered financial year must also be disclosed in this column.

Another significant change to the summary compensation table is the inclusion of a total compensation column. This column discloses the aggregate of the total dollar value of each item quantified in the other columns.

Incentive Plan Awards

The New Form requires the inclusion of a table summarizing outstanding share-based awards and option-based awards, and a second table summarizing the value vested or earned under incentive plan awards. The first table includes all awards outstanding at the end of the most recently completed financial year, including awards previously granted. The required information for option-based awards includes details on the number of securities underlying unexercised options, option exercise prices and expiration dates and the value of unexercised in-the-money options. The required information for share-based awards includes the number of shares or units of shares that have not vested, and the aggregate market value or payout value of share-based awards that have not vested.

The second table requires the disclosure of the value vested during the year under option-based awards and share-based awards for each NEO, and the value earned during the year under non-equity incentive plan compensation for each NEO. For option-based awards, the value vested during the year is the aggregate dollar value that would have been realized if the options had been exercised on the vesting date, calculated by determining the difference between the market price of the underlying securities at exercise and the exercise or base price of the options on the vesting date. For share-based awards, the value vested during the year is the aggregate dollar value realized upon vesting of share-based awards, calculated by multiplying the number of shares or units by the market value of the underlying shares on the vesting date.

Companies are also required to explain, in narrative form, the significant terms of all issued or vested plan-based awards, including non-equity incentive plan awards. Examples of the items to be described include the number of securities underlying the awards, general descriptions of the formulae or criteria that are used to determine amounts payable, exercise prices and expiry dates, performance goals or other significant conditions, information on estimated future payouts for non-equity incentive plan awards, and the closing market price on the grant date, if the exercise price is less than the closing market price on the date of grant.

Pension Plan Benefits

The New Form requires the disclosure of details of both defined benefit plans and defined contribution plans in table format. In each table, the disclosure must use the same assumptions and methods used for financial statement reporting purposes.

The defined benefit plan table provides disclosure for payments or benefits at, following, or in connection with retirement for each NEO under all defined benefit pension plans. The table includes columns for the number of years of credited service, annual benefits payable, accrued obligation at start of year, compensatory changes, non-compensatory changes and accrued obligations at year end. Compensatory changes include service cost net of employee contributions plus plan changes and differences between actual and estimated earnings and any additional changes that have retroactive impact. Non-compensatory changes include items such as changes in assumptions (other than those already included in the compensatory changes column), employee contributions and interest.

The defined contribution plan table provides disclosure of payments or benefits at, following or in connection with retirement for each NEO under defined contribution pension plans. The disclosure required includes the accumulated value at the start of the year, compensatory amounts, non-compensatory amounts and accumulated value at year end. Compensatory amounts include the employer contribution and above-market or preferential earnings credited on employer and employee contributions, while non-compensatory amounts include employee contributions and regular investment earnings on employer and employee contributions.

A narrative description of each retirement plan in which an NEO participates, including any significant factors necessary to understand the information disclosed in the tables, is also required. Examples of significant factors that should be described in the narrative description include the significant terms and conditions of payments and benefits available under the plan, including the plans' normal and early retirement payment, benefit formula, contribution formula, calculation of interest credited and eligibility standards, provisions for early retirement, specific elements of compensation included in applying the payment and benefit formula and the company's policies on topics such as granting extra years of credited service.

A description of the significant terms of any deferred compensation plan relating to each NEO must also be prepared, including the types of compensation that can be deferred and any limitations on the extent to which deferral is permitted, significant terms of payouts, withdrawals and other distributions and measures for calculating interest or other earnings, how and when these measures may be changed and whether an NEO or the company chose these measures.

Termination And Change Of Control Benefits

Companies are required to provide disclosure of arrangements that provide for payments to NEOs that are related to their termination or a change of control of the company. For each arrangement, a summary must be provided describing the circumstances that trigger payments, the estimated incremental payments and benefits that are triggered by or result from each situation, how the payment and benefit levels are determined, any significant conditions or obligations that apply to receiving payments or benefits, and other significant factors. Estimated incremental payments, payables and benefits must be disclosed even if it is uncertain what amounts might be paid, assuming that the triggering event took place on the last business day of the company's most recently completed financial year.

Director Compensation

Another significant addition to the New Form is the requirement for companies to prepare a table for director compensation disclosure, similar to the summary compensation table for executives. The director compensation table includes columns for fees earned, share-based awards, option-based awards, non-equity incentive plan compensation, pension value, all other compensation and total compensation. All forms of compensation must be included in the table. Directors who are also NEOs do not have to be included in the director compensation table if their compensation for service as a director is fully reflected in the summary compensation table.

A narrative description of any factors necessary to understand the director compensation is also required. Examples of significant factors to be described include disclosure for each director who served for any part of the most recently completed financial year, standard compensation arrangements, such as fees for retainers, committee service, service as chair of the board or a committee and meeting attendance, compensation arrangements for a director that are different from the standard arrangements, and any matters that are discussed in the CD&A that do not apply to directors in the same way that they apply to NEOs, such as practices for granting option-based awards.

The disclosure relating to incentive plan awards required in respect of NEOs must also be provided for directors.

Companies Reporting In The United States

The New Form provides that companies that report in the U.S. will be permitted to satisfy the requirements of the New Form by complying with the applicable SEC requirements.


The New Form will require most companies to devote a significant amount of time and resources to its preparation. We recommend that companies get an early start to its preparation to ensure sufficient time for proper compliance with the new requirements.

About BLG

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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