TORONTO, June 11 – 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):
- Obtain an in-depth understanding of
the business model, strategy and
goals of the firm
- Develop appropriate executive
performance metrics (both
quantitative and qualitative) to
support the business model, strategy
and goals
- Determine the appropriate weighting
for each performance metric and
develop relevant targets
- Assess what it takes to motivate an
executive with respect to
compensation given the mobility of
executive talent and other job
elements
- 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
- 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 directors.”
“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
website,
www.icd.ca.
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,
corporate director and former President
and CEO of Sodarcan Inc.
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.
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