Report recommends Canadian firms adopt comprehensive Compensation
Analysis Process and full disclosure
TORONTO, June 11 /CNW/ - The Institute of Corporate Directors Blue Ribbon
Commission on the Governance of Executive Compensation in Canada today
released its final report that addresses weaknesses in current practices. The
report champions a new standard for transparency about compensation decisions
and provides a straightforward process that companies of any size can follow
to more closely link executive pay to the actual performance of the company.
The report also calls for improved financial and human resources literacy
among members of compensation committees, and an overall increase in
independence of the committee and its advisors. The Commission's report is
based on comprehensive research undertaken by researchers from the Richard
Ivey School of Business, The University of Western Ontario.
"For corporate directors, the ICD Blue Ribbon Commission report provides
a well-researched tool that will help ensure executive compensation decisions
are entirely defensible, through improved disclosure and the application of a
rigorous Compensation Analysis Process, or 'CAP'," said Commission-member Paul
Cantor, Chair of the Public Sector Pension Investment Board and Senior
Advisor, Bennett Jones LLP. "When CAP is applied, private and institutional
shareholders will have increased confidence that executives are being
compensated according to sound pay-for-performance principles and benchmarks
that are clearly articulated."
"Accountability and pay for performance were the two main themes we
repeatedly uncovered through our research and consultation with leading
experts, directors and market participants," said researchers Professors
Murray J. Bryant and Stephen Sapp, Richard Ivey School of Business, The
University of Western Ontario. "Executive compensation, if designed properly,
plays a pivotal role in motivating management to create shareholder value.
Because the Commission's recommended guidelines for achieving this result are
principle-based, companies of any size can benefit from them."
Specifically with respect to pay for performance, the Commission's report
suggests that executive compensation can be more accurately aligned with
investors' interests if compensation is defined relative to well thought-out
metrics and preset targets to capture varying levels of performance.
The report recommends that Canadian firms adopt a thorough and rigorous
six-step Compensation Analysis Process (CAP):
1. Obtain an in-depth understanding of the business model, strategy and
goals of the firm
2. Develop appropriate executive performance metrics (both quantitative
and qualitative) to support the business model, strategy and goals
3. Determine the appropriate weighting for each performance metric and
develop relevant targets
4. Assess what it takes to motivate an executive with respect to
compensation given the mobility of executive talent and other job
5. Evaluate whether or not the total compensation arrangement is
in accordance with the performance targets and aligns the executive's
incentives with the firm's business model and objectives, and
6. Objectively stress-test the entire plan to see if it is fair to
the chief executive officer, the firm and investors.
Along with full disclosure of the process used and metrics applied,
including naming the companies that comprise the benchmarks, the ICD Blue
Ribbon Commission report recommends that all relevant sources of compensation
be provided in a single, easy-to-read table to ensure investors understand the
total compensation for senior executives. The report also recommends that
compensation arrangements be written such that directors, on behalf of
investors, can clawback bonuses and long-term incentive plans payments, on the
basis of malfeasance or when significant accounting adjustments warrant.
"There's no doubt in my mind that the ICD Blue Ribbon Commission report
makes a serious contribution to corporate governance in general and, in
particular, to best practice in the determination of senior executive
compensation," said Commission-member, Bill Dimma, Board Chairman, Home
Capital Group. "It deals thoroughly and thoughtfully with how senior executive
compensation should best be determined and ultimately approved by a board of
"The recommendations of the Blue Ribbon Commission provide much needed
guidance to directors with respect to the governance of executive compensation
within Canadian firms," said Purdy Crawford, corporate director, and counsel
at Osler, Hoskin and Harcourt LLP. Crawford was the chair of the compensation
committee of Canadian National Railway Co. for many years and has dealt with
executive compensation as a corporate director for more than two decades.
"Adherence to the disciplined approach outlined in the Commission's report
should result in fair executive compensation arrangements that align
organization, management and investor interests thus strengthening the firm's
overall corporate governance."
Full copies of the report and additional background on the ICD Blue
Ribbon Commission are available on the Institute of Corporate Directors
About the ICD Blue Ribbon Commission
The ICD Blue Ribbon Commission on the Governance of Executive
Compensation in Canada is a group of leading Canadian businesses and
organizations who have come together to provide researched recommendations to
improve the decision making process with respect to executive compensation.
The ICD Blue Ribbon Commission comprises Alberta Investment Management,
Bennett Jones LLP, CPP Investment Board, Edelman Public Relations, Executive
Risk Group Ltd., Industry Canada, Institute of Corporate Directors, KPMG,
OMERS, Russell Reynolds Associates, and Torys LLP. These organizations have
asked three experienced executives and corporate directors to serve on the
Commission with them: Paul Cantor, Chair, Public Sector Pension Investment
Board and Senior Advisor, Bennett Jones LLP; William A. Dimma, Board Chairman,
Home Capital Group Inc.; and Robert Parizeau, former President and CEO of
About the Institute of Corporate Directors
The Institute of Corporate Directors is the only membership association
representing the Canadian director community, with a view to strengthening the
governance and performance of Canadian and inter-listed corporations.
Representing the interests of close to 3,000 members who belong to nine
regional chapters across Canada, the ICD educates directors through continuing
education and networking events, as well as formal director education programs
delivered by leading business schools in Canada. The ICD also peer-certifies
directors with the ICD.D designation, recognized both nationally and
internationally, to ensure they are well prepared to fulfill their fiduciary
obligations in the boardroom.
For further information:
For further information: or to arrange an interview with members of the
ICD Blue Ribbon Commission or the researchers, contact: Nolan Reeds, Edelman
Public Relations, (416) 979-1120, email@example.com; Mary Weil, Richard
Ivey School of Business, (416) 203-0664, firstname.lastname@example.org