Canada’s new pay rules
25/07/2011
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It is not just Australia implementing new executive remuneration rules.  We have already noted changes in US disclosures (see HERE), as well as UK and European changes (for example, see HERE).  The Canadians are also about to introduce changes.  Not that they had much choice.  Most large Canadian companies trade their securities in US markets, so have to comply with US and Canadian laws.  The changes will also impact the small but growing number of dual listed Australian and Canadian companies.

The Canadian Securities Administrators — the umbrella group including 13 provincial and territorial securities regulators —unveiled new executive compensation rules on Friday 22 July, to take effect from 31 October 2011. They are implementing amendments to Form 51-102F6 (‘Statement of Executive Compensation’), which will provide investors with enhanced information on the key risks, governance matters and compensation practices of publicly listed companies.  The amendments reflect the consensus outcomes of a considered consultation process, and follow the draft outlined HERE).  The Canadians appear to have mastered a state based consensus building process that continues to elude Australia’s COAG deliberations.

The changes are designed to give investors better access to information.

A key amendment to the Form is to require public companies to disclose to investors whether their board of directors adequately considered the implications of the risks associated with the company’s compensation policies and practices. Canadian boards have always had a responsibility to consider and disclose general risks faced by a company but making it this specific increases the odds they will take it seriously. It is interesting that the Australian government has ignored numerous submissions advocating a similar approach, while introducing changes that almost all stakeholders have opposed.

Public companies in Canada will also be required to provide investors with detailed information on all of the fees paid to external compensation consultants, including fees for other services provided to the company.  This will allow investors to judge the extent of any conflict for themselves.  Interestingly, the Canadian requirements are free of the loopholes in the Australian law that allow broad-based accounting and law firms to provide conflicted remuneration advice free of disclosure requirements.

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