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2013 Best Practices for Proxy Circular Disclosure
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CCGG | Introduction i
2013 Best Practices for Proxy Circular Disclosure
Table of Contents
Introduction ...................................................................................................................................... 1 Governance Gavel Awards ............................................................................................................... 2 Recommended Tools for Disclosure ................................................................................................. 4 Disclosure of Governance Practices ................................................................................................. 5 Disclosure of Executive Compensation .......................................................................................... 28 Disclosure by Equity Controlled Corporations ............................................................................... 49 Disclosure by Dual Class Share Companies .................................................................................... 52
CCGG | Introduction 1
2013 Best Practices for Proxy Circular Disclosure
Introduction
Since 2004, the Canadian Coalition for Good Governance (CCGG) has prepared best practices documents for
reporting issuers. These documents, including this “2013 Best Practices for Proxy Circular Disclosure”
publication, provide examples of excellent disclosure by Canadian issuers in the area of corporate governance
and executive compensation.
Mission of CCGG The Members of the Canadian Coalition for Good Governance are Canadian institutional investors that together
manage approximately $2 trillion in assets on behalf of pension fund contributors, mutual fund unit holders and
other institutional and individual investors. CCGG promotes good governance practices in Canadian public
companies and the improvement of the regulatory environment to best align the interests of boards and
management with those of their shareholders and to promote the efficiency and effectiveness of the Canadian
capital markets.
A note on terminology In this document, any use of the term “company” refers broadly to any reporting issuer and likewise any use of
the term “share” refers to any form of traded equity.
Why proxy disclosure matters The proxy circular is the primary means for a company to communicate its corporate governance practices to its
shareholders. Shareholders expect the circular to articulate, in plain language, the governance practices and
activities of the board, the qualifications of directors, the issuer’s executive compensation programs and risk
management strategy, including how the company’s compensation plan is linked to the company’s strategy,
objectives and risk management.
How to use this document Issuers should be familiar with and model their policies and behaviours based on the guidelines laid out in
CCGG’s Building High Performance Boards, Executive Compensation Principles and other CCGG publications.
This document gives life to our principles and provides inspiration for crafting and disclosing good corporate
governance practices.
Feedback We value your feedback. Please feel free to send us best practices you have come across or other suggestions
for improvement.
You can reach us at info@ccgg.ca or 416-868-3576.
CCGG | Governance Gavel Awards 2
2013 Best Practices for Proxy Circular Disclosure
Governance Gavel Awards
Established in 2005, CCGG’s Governance Gavel Awards recognize excellence in disclosure by issuers through
their annual proxy circular. Awards are given for excellence in disclosure of board governance practices and
director qualifications, and excellence in disclosure of an issuer’s approach to executive compensation. CCGG
also recognizes issuer disclosure in other categories on an ad hoc basis.
Issuers whose governance practices substantially meet all of CCGG’s Building High Performance Boards and
Executive Compensation Principles guidelines and which believe that their disclosure warrants consideration
for a Governance Gavel award are invited to contact us.
Best Disclosure of Board Governance Practices and Director Qualifications In determining the winner of CCGG’s Best Disclosure of Board Governance Practices and Director Qualifications
Gavel award, CCGG considers the alignment between an issuer’s governance practices and the recommended
practices set out in Building High Performance Boards and looks for proxy circular disclosures that allow CCGG
to assess that alignment. CCGG also looks for disclosures that include the following information:
detailed biographies for each director,
a director skills matrix,
the board’s process for identifying and recruiting directors,
the board’s orientation and continuing education programs for directors,
the board’s performance assessment processes, expectations for directors, and the attendance record
of each director at board and committee meetings, and
director compensation and share ownership requirements
2013 Award Winner: BCE Inc.
Best Disclosure of Approach to Executive Compensation In determining the winner of CCGG’s Best Disclosure of Approach to Executive Compensation Gavel award,
CCGG looks for executive compensation disclosure to incorporate substantially all of the best practices outlined
in Executive Compensation Principles and which specifically addresses key areas including:
the links between an issuer’s long-term corporate strategy and its executive compensation programs,
the links between an issuer’s risk management programs and executive compensation,
CCGG | Governance Gavel Awards 3
2013 Best Practices for Proxy Circular Disclosure
a clear and detailed description of the components of the executive compensation program and how
decisions are made,
detailed disclosure of the board’s ability to exercise discretion and whether it has done so,
disclosure of employment contracts, severance agreements and limitations on retirement benefits and
perquisites,
“look-back” tables and charts that show the effectiveness of compensation programs over time,
management biographies, qualifications and a description of their responsibilities, and
no undue reliance on the “competitive harm” exemption.
2013 Award Winner: TELUS Corporation
What do we mean by plain language and what are the benefits of its use? Plain language is a form of communication that allows your intended audience to understand the information
you are trying to convey the first time they read or hear it. In order to achieve effective disclosure, CCGG
recommends that issuers present information in a manner that:
is easy to find,
is easy to understand,
is accurate and complete, and
includes context so that the information has meaning.
Plain language does not mean that issuers should exclude complex information that shareholders require to
make informed investment and proxy voting decisions. Rather, plain language means issuers should disclose all
the information shareholders need in a manner that is understandable and user-friendly, regardless of its
complexity. As the SEC writes in A Plain English Handbook:
Plain English means analyzing and deciding what information investors need to make informed
decisions, before words, sentences, or paragraphs are considered. A plain English document
uses words economically and at a level the audience can understand. Its sentence structure is
tight. Its tone is welcoming and direct. Its design is visually appealing. A plain English document
is easy to read and looks like it’s meant to be read.
CCGG | Recommended Tools for Disclosure 4
2013 Best Practices for Proxy Circular Disclosure
Recommended Tools for Disclosure
Companies should use plain language in their disclosure documents, but other tools also must be employed to
give the document structure, ensure flow and communicate information meaningfully.
Organize for understanding
Organize the document in a manner that supports an understanding of the information it contains. Issuers
should consider whether their disclosure documents are organized in a logical flow so that information
continues to build upon itself, if applicable, and does not jump back and forth between different topics.
Use descriptive headings
Descriptive headings and subheadings allow readers to quickly find the information they are seeking and break
up the document into more manageable pieces.
Draw attention to key ideas
Some effective disclosures by Canadian issuers provide summary overviews of each major section while others
use highlight boxes to draw readers’ attention to the main ideas.
Group related information
Grouping related information helps readers better understand the overall message
being conveyed and reduces redundancies in disclosure documents. Whenever
possible, the reader should not be made to jump around to different sections to
understand a single component of compensation.
Introduce at a high level
For disclosure of executive compensation plans, CCGG recommends that the board
consider including a plain-language introduction to the CD&A section that provides a
high-level overview of the issuer’s compensation programs, the board’s approach to
executive compensation decision-making, a discussion of the decisions made during
the past year and how these decisions link to the issuer’s corporate objectives and
risk management programs.
Employ visual aids
Use charts, tables or images to explain complicated or detailed information wherever appropriate. These visual
aids can explain information more fully and easily than text alone and their use helps to divide the document
into smaller pieces for easier reading.
Avoid industry talk
Avoid jargon that confuses the message. When it is necessary or best to use industry words or technical
information, define or explain terms clearly.
Some issuers use a
highlight box to
summarize main
ideas or highlight
important
information.
CCGG | Disclosure of Governance Practices 5
2013 Best Practices for Proxy Circular Disclosure
Disclosure of Governance Practices
Proxy circulars should articulate a company’s governance practices clearly and in a format that allows the reader
to assess them in relation to the guidelines contained in Building High Performance Boards. This section shows
examples of excellent disclosure in the following areas:
Majority Voting ................................................................................................................................. 5 Voting Results ................................................................................................................................... 6 Director Independence ..................................................................................................................... 7 Director Interlocks ............................................................................................................................ 8 Independence of the Board Chair/Lead Director ............................................................................. 9 Director Nominee Profiles .............................................................................................................. 10 Board Succession and Skills Matrix ................................................................................................ 11 Director Continuing Education ....................................................................................................... 13 Board Committee Composition ...................................................................................................... 15 Director Compensation .................................................................................................................. 17 Director Attendance ....................................................................................................................... 20 Director Evaluation ......................................................................................................................... 21 Executive Succession ...................................................................................................................... 23 Strategic Planning Oversight .......................................................................................................... 24 Risk Management Oversight .......................................................................................................... 25 Shareholder Engagement ............................................................................................................... 27
Majority Voting
TELUS Corporation, 2013 Proxy Circular, page 6:
[…]Our majority voting policy applies to this election. Under this policy, a director who is elected
in an uncontested election with more votes withheld than voted in favour of his or her election
will be required to tender his or her resignation to the Board Chair. The resignation will be
effective when accepted by the Board. The Board expects that resignations will be accepted,
unless extenuating circumstances warrant a contrary decision. We will announce the Board’s
decision (including the reason for not accepting any resignation) by news release within 90 days
of the Meeting where the election was held. You can download a copy of our majority voting
policy at telus.com/governance.
Discussion
TELUS discloses a majority voting policy that is very similar to the CCGG model form and that contains all of the
most important elements:
directors with more votes withheld than for must submit resignations promptly,
the board must accept resignations except in special circumstances, and
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2013 Best Practices for Proxy Circular Disclosure
the board must announce its decision to either accept or reject the resignation in a press release within
90 days, including reasons for not accepting the resignation, if applicable.
Voting Results
First Majestic Silver Corp., 2013 Report of Voting Results:
Discussion
Voting results should be disclosed immediately after a shareholder meeting. The disclosure should include a
detailed breakdown of votes on each motion and each director election. First Majestic discloses the number of
Votes For and Votes Withheld for each matter listed on the proxy and converts them to percentages.
CCGG | Disclosure of Governance Practices 7
2013 Best Practices for Proxy Circular Disclosure
Director Independence
Vermilion, 2013 Proxy Circular, page 36:
Discussion
Vermilion uses a table to identify clearly which directors are independent and which directors are not
independent. It also provides additional details for directors that are not or were previously not independent.
CCGG | Disclosure of Governance Practices 8
2013 Best Practices for Proxy Circular Disclosure
National Bank of Canada, 2013 Proxy Circular, page 20:
To facilitate candid and open discussion, provision is made for the independent members of the
Board and its committees to meet without the Bank’s management being present, at each
Board meeting.
Discussion
National Bank uses a callout box to highlight disclosure of their adoption of a CCGG-recommended best practice:
holding a portion of each board and committee meeting in camera, i.e. with independent directors only.
Director Interlocks
Gildan Activewear Inc., 2013 Proxy Circular, page 49:
No Interlocking Relationships
To maintain director independence and to avoid potential conflicts of interest, the Board has
adopted a policy whereby Board members are prohibited from serving together as directors on
any outside boards of publicly-traded companies, unless authorized by the Board, in its
discretion. None of the director nominees has served together as directors on any outside
boards during the Corporation’s most recently completed fiscal year. The directorships of all
director nominees, which include their directorships on other public companies, are described
under Section 2.1.2 entitled “Nominees” in this Circular.
Discussion
Boards should adopt a policy limiting interlocks. Gildan Activewear discloses such a policy in its circular. It also
discloses the current number of interlocks (zero in this case).
CCGG | Disclosure of Governance Practices 9
2013 Best Practices for Proxy Circular Disclosure
BCE Inc., 2013 Proxy Circular, page 29:
Board Interlocks
The Board’s approach to board interlocks is to the effect that no more than two Board members
may sit on the same public company board.
Common memberships on boards of public companies among our current directors are set out
below. The Board has determined that these board interlocks do not impair the ability of these
directors to exercise independent judgment as members of our Board.
Discussion
BCE discloses both its interlock policy and the names of directors that currently sit together on other boards
(besides the BCE board).
Independence of the Board Chair/Lead Director
Vermilion, 2013 Proxy Circular, pages 54:
Board Chairman
The terms of reference for the Board Chairman address working with management and
managing the board, including meeting processes and the roles and responsibilities of the
directors.
We have had an independent, non-executive Board Chairman since 2003. Keeping our President
and CEO and Board Chairman positions separate allows the board to more effectively oversee
management and enhance accountability. Having an independent Board Chairman fosters
strong leadership, robust discussion and effective decisions, while avoiding potential conflicts of
interest.
Discussion
The position of board Chair should be separate from the CEO. Additionally, the Chair should be chosen by and
from among an issuer’s independent directors. The Chair’s role and responsibilities should be clearly defined.
Vermilion discloses its adoption of all of these recommendations.
CCGG | Disclosure of Governance Practices 10
2013 Best Practices for Proxy Circular Disclosure
Director Nominee Profiles
BCE Inc., 2013 Proxy Circular, page 19:
Discussion
Director nominee profiles permit shareholders to learn detailed information about their representatives on the
board and to compare directors across a range of fields. BCE provides an overview of the director’s experience
and discloses relevant information in an easy to read table.
CCGG | Disclosure of Governance Practices 11
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Board Succession and Skills Matrix
BCE Inc., 2013 Proxy Circular, page 35:
Composition of the Board of Directors and Nomination of Directors
In terms of the composition of BCE’s Board, the objective is to have a sufficient range of skills,
expertise and experience to ensure that the Board can carry out its responsibilities effectively.
Directors are chosen for their ability to contribute to the broad range of issues with which the
Board routinely deals.
The Board reviews each director’s contribution and determines whether the Board’s size allows
it to function efficiently and effectively. The Board believes that a board of directors composed
of 14 members promotes effectiveness and efficiency.
The Governance Committee receives suggestions for Board candidates from individual Board
members, the President and CEO, shareholders and professional search organizations. On a
regular basis, the Governance Committee reviews the current profile of the Board, including
average age and tenure of individual directors and the representation of various areas of
expertise, experience and diversity.
The Board strives to achieve a balance between the need to have a depth of institutional
experience from its members on the one hand and the need for renewal and new perspectives
on the other hand. The Board tenure policy does not impose an arbitrary retirement age limit,
but with respect to term limit, it sets as a guideline that directors serve up to a maximum term
of 12 years, assuming they are re-elected annually and meet applicable legal requirements. The
Board, however, upon recommendation of the Governance Committee, is able to, in certain
circumstances, extend a director’s initial 12-year term limit.
Competency Requirements
We maintain a “competency” matrix where directors indicate their expertise level in areas we
think are required at the Board for a company like ours. Each director has to indicate the degree
to which he/she believes they possess such competency.
The table below lists the top two competencies of our current directors together with their age
range, tenure, linguistic background and residency.
CCGG | Disclosure of Governance Practices 12
2013 Best Practices for Proxy Circular Disclosure
Discussion
Boards should have a plan in place for orderly succession of directors and should maintain an evergreen list of
candidates. Boards also should identify key skills required of directors and use a skills matrix to ensure these
skills are accounted for among current and prospective directors. The skills matrix for current directors should
be disclosed in the proxy circular.
CCGG | Disclosure of Governance Practices 13
2013 Best Practices for Proxy Circular Disclosure
TransCanada Corporation, 2013 Proxy Circular, page 41:
The table below lists the likely retirement dates of the current non-executive directors based on
current age, the Board committees they serve on, their education and their areas of expertise.
The Governance committee considers these factors and others when discussing Board renewal.
Dr. Draper will retire on April 26, 2013 prior to the annual and special meeting.
Discussion
TransCanada provides a table that shows “likely retirement date” for each director, along with his or her primary
areas of expertise. This information is very useful as it highlights the key skill areas the board will need to replace
and when.
Director Continuing Education
Pengrowth Energy Corporation, 2013 Proxy Circular, page 49-50:
Continuing Education
We undertake ongoing education efforts that include meetings among management and the
Board and, where appropriate, outside experts, to discuss regulatory changes, developments in
the industry and market conditions. Continuing education for all members of the Board is also
conducted on an informal basis. As a part of the continuing education of the Directors,
presentations are made at Board meetings by management on new developments which may
affect the Corporation and its business. In connection with almost every Board meeting,
Directors are provided with articles and publications of interest. In addition, Directors receive
periodic one-on-one presentations from management and are provided with the opportunity to
meet with members of senior management outside of formal Board meetings to discuss and
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better understand the business. Board members are encouraged to communicate with
management and our auditors to keep themselves current with industry trends and
developments, and to attend related industry seminars. Board members have full access to the
Corporation's records. Pengrowth also facilitates the education of Directors through financing
annual membership in the Institute of Corporate Directors. Directors are provided with
background materials and the information necessary to fulfill their roles as Directors, including
the Corporation’s key corporate policies. Written materials and briefings are extensively used to
ensure that Directors’ knowledge and understanding of the Corporation’s affairs remains
current. In 2012, the Board adopted a policy to conduct at least one field site visit each year and
in August 2012, nine of our Directors toured our Olds gas plant and related properties.
Most of our Directors sit on one or more other boards which enables them to implement the
best practices they observe elsewhere at Pengrowth.
The following table outlines examples of continuing education events held for, or attended by,
all of our Directors in 2012:
CCGG | Disclosure of Governance Practices 15
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Discussion
Directors should undergo education to update their skills and knowledge of the company, its businesses and key
executives and to address ongoing and emerging issues in the functional areas of the board. Issuers should
establish a continuing education program for directors and disclose its components annually. Pengrowth Energy
discloses its continuing education program and specific events attended by directors in the past year.
Board Committee Composition
Vermilion Energy Inc., 2013 Proxy Circular, page 5:
CCGG | Disclosure of Governance Practices 16
2013 Best Practices for Proxy Circular Disclosure
Discussion
Vermilion discloses committee memberships and member independence through a clear and comprehensive
table. A snapshot of the director’s area of expertise, attendance record and stock ownership is also provided.
Canadian National Railway Company, 2013 Proxy Circular, page 23:
Human Resources and Compensation Committee
[…] The Board has adopted a policy, which is included in our Corporate Governance Manual,
that no more than one in three members of the Human Resources and Compensation
Committee shall be a sitting CEO of another company, at least one member shall be experienced
in executive compensation, and the President and CEO of the Company shall be excluded from
the Committee member selection process.
Discussion
CN Rail provides shareholders with some insights on how the board selects the composition of its
HR/Compensation committee and makes it clear that the CEO is not involved in the selection process. In the
case of the HR/Compensation committee in particular, CCGG recommends that issuers adopt a policy requiring
that no more than one-third of its members be current CEOs of other issuers.
CCGG | Disclosure of Governance Practices 17
2013 Best Practices for Proxy Circular Disclosure
Director Compensation Sun Life’s disclosure of director compensation is detailed, well-organized and written in plain language. The
disclosure covers several pages and is not reproduced in its entirety here. It begins with the following
explanation of Sun Life’s philosophy, approach and process:
Sun Life Financial Inc., 2013 Proxy Circular, pages 32-36:
CCGG | Disclosure of Governance Practices 18
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It lists the various fees and retainers paid to directors:
It shows what each non-executive director was paid in the fiscal year, broken down by type of fee:
CCGG | Disclosure of Governance Practices 19
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Finally, it also discloses director share ownership requirements and current director share ownership:
CCGG | Disclosure of Governance Practices 20
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Director Attendance
Potash Corporation of Saskatchewan Inc., 2013 Proxy Circular, page 18:
(1) Elected as a member of the Board and a member of the Audit Committee and Safety, Health and Environment Committee on May 17, 2012.
(2) In addition to the committees of which he is a member, Mr. Howe, as Board Chair, regularly attends other committee meetings as well. Mr. Howe attended all of the committee meetings held in 2012. At the invitation of applicable committees, Mr. Doyle attended all or a portion of many of the committee meetings held in 2012, including a majority of the Compensation and CG&N committee meetings. In an effort to provide directors with a more complete understanding of the issues facing the Corporation and in line with the Corporation’s core values, directors are encouraged to attend committee meetings of which they are not a member.
(3) Served as a member of the Board, a member of the Compensation Committee and the Chair of the Safety, Health and Environment Committee until his retirement from the Board on May 17, 2012.
CCGG | Disclosure of Governance Practices 21
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(4) Served as a member of the Board and a member of the Safety, Health and Environment Committee until his retirement from the Board on May 17, 2012.
Potash Corporation of Saskatchewan Inc., 2013 Proxy Circular, page A-2:
Director Attendance
Attendance records are fully disclosed in the “Board of Directors— Board Meetings and
Attendance of Directors” section of this Management Proxy Circular. Pursuant to the
“PotashCorp Governance Principles”, directors are expected to attend all meetings of the Board
and Board committees upon which they serve, to come to such meetings fully prepared and to
remain in attendance for the duration of the meetings. Where a director’s absence from a
meeting is unavoidable, the director should, as soon as practicable after the meeting, contact
the Board Chair, the Chief Executive Officer or the Corporate Secretary for a briefing on the
substantive elements of the meeting.
Discussion
PotashCorp discloses attendance at all board and committee meetings in a table that is easy to read. It also
discloses ex-officio and non-voting attendance at committee meetings in a footnote.
Most importantly, PotashCorp expects its directors to attend all meetings.
Director Evaluation
Potash Corporation of Saskatchewan Inc., 2013 Proxy Circular, page 16:
Board, Committee & Director Assessment
Pursuant to the “PotashCorp Governance Principles”, the Board has adopted a 6-part
effectiveness evaluation program for the Board, each Committee and each individual director
which is outlined in Appendix A under “Board Assessments” and summarized in the following
table.
CCGG | Disclosure of Governance Practices 22
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Discussion
PotashCorp presents a tabular summary of its director and board assessment processes.
The table clearly describes by whom annual evaluations are performed, the frequency of assessments and
provides a summary of the “actions” and “outcomes” of a typical evaluation.
CCGG | Disclosure of Governance Practices 23
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Executive Succession
Potash Corporation of Saskatchewan Inc., 2013 Proxy Circular, page 38:
Succession Planning
One major responsibility of the Committee is to oversee our company’s management
succession planning. Twice each year, we review the progress, examine any gaps in
succession plans and discuss ways to improve succession planning. Once each year, we
meet with our CEO to discuss succession plans for our CEO and other senior executive
officers. In addition, the Board regularly interacts with our company’s senior management
team. A number of times each year, the Board has social events at which we are able to meet
a large number of the management employees and build relationships with the people who
represent the future of our company. As a result of this active succession planning process,
in 2012, 80% of senior staff openings were filled by qualified internal candidates who had
been developed for the promotions they received.
EMERA INCORPORATED, 2013 Proxy Circular, page 25:
Board Dinner Sessions
Board dinner sessions are scheduled the evening prior to regularly scheduled Board
meetings. Board dinners are a critical opportunity to accomplish a number of important
governance objectives, including:
• Meeting as independent directors in an atmosphere that is not a board meeting. The Board’s practice is to have one dinner each year at which only the independent Directors attend.
• Meeting in a less formal atmosphere with the Chief Executive Officer, and other senior officers.
• Holding educational sessions on important topics for the Company’s business and strategic direction.
• Meeting high-potential employees in order to advance the succession planning for the Company.
• Strengthening Directors’ collegial working relationship.
The Company’s Board of Directors annually plans a dinner with a number of high-potential
leaders drawn from throughout the Company and its various subsidiary businesses for the
purpose of holding an interactive event in which each high-potential leader is introduced to
each member of the Board of Directors. This is an opportunity for Directors to get to know
the Company’s high-potential leaders and to support and promote the Company’s executive
succession planning and leadership development process.
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Discussion
While the CEO is primarily responsible for succession planning, a highly engaged board is involved in the
succession planning process. Both examples shown above demonstrate the board’s involvement in identifying
high potential candidates.
Strategic Planning Oversight Companies should disclose the role of their board in overseeing the determination, execution and monitoring of
the company’s strategic plan.
Cameco Corporation, 2013 Proxy Circular, pages 30-31:
Strategic planning
The board works with management to develop our strategic direction. Our strategic planning
process has four elements:
a) developing a 10-year strategic plan
b) setting annual corporate objectives
c) establishing annual budgets and two-year financial plans
d) reviewing the strategic plan periodically and revising it based on our progress and changing
market conditions.
Management is responsible for preparing information on these four elements and presenting it
to the board for discussion and approval.
The board is actively involved in the strategic planning process and holds several strategic
planning sessions with management every year, including quarterly updates and a multi-day
session in August for more in depth discussion and analysis. Management and the board discuss
the main risks facing our business, strategic issues, competitive developments and corporate
opportunities. At strategic planning sessions in 2012, the board and officers conducted a top-
down review of strategic risks.
While these special meetings focus on strategic planning, management also presents strategic
issues to the board throughout the year based on the business climate and other developments.
The CEO updates the board on execution of our corporate strategy at every regularly-scheduled
board meeting. The board also raises various issues and topics for discussion as part of the
overall process.
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Discussion
Cameco’s disclosure of the board’s strategic oversight role goes beyond common boilerplate language found in
appendixes to the circular. The circular provides an overview of the strategic planning process and the board’s
role in strategic planning.
Risk Management Oversight The financial crisis of recent years has heightened shareholders’ focus on risk management and oversight, yet
risk oversight remains an area where disclosure often is lacking among Canadian issuers. Boards should disclose
the processes used that enable them to identify and monitor risk management efforts. Ideally, disclosure should
include:
a perspective from the board of the primary risks facing the company,
a brief explanation of the board’s involvement in defining the company’s risk appetite and overseeing
risk management,
how the board delegates and carries out its risk management oversight responsibilities, and
how the board independently validates and scrutinizes the perspective presented by management on
key risk issues.
Cameco Corporation, 2013 Proxy Circular, page 31:
Risk oversight
Over the last few years, management, the board and board committees have been devoting
more time to the way we identify, manage, report and mitigate risk.
We implemented a new risk policy and process in 2011 that involves a broad, systematic
approach to identifying, assessing, reporting and managing the significant risks we face in our
business and operations. We consider any risk that has the potential to significantly affect our
ability to achieve our corporate objectives or strategic plan as an enterprise risk, and we assess
all risks against our four measures of success. See Measuring performance on page 63 for our
four measures of success.
Our risk management program follows the guidance of ISO 31000:2009, and the board works
with management to ensure our system is robust. The policy establishes clear accountabilities
and we use a common risk matrix throughout the company.
We manage risk in six broad categories:
a) financial
b) human capital
c) infrastructure and security
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d) operational
e) social, governance and compliance
f) strategic
We manage risks in three tiers based on their severity or level of risk, and incorporate the risks
into the strategic planning and budgeting process as part of our management discipline. Risks in
the top tier are assigned to the board or board committees for ongoing oversight.
Employees “own” the risks and are responsible for developing and implementing controls to
mitigate risk and for ongoing risk assessments. The chair of the board and each committee chair
met in 2012 to discuss the risk oversight process.
Our management committee receives quarterly reports to review our progress in managing
these risks and identify any emerging risks. Management reports quarterly to the nominating,
corporate governance and risk committee on the risk management process and provides a risk
management report to the board annually.
The table below shows how the board and committees monitor risk across the organization. You
can read about the board committees on page 34 and compensation risk on page 41
Discussion
Cameco’s disclosure is excellent compared to most Canadian issuers. One suggestion for improvement would be
a discussion of how the board independently verifies management’s assessment of risk.
CCGG | Disclosure of Governance Practices 27
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Royal Bank of Canada, 2013 Proxy Circular, page 18-19:
Discussion
Some boards have established a separate committee that oversees risk. The RBC risk committee approves the
Bank’s risk appetite every year. The risk committee writes a report to shareholders each year that is included in
the circular.
Shareholder Engagement There is a growing emphasis on shareholder engagement and best practices continue to evolve. CCGG
recognizes that while boards may be able to meet with their largest institutional shareholders and groups like
the CCGG, in-person meetings are not a practical forum for boards to engage with all shareholders. At the very
least a company’s investor relations page should be used to engage with non-institutional shareholders. The
page should be regularly updated and should include all the major public documents (including but not limited
to the latest annual reports, proxy circulars, annual information forms and earnings conference call transcripts,
slideshows and webcasts). PotashCorp’s investor website is a good example.
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Disclosure of Executive Compensation
Compensation is one of the most powerful tools that boards have at their disposal for shaping the behaviour of
company management. While CCGG recognizes that the amount and design of executive compensation
packages is the responsibility of the board, compensation plans should reward performance and be aligned with
CCGG’s Executive Compensation Principles.
Disclosure of a company’s compensation plan should describe clearly how it is linked to the company’s strategy,
objectives and risk management. Compensation disclosure also should communicate the role of the board in
designing and determining executive compensation, key factors considered by the board, the ability of the
board to exercise discretion when making compensation decisions and whether discretion actually has been
used, and the rationale for the board’s decisions. This section shows examples of excellent disclosure of the
following practices:
Linkages between Executive Compensation and Corporate Strategy ........................................... 28 Linkages between Executive Compensation and Risk Management ............................................. 30 Variable Compensation .................................................................................................................. 34 Effectiveness of the Compensation Program over Time ................................................................ 37 Management Biographies and Performance Assessment ............................................................. 40 Termination and Change of Control Benefits ................................................................................. 41 Executive Share Ownership Requirements .................................................................................... 43 Use and Limits of Retirement Benefits and Perquisites ................................................................. 45 Use, Policies and Limits for Discretion ........................................................................................... 45 Compensation Consultants and Benchmarking ............................................................................. 46
Linkages between Executive Compensation and Corporate Strategy It is not sufficient merely to state how an issuer compensates its executive officers. CCGG expects issuers to
explain the link between its long-term corporate objectives and the compensation mix. We expect the
performance measures used in determining executive compensation to be linked to corporate strategy.
A common shortfall of compensation disclosure is the failure to explain why the key performance metrics
identified were chosen.
Sun Life Financial, 2013 Proxy Circular, page 38:
Letter to shareholders
In 2012, we began to execute on our strategic plan to accelerate growth, improve return on
equity and reduce volatility by concentrating on four key pillars:
a) Continuing to build on our leadership position in Canada in insurance, wealth
management and employee benefits
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b) Becoming a leader in group insurance and voluntary benefits in the U.S.
c) Supporting continued growth in MFS Investment Management (MFS) and broadening
our other asset management businesses around the world
d) Strengthening our competitive position in Asia.
We believe our current compensation programs are structured to support the achievement
of these strategic objectives. The performance targets used in our annual incentive plan
(AIP) reflect financial and non-financial objectives that are aligned to the annual business
plan approved by the board based on this strategy. Our long-term success on these strategic
pillars will be reflected in both our absolute and relative share price performance, which
are the key measures used in our long-term incentives and represent a significant portion of
pay for our most senior leaders. In addition to incentives, providing competitive salaries
and other pension and benefit programs ensures we attract and retain the talent needed to
execute on our strategy.
Discussion
Sun Life’s circular describes the organization’s strategic initiatives. It then describes how the chosen long term
performance measures link to these strategic initiatives.
Sun Life also states that short term performance measures link to the company’s strategic initiatives. Later on in
the circular, Sun Life provides more details regarding these short term measures:
Sun Life Financial, 2013 Proxy Circular, page 54
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Tim Hortons Inc., 2013 Proxy Circular, page 57
Short-Term Incentives (or Annual Cash Bonus)—the Executive Annual Performance Plan
Our short-term (annual) incentive compensation program for executive officers is known as the
Executive Annual Performance Plan (“EAPP”). Awards under the EAPP are “at risk” because the
corporation must achieve annual financial performance objectives established by the HRCC in
order for the executive officers to receive any payments under the EAPP. The HRCC believes that
the annual cash incentive award should constitute a substantial portion of executive
compensation to support our “pay-for-performance” philosophy and because our business
tends to work on shorter performance cycles, thus making annual incentive awards effective at
matching compensation to our performance. Additionally, given the relatively low level of our
executive base salaries, we believe that strong short-term cash incentive compensation assists
us to retain, motivate, and attract talented executives.
The two performance objectives established under the EAPP in 2012 were operating income, or
EBIT, as to 75% of the award, and Net Income, as to 25% of the award. The HRCC believed that
EBIT best reflects the financial health and performance of our business and also is a key
performance measure used by other quick service restaurant companies, which allows for
general comparability of performance. The HRCC also believed that Net Income was an
appropriate measure as it reflected overall earnings performance and requires management to
be responsible for, and manage every line item on, our Consolidated Statement of Operations.
[…]
Discussion
Tim Hortons explains how the design of the compensation plan, in this case the compensation mix, aligns with
the company’s particular business environment. As a retail business, Tim Hortons discloses that it operates on a
short performance cycle and, accordingly, the board has placed greater emphasis on compensation awards that
it believes best match this time horizon.
Linkages between Executive Compensation and Risk Management Closely related to the link between compensation and strategy is the link between compensation and risk.
Companies should disclose details of its executive compensation scheme through a risk oversight lens. The
disclosure should explain how the design of the compensation plan and use of board discretion serves to
discourage or dis-incent risk-taking beyond the company’s acceptable risk appetite, including the use of:
caps on payouts,
board discretion on payouts,
performance thresholds and vesting provisions,
deferring payouts beyond the term of greatest risk exposure, and
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a “clawback” policy that permits the company to recoup compensation already awarded in certain
circumstances.
TransAlta Corporation, 2013 Proxy Circular, pages 66-67:
ANNUAL COMPENSATION RISK REVIEW PROCESS
The Board believes that our executive compensation program should not raise the Company’s
risk profile. Accordingly, the HRC undertakes a comprehensive annual compensation risk review
as part of our Compensation Strategy. The focus of this review is to ensure that safeguards are
in place to identify and mitigate compensation-related risks. We also ensure our mitigation
measures are effective by conducting an annual audit through our Enterprise Risk Management
process.
We believe that this risk review process is an effective vehicle for examining compensation risk
and mitigation strategies. The review considers the major risks of our business, which include
equipment/maintenance, long-term contracting, market competition and pricing, energy
marketing, growth opportunities, construction and regulatory impact. In addition, our review
takes into consideration our compensation philosophy, pay mix balance, incentives and
performance measures, stock-based compensation and ownership requirements. The mix and
balance of these various measures including the limits to our variable compensation plans are
also reviewed. Our plans are also based on Company-wide financial metrics and payouts are
based on a combination of absolute and relative measures. In addition, the HRC receives
management’s analysis and stress testing of the factors included in the annual budget which is
the basis for establishing the Company’s various targets. This results in targets which are set
within our risk appetite and which provide sufficient incentive for our executives to pursue our
corporate objectives.
To further enhance our risk management strategy, we have adopted policies that limit
independent decision-making for transactions over certain financial thresholds thereby
incorporating a check and balance system to financial decision-making. Together, these
measures help minimize compensation risk-taking. These processes are evaluated yearly and are
designed to evolve over time in order to reflect developments and best practices in risk
governance. A comprehensive compensation-related risk assessment was undertaken by Towers
Watson in January 2012, and subsequently updated in October 2012 to include the changes to
the 2013 executive incentive plans. Following a review of this assessment by Meridian, the HRC
concluded that our pay programs and policies were not reasonably likely to have a material
adverse effect on TransAlta, our business and our value.
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Safeguards to mitigate compensation risks
Our compensation programs are designed to mitigate compensation risks. We believe the
following measures impose appropriate limits to avoid excessive or inappropriate risk-taking or
payments:
Compensation payments are capped to provide upper payout boundaries;
Milestones achieved must be maintained over a period of time prior to being paid or
awarded. This is achieved through vesting provisions built into our medium and long-term
incentive plans;
Annual review of our medium and long-term incentive plans targets and milestones to
ensure continued relevance and applicability;
Evaluation of variable compensation plan metrics to confirm balance of objectives between
plans thereby mitigating by design excessive risk-taking;
Clawback policy, which applies to all variable compensation plans. […]
Anti-hedging policy which, in addition to our insider trading policy, ensures that Executives
and directors cannot participate in speculative activity related to our shares. […]
Policies which limit authority on expenditures. The Board has put in place policies that limit
the expenditures which can be made at different levels of the organization.
Discussion
TransAlta provides detailed disclosure of how its Human Resources Committee actively considers risk
management when making compensation decisions. The disclosure also provides a summary of the actual
safeguards built into the compensation scheme.
Canadian National Railway Company, 2013 Proxy Circular, pages 39:
RISK MITIGATION IN OUR COMPENSATION PROGRAM
The Company has a formalized compensation philosophy to guide compensation program
design and decisions. Many of the characteristics inherent in the Company’s executive
compensation program encourage the right behaviours, thus mitigating risks and aligning long-
term results with shareholder interests. The following are examples of such characteristics:
• Appropriate balance between fixed and variable pay, as well as short- and long-term
incentives;
• Multiple performance metrics are to be met or exceeded in the AIBP;
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• Incentive payout opportunities are capped and do not have a guaranteed minimum payout;
• Executive compensation clawback policy is in place;
• Stock ownership guidelines apply to executives and senior management employees
(approximately 200 individuals).
A complete list and description of these risk-mitigating features is available on pages 49 and 50.
In 2012, CN requested that Towers Watson review the actions taken by CN since the 2011 Risk
Assessment and comment on any potential risks. Towers Watson considered the actions taken
by CN and consistent with their 2011 assessment, confirmed that “overall, there does not
appear to be significant risks arising from CN’s compensation programs that are reasonably
likely to have a material adverse effect on the Company”. The Committee strongly supports the
conclusions from Towers Watson’s risk assessment report and in its own assessment
determined that proper risk mitigation features are in place within the Company’s
compensation program.
Discussion
CN Rail presents a summary on risk mitigation towards the beginning of its compensation discussion. CN refers
the reader to a more detailed disclosure within the document.
Loblaw Companies Limited, 2013 Proxy Circular, pages 25-26:
Clawback Policies
In 2011, the Governance Committee introduced a clawback policy on STIP and LTIP payments for
senior executives including the NEOs when (i) an executive engages in conduct that results in
the need for the correction or restatement of financial results, (ii) the executive receives an
award calculated on the achievement of those financial results, and (iii) the award received
would have been lower had the financial results been properly reported. The clawback policy
also provides that a clawback may be triggered if an executive commits a material breach of the
Corporation’s Code of Conduct. The policy requires that when the clawback is triggered, the
executive must repay all of the incentive payments received over the two-year period preceding
the triggering event.
In 2011, the Corporation also introduced a data quality clawback mechanism that may reduce
STIP awards for data inaccuracies occurring as part of the Corporation’s IT systems
implementation. In 2012, the Corporation did not achieve 100% of its data accuracy and
completeness targets and, as a result, executives’ 2012 STIP payouts were reduced by 2.3%.
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Discussion
In its risk mitigation practices, Loblaw lists and explains its Clawback polices. The section demonstrates a good
example of clawback policies that go beyond financial restatement.
Variable Compensation Many compensation disclosures will state what percentage of named executive officer (NEO) compensation is
comprised of variable or “at-risk” elements, but there are many factors that can affect the degree of variability
in compensation outcomes. In assessing the degree to which executive compensation is truly at-risk, CCGG looks
for a company’s disclosure to answer the following questions:
What proportion of target total compensation is variable?
What is the range of potential payments under each variable compensation payment?
Are there specific vesting provisions tied to variable compensation? If so, do they include both time- and
performance-vesting provisions?
Further, when discussing performance targets and performance vesting conditions, compensation disclosure
should provide context so that shareholders have an appreciation for the degree of challenge or “stretch”
incorporated into “target performance” metrics. This may be done by providing historical performance results
for the metrics being used.
Bank of Nova Scotia, 2013 Proxy Circular, pages 27-28:
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Discussion
BNS’ disclosure clearly illustrates each general component of compensation and each component’s:
purpose,
performance period, if any,
relative risk of payout, and
proportion of target total direct compensation.
The disclosure also notes that more senior employees have greater ability to affect results over the long-term
and accordingly a greater proportion of their compensation is variable.
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TransAlta Corporation, 2013 Proxy Circular, pages 59:
Discussion
TransAlta’s circular provides a table that shows the following important details regarding each component of
executive compensation:
a) Component’s Purpose
b) Measurement (vesting criteria)
c) Target and Range
d) Form of payment
e) Performance Period
CCGG | Disclosure of Executive Compensation 37
2013 Best Practices for Proxy Circular Disclosure
Potash Corporation of Saskatchewan, 2013 Proxy Circular, page 45:
The following table sets forth the percentage of stock options granted under the 2008 POP, the
2009 POP and the 2010 POP that vested for the three-year performance periods ended
December 31, 2010, December 31, 2011 and December 31, 2012, respectively.
[…]The Compensation Committee believes that 100% vesting under our POP requires superior
performance during the applicable performance period and believes that our POP vesting
schedule appropriately links vesting of stock options to our performance relative to our peers.
Discussion
PotashCorp’s circular provides shareholders with a performance vesting schedule for the company’s annual
option grant. Furthermore, the company provides a table illustrating its performance during the vesting period
of the three most recently vested option grants, providing shareholders with some useful context.
This disclosure also merits inclusion as a best practice because it is an example of an option program that
includes performance-vesting conditions rather than merely time-vesting conditions.
Effectiveness of the Compensation Program over Time In order to truly understand the effectiveness of an issuer’s compensation program, shareholders need to know
not only the grant date value of compensation awards, which reflects how the board intended to compensate
management, but also how effective the compensation program has actually been in aligning management’s
interests with shareholders. Compensation disclosure should include:
an explicit discussion of whether and how a board considers outstanding and realized equity awards
when considering further such awards,
a “look back” table or chart showing the realized value of past compensation awards,
a chart comparing compensation awards against the actual results of key performance metrics used in
the compensation plan, and
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affirmation of any forward-looking stress tests the board may have conducted when making
compensation decisions and the results of those tests.
The Toronto-Dominion Bank, 2013 Proxy Circular, pages 39:
CEO Performance Compensation During Tenure
The following table compares the grant date value of compensation awarded to Mr. Clark in
respect of his performance as CEO with the actual value that he has received from his
compensation awards during his tenure. The actual compensation that he has received includes
salary and cash incentive payments, as well as the value at maturity of share units granted (or
current value for units that are outstanding), the value of stock options exercised during the
period, and the in-the-money value of stock options that remain outstanding. This analysis
allows the committee to consider compensation outcomes for the CEO when determining new
awards.
Discussion
Some issuers have included in their circulars the realizable value of Options and PSUs based on year end stock
prices. Disclosing realizable value of options and PSUs is a good practice but this value does not reflect the actual
compensation that is realized by the executive.
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TD’s circular includes an innovative look-back table which shows the grant date values of the CEO’s
compensation for each year of his tenure and the sum of the realized value and the value of any awards still
outstanding as of the most recent year-end. The table also compares the actual compensation the CEO received
to the value of a $100 shareholder investment in each of those years.
Potash Corporation of Saskatchewan, 2013 Proxy Circular, page 68:
The above chart compares the total annual compensation, which is comprised of fixed
compensation, equity compensation and awards under the Short-Term Incentive Plan earned by
the Corporation’s Named Executive Officers from 2005 through 2012 to PotashCorp’s annual
CFROI-WACC during the same period.
CFROI-WACC is the performance metric used to determine vesting of performance options
granted under the POP and is correlated with total shareholder return. While total Named
Executive Officer compensation was not directly correlated to CFROI-WACC between 2005 and
2012, the general trend in total Named Executive Officer compensation was consistent with the
general trend in CFROI-WACC. Because awards under PotashCorp’s incentive plans are capped
at certain maximum performance levels, there was a substantial increase in CFROI-WACC
between 2006 and 2008 while levels of total Named Executive Officer compensation during the
same period were relatively stable. In 2009, because the Corporation failed to achieve the
minimum corporate financial performance required under STIP, no STIP awards were earned by
PotashCorp’s Named Executive Officers. Furthermore, the equity compensation levels in 2006,
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2009 and 2012 reflect the payout of a multi-year award under the Medium- Term Incentive Plan,
reflecting performance in each respective prior three-year period.
For purposes of the above chart, fixed compensation includes base salary and other
compensation, which includes perquisites and personal benefits. Equity compensation includes
the grant-date fair value of awards under the Medium-Term Incentive Plan and annual
Performance Option Plans.
Discussion
PotashCorp discloses a chart that shows the grant date value of each of its compensation awards relative to
performance under one of the company’s primary performance metrics (the spread between CFROI and WACC).
This disclosure provides shareholders with some context to understand how closely the grant date value of
executive compensation tracks performance.
Management Biographies and Performance Assessment To understand the appropriateness of a company’s executive compensation plan and its compensation
decisions, shareholders need to have some understanding of the roles and responsibilities of all NEOs, their
qualifications, and how their performance was assessed.
Royal Bank of Canada, 2013 Proxy Circular, pages 40-44:
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Discussion
RBC’s circular provides an excellent overview of the preceding year’s compensation for each NEO.
Termination and Change of Control Benefits In seeking to understand the employment agreements between an issuer and its NEOs, including their minimum
share ownership requirements, CCGG looks for compensation disclosure to answer the following questions:
Does the company have employment agreements with its NEOs? What are the material terms of the
agreements?
What payment, if any, is awarded…
o …if a NEO resigns?
o …if a NEO is terminated without cause?
o …if a NEO is terminated without cause after a change of control occurs?
o …if a change of control occurs but a NEO is not terminated?
How is a change of control defined?
Has the board resolved to discontinue/introduce contract provisions in future that differ from those
currently in place (e.g. will a future CEO’s severance payments be subject to double trigger provisions)?
What payments would be made to NEOs under each termination scenario if their employment had been
terminated at year-end?
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Canadian National Railway Company, 2013 Proxy Circular, pages 48-49:
CHANGE OF CONTROL PROVISIONS
The Management Long-Term Incentive Plan and the RSU Plan were amended effective March 4,
2008 to include “double trigger provisions”. Pursuant to such provisions, the vesting of non-
performance options or RSUs awarded after that date and held by a participant would not
accelerate upon a Change of Control, unless the participant is terminated without cause or
resigns for good reason. A Change of Control means any of the following events:
a) in the event the ownership restrictions in the CN Commercialization Act are repealed, a
formal bid for a majority of the Company’s outstanding common shares;
b) approval by the Company’s shareholders of an amalgamation, merger or consolidation of the
Company with or into another corporation, unless the definitive agreement of such transaction
provides that at least 51% of the directors of the surviving or resulting corporation immediately
after the transaction are the individuals who, at the time of such transaction, constitute the
Board and that, in fact, these individuals continue to constitute at least 51% of the board of
directors of the surviving or resulting corporation during a period of two consecutive years; or
c) approval by the Company’s shareholders of a plan of liquidation or dissolution of the
Company.
The amended provisions state that acceleration of vesting would not occur if a proper substitute
to the original options or units is granted to the participant. If such substitute is granted and a
participant is terminated without cause or submits a resignation for good reason within 24
calendar months after a Change of Control, all outstanding substitute options or units which are
not then exercisable shall vest and become exercisable or payable in full upon such termination
or resignation. Substitute options that are vested and exercisable shall remain exercisable for a
period of 24 calendar months from the date of such termination or resignation and units shall
be paid within 30 days. These amended provisions only affect grants made after March 4, 2008,
and discretion is left to the Board of Directors to take into account special circumstances.
Canadian National Railway Company, 2013 Proxy Circular, pages 69-70:
TERMINATION AND CHANGE OF CONTROL BENEFITS
The Company does not have contractual arrangements or other agreements with NEOs in
connection with termination, resignation, retirement, change of control or a change in
responsibilities, other than the conditions provided in the compensation plans, and summarized
as follows:
CCGG | Disclosure of Executive Compensation 43
2013 Best Practices for Proxy Circular Disclosure
CHANGE OF CONTROL
The following table shows the incremental benefits that NEOs would have been entitled to had
there been a change of control on December 31, 2012.
Discussion
CN Rail’s circular includes all the information discussed above.
Executive Share Ownership Requirements Companies should consider adopting share ownership requirements for its NEOs to enhance alignment of
interests with the company’s shareholders. Additionally, disclosure should answer the following questions:
What are the minimum share ownership requirements that each NEO must meet?
Are NEOs required to maintain minimum share ownership levels for any period of time after leaving the
company?
Has the company adopted an anti-monetization and/or an anti-hedging policy?
What are each NEO’s current shareholdings relative to the required holdings level?
What is the basis used for valuing NEO shareholdings?
Do in-the-money option grants and unvested equity grants count towards an NEO’s minimum ownership
requirements?
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Bank of Nova Scotia, 2013 Proxy Circular, pages 32-33:
Executive Share Ownership Guidelines
In support of our goal of aligning executive and shareholder interests and discouraging undue
and excessive risk taking, all of our executives must meet minimum share ownership
requirements. In addition, the CEO and his direct reports are subject to postretirement
retention requirements. The required holdings reflect the executive’s compensation and level,
and may be satisfied through holdings of common shares, as well as any outstanding DSUs,
RSUs, PSUs and DPP units and holdings in our Employee Share Ownership Plan. New and
promoted executives have three years to meet the share ownership requirements.
The table below summarizes the minimum ownership requirements by level:
All of the NEOs have exceeded the minimum share ownership guidelines, as outlined in the
following table:
CCGG | Disclosure of Executive Compensation 45
2013 Best Practices for Proxy Circular Disclosure
Note on Trading Restrictions:
Effective with the December 2010 grants, to be eligible to receive equity-based awards
executives must attest that they do not use personal hedging strategies or compensation-
related insurance to undermine the risk alignment effects embedded in our compensation plans.
All of our employees, including executive officers are prohibited from entering into short sales,
calls and puts with respect to any of our securities. These restrictions are prohibited under the
Bank Act, and are enforced through our compliance programs. In addition, executive officers are
required to seek pre-clearance from our compliance department prior to buying or selling any of
our publicly-traded securities, including stock options.
Discussion
BNS’ disclosure with respect to NEO share ownership meets all of our best practices.
Use and Limits of Retirement Benefits and Perquisites In reviewing the use of executive perquisite and retirement benefit programs, CCGG looks for compensation
disclosure to answer the following questions:
Has the company granted an NEO bonus years of pension service beyond those years actually worked?
Does the company have a policy on whether it will do so in the future?
Does the company have caps, either hard-dollar or otherwise, on pension benefits?
Does the company have any policies governing the use of perquisites for executives, particularly for
controversial perquisites such as personal use of corporate aircraft or tax-gross ups?
Canadian National Railway Company, 2012 Proxy Circular, page 42:
Discussion
CN Rail discloses explicitly that it does not provide tax gross-ups and that executives may use corporate aircraft
only for business matters.
Use, Policies and Limits for Discretion The use of board discretion is an important consideration for many shareholders when assessing executive
compensation disclosure. Situations may arise in which unforeseen circumstances cause formula-driven
compensation decisions to be inappropriate, but the use of discretion to increase compensation awards in years
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of poor performance may prompt shareholder concern that discretion is being used inappropriately. In order to
mitigate these concerns, compensation disclosure should:
fully explain under what circumstances the board might reasonably expect to exercise discretion,
state whether discretion was used to adjust awards during the current year or in the recent past, and if
so, why,
state the degree to which the use of discretion (if applicable) affected actual compensation awards and
if it would be exercised in the inverse situation to an equal but opposite degree, and
state if there are any limits or rules governing the use of board discretion.
Sun Life Financial, 2013 Proxy Circular, page 50:
Use of discretion
The board has discretion to increase or decrease awards under the AIP based on its assessment
of risk management and the impact on our financial results, and other factors that may have had
an effect on performance. The board has discretion to lower or zero out AIP or IIP awards, and
to lower or not grant new LTI awards for individuals or groups, if it concludes that results were
achieved by taking risks outside of board approved risk appetite levels. Under the Sun Share
plan, the board has discretion to cancel all outstanding awards if it determines that payment
would seriously jeopardize the capital position or solvency of the organization.
Discussion
Sun Life discloses that its board has the right to use discretion, gives a broad sense of what the circumstances
are under which discretion would be applied (discretion is primarily used for “risk mitigation” by Sun Life), and
discloses in its circular where discretion was used (not shown in the above quote).
Compensation Consultants and Benchmarking Compensation structure is often complicated and many boards seek outside advice to help design compensation
plans. Boards also commonly benchmark compensation against peers to ensure the company pays in a manner
that is competitive. We caution that the practice of benchmarking against peers should not be overly relied
upon at the expense of a robust, independent analysis.
When external consultants are retained by the board, the board, as a governance best practice, should ensure
that the consultant is independent of management. In any event, while the input received from independent
compensation consultants may provide valuable assistance to the board, it does not necessarily validate the
approach to executive compensation nor does it reduce the board’s responsibility to ensure that compensation
decisions are appropriate and closely aligned with performance.
Boards should disclose answers to the following questions:
Does the compensation committee make use of an independent compensation consultant?
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If management retains the same compensation consultant as the committee, must the committee first
give its approval? If so, what portion of the consultant’s total fees was attributable to work done for
management?
To the extent peer group benchmarking is used, does it serve solely to inform the board or does the
board target a specific range or percentile level for compensation relative to its chosen peer group?
What companies comprise the peer benchmarking group and what is the rationale for including the
peers that were chosen?
The Toronto-Dominion Bank, 2013 Proxy Circular, page 26:
Discussion
Like most companies, TD discloses its peer selection criteria and the selected peers. What sets TD apart is the
disclosure in brief of peer size using three measures, as well as the peer group average, relative to TD’s own size.
TD also discloses its rationale for including certain US-based banks but not others.
Say on Pay
Thompson Creek Metals Company Inc., 2013 Proxy Circular, pages 25-26:
2012 Say on Pay Vote
In direct response to the results of 2011's advisory "say-on-pay" vote, we discussed our
executive compensation program with our shareholders during in-person meetings and through
individual correspondence and implemented certain changes described below. In 2012, 96% of
the votes cast voted in favor of our 2011 executive compensation program and proposed
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revisions. Our Board of Directors has approved to hold future advisory votes on the
compensation of the Company's named executive officers every year until the next shareholder
advisory vote on the frequency of such votes, which is required to be held at least once every six
years. The Compensation and Governance Committee continues to review our executive
compensation program to ensure its effectiveness and further align the interests of our
executives with our shareholders.
Changes to Compensation Structure for 2012 and 2013
Below is a summary of the major changes to our executive compensation program implemented
by the Compensation and Governance Committee in 2012 and 2013:
• Replaced stock price targets with total shareholder return. […]
• Moved from ratable to cliff-vesting for PSUs granted to executives. […]
• Tied bonus payments to multiple equally weighted performance metrics. […]
• Altered the mix of equity based incentive compensation for executives. […]
• Revised the form of employment agreement for future executives. […]
• Adopted stock ownership guidelines. […]
• In March 2013, the Company entered into amendments to the PSU award agreements entered
into in 2010, 2011 and 2012 with each of our named executive officers and amendments to the
RSU award agreements entered into in 2012 with Mr. Loughrey, Ms. Saxton and Mr. Wilson. […]
• Amended the Company's Insider Trading Policy to prohibit pledging and hedging. […]
• Clawbacks. […]
Discussion
Thompson Creek is a good example showing the importance of a ‘say on pay’ advisory vote. In 2011, Thompson
Creek Metals received the lowest level of support for its ‘Say on Pay’ resolution of any Canadian-listed issuer
that year: 64%. In response, the company disclosed in detail the steps taken to engage shareholders and reform
their executive compensation practices. Subsequently, in 2012, its ‘Say on Pay’ support level rose to 96%.
CCGG’s model “Say on Pay” policy is available on our website.
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Disclosure by Equity Controlled Corporations
CCGG acknowledges that companies that have a significant portion of their shares controlled by a single party
(or a group of parties acting in concert) may have good reason to adopt modified governance policies and
practices relative to those applicable to widely-held companies. Accordingly, in October of 2011, CCGG
published specific governance guidance for equity-controlled corporations,
Majority Voting CCGG believes that all issuers should adopt a majority voting policy. In the case of equity controlled
corporations, while the outcome of shareholder votes is seldom in doubt, these corporations should
nonetheless adopt a majority voting policy that would take effect in the event that the proportion of shares held
by the controlling shareholder falls below 50%.
Imperial Oil Limited, 2013 Proxy Circular, page 4
Majority Voting Policy
In order to better align with the Canadian Coalition for Good Governance’s policy, “Governance
Differences of Equity Controlled Corporations” – October, 2011, in 2012, the board of directors
of the company passed a resolution adopting a majority voting policy.
As of the date of this circular, Exxon Mobil Corporation holds 69.6% of the company’s shares. If
Exxon Mobil Corporation’s shareholdings were ever to fall below 50%, the company’s policy
provides that for any non-contested election of directors, any director nominee who receives a
greater number of votes "withheld" from his or her election than votes "for" in such election
shall tender his or her resignation. Within 90 days after certification of the election results, the
board of directors will decide, through a process managed by the nominations and corporate
governance committee and excluding the nominee in question, whether to accept the
resignation. Absent a compelling reason for the director to remain on the board, the board shall
accept the resignation. The board will promptly disclose its decision and, if applicable, the
reasons for rejecting the tendered resignation.
Discussion
Imperial Oil has adopted CCGG’s reccomendation discussed above.
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2013 Best Practices for Proxy Circular Disclosure
Voting Results
Imperial Oil Limited, 2013 Report of Voting Results
Discussion
Imperial Oil has a controlling shareholder which owns more than two-thirds of the company’s shares so the
outcome of motions made at the AGM are seldom in doubt. Nonetheless, it discloses results for two types of
ballots: those cast by the controlling shareholder, and those cast by owners of publicly-traded shares. This kind
of disclosure is very useful for minority shareholders.
The Chair as a Related Director
Loblaw Companies Limited, 2013 Proxy Circular, page 48:
Board Leadership
Mr. Galen G. Weston is the Executive Chairman of the Board. [...] The Executive Chairman
directs the operations of the Board. He chairs each meeting of the Board and is responsible for
the management and effective functioning of the Board generally and provides leadership to the
Board in all matters. More specifically, the Executive Chairman works in consultation with the
members of senior management to, among other things, set the agenda for each Board
meeting; ensure that the Board has all the information it needs to discuss the matters brought
before the Board; and ensure that all of the Board’s responsibilities, as set out in the Board
mandate, are being fulfilled. [...]
The Board has also appointed an independent director, Anthony S. Fell, to serve as Lead
Director. The Lead Director provides leadership to the Board and particularly to the independent
directors. He ensures that the Board operates independently of management and that directors
have an independent leadership contact. The Lead Director chairs meetings of the independent
directors following each Board meeting and on other occasions as required or desirable. The
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Board maintains a position description for the Lead Director. The Lead Director meets
periodically with the other independent directors to obtain insight as to areas where the Board
and its Committees can operate more effectively and to ensure that the Board is able to
discharge its responsibilities independent of management.
Loblaw Companies Limited, 2013 Proxy Circular, page 49:
The Board has determined that the current leadership structure, in which the offices of the
Executive Chairman and the Chief Executive Officer are held by one person and an independent
director acts as Lead Director, ensures the appropriate level of oversight, independence and
responsibility is applied to Board decisions. The Chairman of the Governance Committee serves
as the Lead Director. The Lead Director facilitates communication with the Board and presides
over sessions where the independent directors meet without the non-independent directors, or
where sessions when the Executive Chairman is not present. The Lead Director, and each of the
other directors, communicate regularly with the Executive Chairman regarding appropriate
agenda topics and other Board related matters.
The Board is of the view that having an Executive Chair related to the controlling shareholder
and a Lead Director that is independent works well in addressing any potential conflicts of
interest between the Corporation and the controlling shareholder. The role of an independent
Lead Director is needed to ensure that the interests of the Corporation and of the minority
shareholders and other relevant stakeholders are protected.
Individual directors may, with the approval of the Lead Director, retain an outside advisor at the
expense of the Corporation as necessary.
Discussion
The controlling shareholder of Loblaw Companies controls more than 50% of its common shares. In such cases,
it is acceptable for the Chair to be a “related director” as defined in the CCGG publication Governance
Differences of Equity Controlled Corporations if the board appoints an independent lead director, as Loblaw
has done.
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2013 Best Practices for Proxy Circular Disclosure
Disclosure by Dual Class Share Companies
In September of 2013 CCGG published our Dual Class Share (“DCS”) policy. In that policy, CCGG made the
following statements about the expected disclosure from a DCS company which undertakes an initial public
offering after September 2013:
CCGG DCS policy, page 6:
CCGG’s board of directors and a large majority of CCGG’s members also expect the board of a
DCS company which undertakes an initial public offering in Canada after the date of this
publication and which does not comply with any or all of these principles to explain to
shareholders annually in the DCS company’s proxy circular (or if the DCS company does not
issue a proxy circular because the public owns non-voting common shares, then in another
public document which is filed with the securities regulatory authorities) the reasons why it is
not appropriate for such principles to apply to the DCS company.
CCGG DCS policy, page 11:
On an ongoing basis, the board of a DCS company should consider the reasons why a DCS
structure was established and whether those reasons remain valid and should explain to
shareholders annually in the DCS company’s proxy circular (or if the DCS company does not
issue a proxy circular because the public owns non-voting common shares, then in another
public document which is filed with the securities regulatory authorities) the reasons why the
continued existence of the DCS structure is appropriate.
In addition, CCGG made the following statement about disclosing voting results for directors:
CCGG DCS policy, page 7:
When a DCS company reports the results of director elections, in addition to disclosing the
aggregate voting results the DCS company also should disclose the voting results for the MV
(multiple voting) Shares and the SV (subordinate voting) Shares separately.
Notwithstanding that CCGG’s DCS principles are intended to be applied on a going forward basis to any newly
created DCS company in Canada, CCGG encourages existing DCS companies to take the DCS principles into
account if and when appropriate.