As expected, the Canadian Securities Administrators (CSA) have released a final version of the proposed disclosure amendments to Form 51-102F6 Statement of Executive Compensation. Issuers with fiscal years ending on or after Oct. 31, 2011, will be subject to the amended disclosure rules.
Pursuant to these updated rules, issuers will be required to disclose the following significant provisions:
- A detailed explanation in the Compensation Discussion & Analysis (CD&A) section as to whether and why a company is relying on the competitive harm exemption to not disclose performance goals;
- Information pertaining to peer compensation benchmarking groups, including a description of why the benchmarking group and selection criteria are relevant to the company;
- Also in the CD&A, a new requirement that companies disclose whether the board of directors considered the implications of the risk associated with the company's compensation policies and practices;
- A new provision in the CD&A requiring a company to disclose whether any director or named executive officer (NEO) is permitted to purchase hedging instruments to offset a decrease in the market value of equity securities granted as compensation or otherwise held by the director or NEO;
- Greater compensation committee disclosure including members' independence and relevant experience as well as an overview of how the committee functions;
- Expanded disclosure with regard to the work performed by compensation advisers and a breakdown of the fees paid to each consultant for services related to executive compensation and all other services, if any;
- Clarification that disclosure regarding the methodology used to calculate the grant date fair value of all equity-based awards must accompany the Summary Compensation Table (SCT) in which the grant date fair value amounts appear;
- A new column in the incentive plan awards table which discloses the value of vested share-based awards that have not been paid out or distributed;
- To calculate the annual lifetime pension benefit payable for those NEOs who are not yet eligible for benefits, the company must assume that the NEOs are eligible to receive payments or benefits at year-end. Also, any company contributions made on behalf of any NEO under a personal retirement plan must be disclosed in the "Other Compensation" section of the SCT. The non-compensatory amounts for defined contribution plans will no longer be required disclosure.
The above updates have not been significantly altered from when they were initially proposed in November 2010. As Canada's executive compensation disclosure rules evolve to align closer to the U.S. model, these amendments should allow shareholders a better understanding of how and why executive compensation decisions are made as well as the overall outcomes of those decisions.
--Anjeet Bening, ISS Canadian Research Team