Canada: Increased Focus On Executive Compensation

Last Updated: July 15 2009
Article by Dolores Di Felice, David Surat and Gordon G. Raman

Most Read Contributor in Canada, November 2017

The Compensation Debate In The United States

Executive compensation has been a topic of intense media scrutiny over the past several months. The payment of significant bonuses by distressed firms that have received U.S. government assistance has prompted the U.S. Congress to introduce various legislative efforts that attempt to limit or regulate executive compensation. To date, these efforts have been specifically tied to the U.S. government's economic stimulus programs. However, as the scandals regarding bonuses paid at AIG and Bank of America / Merrill Lynch begin to fade, the focus of the debate has shifted from the amounts paid to senior executives to the connection between compensation incentives and increased systemic risk in the financial system. The Obama administration's white paper on financial regulatory reform, released on June 17, 2009, specifically makes this link:

"Among the many significant causes of the financial crisis were compensation practices. In particular, incentives for short-term gains overwhelmed the checks and balances meant to mitigate against the risk of excess leverage. We will seek to better align compensation practices with the interests of shareholders and the stability of firms and the financial system through the following five principles. First, compensation plans should properly measure and reward performance. Second, compensation should be structured to account for the time horizon of risks. Third, compensation practices should be aligned with sound risk management. Fourth, golden parachutes and supplemental retirement packages should be reexamined to determine whether they align the interests of executives and shareholders. Finally, transparency and accountability should be promoted in the process of setting compensation."

Recent Regulatory Proposals

These principles are reflected in the proposals,1 announced by U.S. Treasury Department on June 10, 2009, for legislation:

  • Authorizing the SEC to require non-binding "say on pay" votes on:
    • an issuer's annual executive compensation disclosure in its proxy statement;
    • the annual compensation paid to the top 5 executives;
    • other specific compensations decisions put forward by the issuer; and
    • any golden parachutes.
  • Directing the SEC to issue rules:
    • requiring compensation committees to meet independence standards similar to audit committees under Sarbanes-Oxley;
    • giving compensation committees authority over compensation consultants, the ability to engage outside counsel and other adviser, and to require adequate funding to pay consultants, counsel and advisers; and
  • providing standards for compensation consultants and outside counsel.

The Chair of the SEC, also announced2 on June 10, 2009, that the SEC will be considering additional compensation disclosure requirements for public companies regarding:

  • how the company and its board manage risk;
  • the company's overall compensation approach;
  • potential conflicts of interest by compensation consultants, including disclosure of relationships between consultants and the company and their affiliates; and
  • director nominees, including their experience and qualifications to serve on the board or on particular board committees and about why a board has chosen its particular leadership structure.

These new requirements would build on the significant revision to the executive compensation disclosure requirements introduced by the SEC in 2006 and current proposed changes to facilitate greater shareholder involvement in nominating directors.

Potential Impact On Canadian Developments

Although the proposals discussed above are in their early stages and are expected to evolve significantly, their scope suggests that new rules regarding compensation disclosure will likely be enacted in some form in the U.S. The enhanced executive compensation disclosure requirements introduced in Canada last year were substantially modelled on the SEC's 2006 reforms. We expect that any additional rule-making undertaken by the SEC in this area will be highly influential on the Canadian Securities Administrators. Similarly, the introduction of independence requirements for compensation committees in the U.S. would likely precipitate similar changes in Canada. Although the Canadian Securities Administrators have recently proposed moving towards a less prescriptive approach to independence3 for audit committees than the current rules that are modelled on the U.S. stock exchange requirements and Sarbanes-Oxely, new regulation related to executive compensation is unlikely to stop at the border.

The more immediate impact on Canadian issuers is likely to result from investor and market expectations. The U.S. government proposals echo those of investor advocates in both the U.S. and Canada. For example, the Canadian Coalition for Good Governance's 2009 Executive Compensation Principles suggest that performance should be assessed based on measurable risk adjusted criteria, matched to the time horizon needed to ensure the criteria have been met. Similarly, there has been a marked increase in "say on pay"4 shareholder proposals in Canada. In April, 2009, the Canadian Coalition for Good Goverance updated its position on "say on pay" and now considers such advisory resolutions as an important part of shareholders' engagement with boards that should be adopted broadly.

There have also been concrete examples of firms responding to criticism regarding compensation and introducing policies specifically designed to tie compensation to long-term performance. For example, it has been reported5 that Scotia Capital has introduced measures including a three year deferral for the payment of incentive compensation as well as minimum levels of share ownership and bonus claw-backs for senior executives. Similarly, UBS has introduced a new compensation policy6 that includes the payment of variable cash compensation and the vesting of equity compensation over a three-year period, subject to adjustments based on firm performance. The UBS policy will be subject to an advisory shareholder vote in 2009. These types of practices are likely to become more common as a result of the increased focus on compensation incentives.

Canadian directors and management should anticipate that investors will raise concerns regarding compensation and risk management and should be prepared to explain the rationale and logic behind the design of their compensation policies and how they create incentives for performance without encouraging undue short-term risk. The current compensation discussion and analysis requirements mandate disclosure of the objectives of any compensation program, what the program is designed to reward and performance goals, if measurable, for an issuer's senior executive officers. Canadian issuers should consider whether specifically discussing how these programs tie to risk management or providing similar disclosure for its other more general compensation programs and policies would proactively address any likely investor concerns.








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.

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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions