The Canadian Securities Administrators announced new rules for disclosure of executive compensation for public companies with the fiscal year ending Oct. 31, 2011. The agency had earlier made amendments to its Form 51-102F6, Statement of Executive Compensation. Among the issues to be addressed by companies in their compensation policies: risk-adjusted compensation, competence of the compensation committee, executive hedging, disclosure of performance targets, and fees for compensation consultants.    

In the revised setting, companies must disclose to shareholders

Qualifications of compensation committee. Under the new rule, comp committee members must be identified with descriptions of their job-related experiences to their positions, and the status of their appointments (that is, independent or non-independent directors);

Risks associated with compensation. Disclose all risks factored into compensation policies, oversight policies by committee members, and identify risks likely to affect business.

Executive hedging. Companies must state their policies on whether or not directors and executives are allowed to hedge against drops in value of their equity-based compensation.

Fees for compensation consultants.

The rule will also limit companies' ability to avoid disclosing their performance targets. Companies are expected to present the new disclosure requirements during their 2012 proxy season.

“The new requirement is more of a refinement to the previous rule as a result of changes adopted in the United States,” says Glen Johnson, partner at law firm Torys. The new measure will put in place some risk-management measures, particularly in companies' compensation policies and executive behavior. He says most of the new requirements are responses to market trends requiring “general housekeeping” among compensation committees.

On disclosure of companies' performance targets, Johnson says it has been a continuous challenge for businesses. Companies have always assumed such details are information they do not wish to disclose. “The rule does not want them to disclose information that will cause them competitive harm. It only asked for certain metrics that the administrator thinks will be meaningful to shareholders,” he says.

Performance targets required to be disclosed include earnings per share, revenue growth, and EBITDA. The CSA also wants companies to disclose any actions taken by compensation committees to adjust executives and officers' compensation based on their performances.

Canada's approach is more "disclose and explain" rather than mandating changes such as what has transpired with the Dodd-Frank Act in the United States. Johnson says the new regulation is a middle ground to address the spirit of the Dodd-Frank Act's requirements. “Our take is to prescribe the rule instead of making it mandatory,” he says.

A noticeable difference is in Canada's version of the compensation clawback provision. Companies are required to submit their executives' pay recoupment plans, but do not have to put the practice into effect. He said regulators in Canada have no intention of adopting all U.S. regulations, as they only want to focus on disclosure of risks and risk-management issues.