Canada: Executive Compensation Disclosure — Items To Consider In Preparing This Year’s Disclosure

On November 20, 2009, the Canadian Securities Administrators (CSA) issued CSA Staff Notice 51-331 reporting findings of their targeted compliance review of executive compensation disclosure of 70 (unnamed) reporting issuers in relation to compliance with the new executive compensation rules that were implemented on December 31, 2008. The focus of the reviews was to assess compliance with the new executive compensation disclosure requirements, use the review results to educate companies about the new requirements, and identify any requirements that need clarification or further explanation to assist companies in fulfilling their disclosure obligations.

The Staff Notice ( is fairly short (eight pages), and contains some useful guidance for issuers in relation to preparing executive compensation disclosure for this year.

Based on the reported findings, issuers should consider the following in preparing this year's executive compensation disclosure:

  • Ensure that the Compensation Discussion & Analysis (CD&A) sufficiently explains the process of making executive compensation decisions, and that the discussion in the CD&A is specifically tied to the rest of the company's executive compensation disclosure and the compensation that is reported.
  • Provide meaningful disclosure of specific corporate and individual performance metrics.
  • Provide complete disclosure regarding the selection criteria for the benchmark comparator group, a list of all peer companies, and a description of how benchmark information is used and for what purposes.
  • Fully disclose how the trend shown in the performance graph, showing the company's cumulative total return over five years, compared to the trend in the compensation of executive officers over that period.
  • Include appropriate disclosure in the Summary Compensation Table (SCT), in the year of the grant, of the grant date fair value of multi-year share-based awards that are subject to conditions being satisfied, or vesting, in future years, where it may be appropriate to discount the accounting fair value, and quantify and explain the difference between the reported grant date fair value and accounting fair value. Disclosure cannot be deferred until the conditions are satisfied in the future or on the basis that the board intended to pay a part of the award in a future period.
  • Provide expanded disclosure of pension plan benefits (including non-compensatory amounts under defined contribution plans) and quantification of termination and change-of-control benefits.
  • Use caution in deleting columns or adding additional information to the tables in the SCT, in order to avoid de-emphasizing the total compensation column.

New Guidance

The Staff Notice includes some guidance regarding certain disclosure issues that arise from interpretation of the new disclosure requirements, including CD&A disclosure (in particular in relation to performance goals, the "seriously prejudice" exemption and benchmarking) and how the grant date fair value of share-based awards that include conditions (including performance goals or vesting) in relation to future years should be determined and disclosed. The disclosure of share-based award in particular gives rise to considerable issues that many companies struggled with in preparing disclosure last year.

In addition, the Staff Notice, in a few cases, comments favourably on certain practices of some companies, which, although not required, might be considered as a possible 'best practice.' These include the voluntary provision by some issuers of an additional line in the performance graph showing the trend of the NEOs' total compensation, and tabular presentation of termination and change-of-control benefits.

McCarthy Tétrault Notes:

The new executive compensation disclosure requirements that were introduced last year posed a significant challenge for most Canadian public companies. The Staff Notice includes the overall observation from the CSA that there remains room for improvement.

Although the reforms implemented last year represented very significant new disclosure requirements, the Staff Notice reflects that the CSA generally had high expectations regarding companies complying with both the spirit as well as the letter of the new obligations, and is not providing any "grace period." In preparing executive compensation disclosure this year, companies should carefully consider the guidance provided by the CSA in the Staff Notice to endeavour to improve their disclosure and avoid the disclosure issues discussed in the notice — and, if necessary, should seek appropriate advice. The Staff Notice indicates that the CSA will continue to review executive compensation disclosure, focusing in particular on the significant disclosure issues discussed in the Staff Notice. The CSA required eight of the 70 companies that were reviewed last year to file supplemental executive compensation disclosure, and asked most of the other 62 companies to improve their disclosure in future filings. It is likely that the CSA will continue to be vigilant — perhaps even more so, in the second year.

A more detailed discussion of the Staff Notice and its implications, as well as other emerging trends and US reforms and the Canadian Coalition for Good Governance's recently released "Best Practices in Executive Compensation Related Information 2009," may be found in our article "Developments in Executive Compensation Disclosure for Canadian Issuers (," which is posted on our firm's website. The implementation of the new executive compensation rules was previously discussed in our November 28, 2008 summary Article ( in our more detailed October 31, 2008 Legal Update (, as well as in materials available on our website from our 6th Annual Disclosure and Governance Seminar (— "Executive Compensation Disclosure: What's New for 2009." In addition, the requirements, including the Staff Notice, were discussed at our 7th Annual Disclosure and Governance Seminar ( on November 24, 2009.

We would be pleased to assist you in the preparation of your executive compensation disclosure for this year, or to provide further advice regarding the Staff Notice or other guidance previously issued regarding the new executive compensation disclosure requirements.

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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