Federal government proposals on executive compensation and employee best interest disclosures
The government of Canada recently held a public consultation on regulatory proposals that would give effect to amendments to the Canada Business Corporations Act (CBCA) that were announced in the 2019 federal budget, following a 2018 consultation on. retirement income security. These proposals were discussed in the March 2019 and December 2018 News & Views.
Amendments made to the CBCA, which are not yet in force, will require prescribed corporations to do the following:
- Develop an approach to compensation of directors and “members of senior management” (i.e., executive compensation) and present it at annual shareholder meetings for a non-binding vote (i.e., a “say-on-pay” vote);
- Disclose whether the corporation has a policy on the recovery of incentive payments made to directors and senior managers (i.e., “clawbacks”);
- Disclose prescribed information regarding the well-being of employees, retirees, and pensioners; and
The amendments also clarify that corporate directors may consider employee and pensioner interests, among others, in their decision making to encourage directors to take a more comprehensive approach to assessing the long-term interests of the corporation.
Innovation, Science and Economic Development Canada (ISED) has made the following proposals for regulations giving effect to these amendments to the CBCA.
- Application: The new requirements will apply publicly-traded corporations subject to the CBCA.
- Definitions of “members of senior management,” “retirees” and “pensioners”: The government proposes using the same definition of “members of senior management” that is in place for the purposes of diversity disclosure, which would capture chairs and vice-chairs of the board of directors; the president of the corporation as well as its chief executive officer and chief financial officer; a vice-president in charge of a principal business unit, division or function, including sales, finance or production; and an individual who performs a policy-making function for the corporation.
For “retirees” and “pensioners,” the proposal offers the following definitions:
- Retiree: “A person who has concluded their working or professional career with a corporation, and receives or will receive post-employment benefits other than a pension from that corporation.”
- Pensioner: “A person who receives regular payments from a corporation from a fund accumulated during that person’s employment with that corporation, or a spouse or dependents of such a person receiving the payments after the person is deceased.”
- “Say-on-Pay” Votes: Under the proposals, the results of “say-on-pay” votes would be required to be reported at the shareholder meeting at which they take place. The results would need to be posted on the corporation’s website within 30 days after the meeting and set out in the management proxy circular for the next annual shareholder meeting.
- Recovery of executive compensation: The proposals would require prescribed corporations to indicate whether or not the corporation has adopted a written policy relating to the recovery of executive incentive and other benefits and, if it has not, the reasons why.
If the corporation has adopted such a policy, it would be required to provide a summary that sets out its objectives and key provisions, what incentives are covered, what triggers a recovery, the length “look-back period” for determining if a recovery is needed, the decision-maker, and details on any recoveries made in the previous fiscal year.
- Employee well-being: The proposals would require prescribed corporations to indicate if the corporation has adopted a written policy relating to the well-being of employees, retirees and pensioners and, if none has been adopted, the reasons why.
If the corporation has adopted such a policy, it would be required to provide a summary that sets out its objectives and key provisions; the elements of the policy covering the well-being of employees, retirees and pensioners; the activities taken pursuant to it; a description of the corporation’s progress in achieving those objectives; an indication of whether the corporation measures the effectiveness of the policy and, if so, a description of how it does so.
Public comments were accepted until March 31, 2021.
The CBCA amendments and new regulatory proposals suggest an increased emphasis on corporate transparency with respect to executive compensation issues. They also demonstrate an increasing emphasis on employee, retiree and pensioner well-being by public policy makers.