On November 19, 2010, the Canadian Securities Administrators (“CSA”) published for comment proposed amendments to Form 51-102F6 Statement of Executive Compensation (“51-102F6”) designed to improve the disclosure investors receive regarding executive compensation (the “Proposed Amendments”).
Key Proposed Amendments
The Proposed Amendments would include the following changes to the Compensation Discussion and Analysis section of 51-102F6:
- when a company declines to disclose specific performance goals or similar conditions on the basis of the available exemption that the disclosure would “seriously prejudice the interest of the company”, the company will be required to explicitly state that it is relying on this exemption and explain why disclosing the relevant information would seriously prejudice the company’s interests;
- companies will be required to disclose whether the board of directors has considered the implications of risks associated with the company’s compensation policies and practices and if so, the following disclosure will be required:
- the nature and extent of the board’s role in the risk oversight of compensation policies and practices;
- any practices used to identify and mitigate compensation policies and practices that could encourage a named executive officer (“NEO”) or individual to take inappropriate risks; and
- the identified risks arising from the policies and practices that are reasonably likely to have a material adverse effect on the company;
- companies will be required to disclose whether any NEO or director is permitted to purchase financial instruments that are designed to hedge or offset a decrease in the market value of equity securities granted as compensation or held, directly or indirectly by the NEO or director; and
- companies will be required to disclose information about any compensation advisors retained by the company, including a description of the advisor’s mandate and any other work performed for the company disclosed by a breakdown of all fees paid to compensation advisors for each service provided.
The Proposed Amendments would include changes to the Summery Compensation Table (“SCT”) required by 51-102F6. While the existing SCT rules require companies to reconcile any differences between grant date fair value and accounting fair value of share and option based awards, the Proposed Amendments would require disclosure of the methodology used to calculate grant date fair value of all equity based awards, including key assumptions and estimates, regardless of whether there are any differences with the accounting fair value of the equity based awards. The SCT rules would also be clarified so that companies explicitly may not alter the presentation of the SCT by adding columns or other information (although other relevant tables could be included, so long as this does not detract from the SCT disclosure).
The Proposed Amendments would clarify the requirements for disclosure of non-compensatory amounts of all defined contribution pension plans so that it is explicit that any company contribution made on behalf of an NEO that is not reported in the defined contribution plan table required by 51-102F6 is reported in the “all other compensation” column of the SCT. Additionally, the CSA is requesting comment from market participants on whether there is value in the current requirement of disclosure of non-compensatory amounts for defined contribution plans. Depending on the response received, the CSA is considering amending 51-102F6 so as to remove such disclosure requirements.
Transition and Request for Comment
The CSA intends the Proposed Amendments to be in effect for the 2012 proxy season and will require companies to comply with the Proposed Amendments for financial years ending on or after October 31, 2011.
The CSA is inviting stakeholders to provide comments on the Proposed Amendments by February 17, 2011. Comments may be directed to CSA member commissions.
If you have questions on executive compensation disclosure, please contact any member of Clark Wilson’s Corporate Finance & Securities Group.