Executive Compensation Disclosure

Article by Steven Kresak (Articling Student) and Jonathan Lampe (Partner)

Originally published in the November issue of The Update: Corporate Securities

Recently, the Canadian Securities Administrators, an umbrella group of the country's thirteen securities regulators, released a report reviewing executive compensation disclosure in Canada. The Report reviewed executive compensation disclosure in management information circulars of 76 companies with varying revenues and in a variety of industry sectors from May to September 2002. The review was undertaken because of a concern of the CSA that issuers were still not providing comprehensive disclosure about how executive compensation was determined.

Overview

Of the 76 issuers reviewed, the Report found that most issuers were in compliance with the requirements. However, the CSA identified a number of concerns. The vast majority of the issuers reviewed apparently were not providing all of the detailed information required. The Report found issuers discussed compensation in very general terms without explaining specifically how compensation was determined, or how it was related to the company's performance, details required by Canadian securities legislation. The Report also found widespread use of boilerplate language despite the requirement to avoid it. Also of concern to the CSA was the fact that some issuers mentioned that competitive data was reviewed, but failed to provide adequate detail about that data.

The Report found 7% of companies needed to correct summary compensation tables, 5% had to amend information on options and stock appreciation rates, and 5% had to fix pension plan information, provide further details on employment contracts, or revise multi-year stock performance charts. Following the Report, the CSA issued comment letters to virtually all of the reviewed issuers. Of those issuers, 95% agreed to make prospective changes in their executive compensation disclosure to address the concerns raised in the reviews.

Highlights and Recommendations of the Report

The Report consists of an item by item review of corporate compliance with executive compensation disclosure. The following is a brief summary of the CSA's comments and recommendations.

Scope. The Report re-emphasized the general requirement for plain, concise and understandable disclosure. Many issuers failed to disclose all of their company's compensation plans. The CSA advises that executive compensation...