Executive pay disclosure still needs improvement says Canadian Coalition for Good Governance

    TORONTO, Jan. 21 /CNW/ - Many Canadian companies still need to improve
the way they report executive pay according to the Canadian Coalition for Good
Governance. In their latest score card on executive compensation, the
Coalition concluded that while marks are improving many companies still have a
lot of work to do to improve their disclosure of executive pay packages.
    "Transparency is essential when it comes to communicating the
compensation of senior executives to investors. This scorecard is not about
levels of compensation, it's about disclosing the process of how compensation
is determined" said David Beatty, Managing Director of the Canadian Coalition
for Good Governance. "We have seen some improvement in disclosure, but we need
to see more. Setting senior executive compensation is the toughest ongoing job
a board has to do and investors want, and should know how they arrive at their
    Undertaken by the Clarkson Centre for Business Ethics and Board
Effectiveness at the Rotman School of Management, the study looked at the
executive compensation disclosure of 208 companies, representing all the
corporations in the TSX Index. Using a scoring system based upon the
Coalition's "Guidelines for Principled Executive Compensation", the study
evaluated a company's disclosure practices using 26 separate parameters.
    According to the report, 29 companies scored well, exhibiting reasonably
thorough and complete compensation disclosure practices, up from 23 companies
last year. On the other end of the scale, 169 companies still had substantial
work to do. The Coalition is confident that these numbers will improve as more
companies adopt better disclosure policies.
    "Regulations or "Say on Pay" resolutions are not today's answer to
improving scores, constructive cooperation is. Our members are anxious to help
compensation committees do their job better, improving how they establish and
refine compensation packages" said Beatty.

    The Coalition has determined four areas where companies can immediately
improve their performance:

    Ensure that compensation consultants are hired by the board and that any
    additional work they do for the corporation is approved by the board,
    along with disclosing the pay received for the services.

    Provide a "one figure" number summarizing the CEO pay -- this is required
    by the new SEC regulations and will soon emerge in the CSA standards --
    and by demonstrating that they take into account past stock grants when
    considering the current year's package.

    Abandon options that vest over time with no performance hurdles.

    Clearly explain how compensation packages are linked to performance in
    the short and long terms.

    The CCGG has provided the full scoring to the executive compensation
companies working in Canada to share with their clients. The full scoring
results will not be publicly available until one year after the final release
of the CSA disclosure requirements in the second half of 2008.
    To help with better disclosure and better practices the Coalition
published a "Best Practices" document in September. This publication
complements the "Best Practices on Director Disclosure" found at:
    As part of this year's survey the Coalition measured the market shares of
various executive compensation consultants and found that two firms, Mercer
and Towers Perrin dominated last year's disclosures:

    Towers Perrin            $2,928,213
    Mercer                   $2,886,519
    Hewitt                     $784,212
    Hugessen                   $534,228
    Watson Wyatt               $291,433
    Semler Brossy              $258,000
    Hay                        $161,491
    Perrault Conseil           $131,154
    McLagan                     $53,515
    Cook                        $45,752
    Hamilton Soles              $40,000
    Hamilton Hall               $34,102
    Aon                         $32,915
    Gurr                        $23,000
    Lennox                       $8,480

    Total                    $8,213,014
    Number Disclosing                78

    For more information on the Coalition, go to www.ccgg.ca.

    The Canadian Coalition for Good Governance is made up of 49 of Canada's
leading institutional investors representing more than $1.4 trillion in assets
under management. The mission of the Coalition is to represent Canadian
institutional shareholders in the promotion of corporate governance practices
that best align the interests of boards and management with those of the

                                 APPENDIX ONE

    For Frequency Histogram of Scores, please see:
<a href="http://www.ccgg.ca/media/reports/2007%20Compensation%20Scoring%20Histogram.pdf">http://www.ccgg.ca/media/reports/2007%20Compensation%20Scoring%20Histogram.pdf</a>

                                 APPENDIX TWO

    Percentage of Companies Disclosing by Topic

                                           2007       2006     Change
    Comp Committee Independence          73.23%     67.31%      5.92%
    CEOs on Comp Committee               97.47%     93.27%      4.21%
    Experienced Comp Committee Members   95.45%     89.90%      5.55%
    Consultant Retained                  63.64%     61.54%      2.10%
    Extra Work Pre-Approved              10.61%      6.25%      4.36%
    Consultant Name                      60.10%     58.17%      1.93%
    Total Fees to Consultant             36.87%     12.50%     24.37%
    Fees for Other Work                  24.75%     10.10%     14.65%
    Three-Year CEO Cost                  32.32%     16.83%     15.50%
    Multi-Year Payouts                   72.73%     47.12%     25.61%
    Look-Back Table                       3.54%      1.92%      1.61%
    Pay for Performance re: Look-Back     0.51%      0.00%      0.51%
    Disgorgement                          2.53%      1.44%      1.08%
    CEO Share Ownership equals
     3x Salary                           32.83%     29.33%      3.50%
    Hurdles on Equity                    15.15%     10.10%      5.06%
    CEO Holding Period                   12.63%     11.54%      1.09%
    Change of Control Double Trigger     87.88%     54.81%     33.07%
    Option Double Trigger                61.62%     38.94%     22.67%
    Pay for Performance Linkage          67.17%     62.02%      5.15%
    Peer Group Named                     11.62%      9.62%      2.00%
    Stress Testing Used                   4.04%      1.92%      2.12%
    Stick to Guns                        36.87%     28.85%      8.02%
    SERP Cap                             60.61%     34.13%     26.47%
    SERP Total Present Cost              60.61%     31.73%     28.88%
    Change in Accrued Liability          83.33%     38.94%     44.39%
    CEO Annual SERP Payout               84.34%     52.88%     31.46%
                                        -------------------   --------
      AVERAGE                            45.86%     33.51%     12.36%

    Details of the scoring mechanics can be found in APPENDIX THREE

                               APPENDIX THREE

    Compensation Disclosure and Practices

    Since 2001, the Clarkson Centre has undertaken an annual survey of
corporate governance in S&P/TSX Composite-listed companies. While disclosure
and practice have become much more detailed and standardized with respect to
key governance issues, executive compensation has lagged behind this trend. We
have identified several areas where improved disclosure would be extremely
beneficial to shareholders, and have designed our criteria accordingly. Many
of the disclosure expectations in the survey are far beyond current S&P/TSX
Composite disclosure standards, but we feel they are nonetheless essential in
order for Compensation Committees to fully inform shareholders. We have also
attempted to design our methodology to compensate for cases where specific
metrics are not relevant to a company's executive compensation structure. As
such, we encourage you to contact us if you feel that a category does not
apply to your company's situation, and that the survey has not captured this
fact properly.

    1. Composition of Compensation Committee

    Entire Compensation Committee is Independent of Management? (10 points if
    fully independent)

    Relationships with management may increase the potential risk that the
    Director will act in the interests of executives before those of the
    shareholder. There is a particular perceived risk to shareholders if such
    a conflict of interest exists on the Compensation Committee. If any of
    the following apply to a committee member, we have considered him/her to
    be related to management for the purposes of this study:

        -  Employee of the company (currently or within three years)
        -  Executive of any sister or subsidiary company
        -  Director or Director's firm provides legal, auditing, or
           consulting services to the company (within the last 3 years)
        -  Kinship to CEO or other named executives
        -  Any other significant relationship deemed material by CC(BE)(2)
           that does not fall under the above categories

    We recognize that many different and conflicting definitions of director
    independence have arisen in recent years. Our definition has been
    carefully considered, and although it does not explicitly capture many
    relationships that may be considered material, we attempt to assess
    director independence on a case by case basis.

    Sitting CEOs on the Compensation Committee? (-5 points if more than
    1/3 of Committee are sitting CEOs)

    It is also important that the number of CEOs on the Compensation
    Committee be considered. On the one hand sitting CEOs are likely to be
    sophisticated in their understanding of executive compensation matters.
    On the other hand, some shareholders perceive that a currently active CEO
    has a self interest in any and all inflation of executive compensation.
    This, like director independence, is intended to identify potential
    conflicts of interest. The balance reflected in our project is that only
    one in three Compensation Committee members should be currently serving
    CEOs or CEOs who have retired in the last three years. This assessment
    was made based only on information that was publicly and readily
    accessible at the time of the scoring. Only CEOs of publicly traded
    companies with a market cap of approximately $100 million or more were
    considered here.

    At Least One Compensation Committee Member has Significant Experience
    with Management Compensation (5 points)

    Executive compensation is extremely complicated. The Compensation
    Committee must have "compensation expertise" just as the Audit Committee
    must have financial expertise. The standard in our analysis is that at
    least one committee member must have 5 years experience either as a CEO
    or member of the Compensation Committee of a publicly traded company with
    a market cap of approximately $100 million or more.

    2. Expertise

    Compensation Committee Chair has Retained Independent Consultants? (Y/N)
    (5 points)

    Senior executive compensation is so complex that we believe that every
    Compensation Committee could benefit by engaging external advisors. If a
    Compensation Committee is solely dependent upon management for the advice
    it receives with respect to management's compensation, this can also
    result in a perceived conflict of interest. Credit is given here if an
    independent compensation consultant has been retained by the company
    during the most recently completed fiscal year, and that fact is

    Additional Work by Consultant Pre-Approved by Compensation Committee
    Chair? (Y/N) (5 points)

    Just as for auditors, any other work done for the company by the
    consulting firm or its parents or affiliates ought to be reviewed and
    pre-approved by the Compensation Committee. There are only three
    principal Canadian Executive Compensation Consulting firms and all three
    have a broad range of services that they provide to corporations. In many
    client settings, the fees earned from these other services are a multiple
    of ten times the fees earned from consulting on compensation to boards.
    This raises the issue of independence.

    If a compensation consultant has been retained, or will be retained in
    the future, credit is given if the company discloses a policy that any
    non-compensation work performed by the consultant must be pre-approved by
    the Chair of the Compensation Committee.

    Name of Consulting Firm Disclosed? (Y/N) (3 points)

    If the company has retained a compensation consultant during the most
    recently completed fiscal year, has the name of the consultant been

    Total Fees to Compensation Consultants Given? (Y/N) (5 points)

    Has the company disclosed the fees paid to the compensation consultant
    for advice provided to the Compensation Committee?

    Fees for Other Pre-Approved Work Disclosed? (Y/N) (5 points)

    Has the company disclosed the total fees paid to the compensation
    consultant for all additional work provided to the company?

    3. Disclosure (not otherwise captured)

    Three-year Table Showing Full Annual Cost of CEO? (Y/N) (10 points)

    Our expectation for this question is that the Compensation Committee
    discloses the value of the compensation it believed it was conferring on
    the CEO in each of the past three years. This table should include the
    cash value of all compensation awarded to CEO for the past three years,
    including the estimated value of options and other equity-based
    compensation, as well as pension costs. Valuation methods are not
    questioned or examined here.

    Disclosure of Multi-Year Incentive Plan Payouts? (Y/N) (4 points)

    Many companies with multi-year incentive plans will disclose the value of
    the compensation at the time of grant, but not the value of the actual
    payout at the end of the performance or vesting period. Does the company
    disclose the value of payouts for all multi-year plans, excluding
    options, even if the payouts in the current year are nil? Credit is also
    given if the company does not have any multi-year incentive plans other
    than options.

    Table Showing Total Income of CEO Since Appointment (Look-Back Table)?
    (Y/N) (4 points)

    Because compensation packages often have pay-for-performance elements,
    and pay schemes are complex, it is difficult to a priori determine the
    actual CEO pay. Thus, we give credit if a company annually looks back and
    considers what was actually earned by the CEO, enabling the Compensation
    Committee to calibrate their 'ex-ante' compensation package. This sum
    should include the total of all cash compensation, the amounts earned by
    the exercise of options, sale of stock, the in-the-money value of the
    options etc.

    Credit is given if a look-back table with this information is provided in
    the Information Circular.

    Pay for Performance Disclosure Reviewing Conclusions from 'Look-Back'
    Table? (Y/N) (4 points)

    Once the total amount earned is known, the Compensation Committee can
    consider the linkage that did occur over time between the pay earned and
    the performance achieved. Does the company provide a statement that such
    an analysis was undertaken by the Compensation Committee and their
    external consultant? NOTE: A company will not be given credit under this
    metric if a look-back table is not provided (see above).

    Disgorgement of Performance-Based Pay in Event of Restatement? (Y/N)
    (3 points)

    Does the company have a mechanism in place to ensure that compensation
    earned based on performance can be "clawed-back" if earnings are restated
    in later periods?

    CEO has Share Ownership Guidelines (2 points)

    Requiring the CEO to own a significant number of shares is an effective
    way to ensure the alignment of the CEO's interests with those of
    shareholders. Does the CEO have a formal share ownership guideline
    requiring ownership of shares with a value of at least three times the
    CEO salary?

    'Hurdles' Required for All Equity Components? (Y/N) (2 points)

    Are there performance-based vesting hurdles or multipliers attached to
    all equity based-compensation, including options and restricted stock?
    Only a portion of each grant need be performance-sensitive in order to
    receive credit.

    CEO Must Retain Significant Equity Position for Minimum 1 Year After
    Leaving? (Y/N) (2 points)

    Is the CEO required to hold a significant number of shares following
    retirement, either as part of a general share ownership guideline or
    otherwise? If the CEO is a controlling shareholder (30% or more) the
    company will be given credit under this metric.

    Change of Control Provision has Double Trigger? (Y/N) (3 points)

    Most companies have an agreement with their CEO that provides for payouts
    in the event of termination and/or a change of control. A double trigger
    on these provisions ensures that these payouts occur only in the event
    that the CEO's employment is terminated in addition to the occurrence of
    a change of control. Credit is given as long as payouts are not triggered
    solely by a change of control.

    Option Vesting Acceleration has Double Trigger? (Y/N) (3 points)

    Similar to the cash payouts discussed above, some option plans allow for
    accelerated vesting of options upon the CEO's termination and/or a change
    of control. Credit is given here as long as accelerated vesting is not
    triggered by a change of control alone. If a company's option plan does
    not provide for accelerated vesting under any circumstances, credit will
    be given.

    4. Linkage

    Pay is Related to Performance? (Y/N) (10 points)

    This metric relates specifically to the cash bonus paid to the CEO, or,
    in absence of a cash bonus, any other significant at-risk component of
    CEO compensation. Credit is given if there is an explicit and specific
    link between payout and performance. What we look for is indication that
    one or more objectively measurable criteria are considered in the
    determination of the CEO's bonus, and what those criteria are.

    Performance is Measured with Respect to Peer Group? (Y/N) (5 points)

    With this metric, we are looking for an indication that the performance
    measurements used to determine the CEO's bonus take into consideration
    the company's performance against its peers. Is there an explicit mention
    that peer group performance is considered in granting the CEO's bonus? We
    do not require any specifics regarding the makeup of the peer group.

    Compensation Committee Stress-Tests Compensation Packages? (Y/N)
    (5 points)

    Here, we are looking for an indication that the Compensation Committee
    has considered the effect that significant upturns and downturns in
    company performance may have on the CEO's compensation. Is there a
    statement indicating that the Compensation Committee performs stress
    tests on the CEO's compensation package?

    5. Long-Term Load

    Are SERP Pension Benefits Capped at Some Absolute Level? (Y/N) (2 points)

    For this metric, we looked for indications that SERP benefits to the CEO
    are capped at a specific dollar value. Credit is only given if the cost
    to the company is explicitly limited.

    Present Value of Total SERP Costs Given? (Y/N) (1 point)

    Credit is given here if the total current SERP liability for all past and
    present executives is given.

    Changes in Accrued SERP Liability Since Last Year Disclosed? (Y/N)
    (1 point)

    Does the company disclose the changes in CEO SERP liability within the
    most recently completed fiscal year?

    Estimated Annual Pension Payout Given? (Y/N) (1 point)

    Does the company disclose the estimated value of the CEO's annual pension
    payout upon retirement?

For further information:

For further information: David Beatty, Canadian Coalition for Good
Governance, (416) 868-3585; Hugh Cameron, Public Relations & Communications
Consultant, (416) 488-3215

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