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Developments in Executive Compensation Disclosure for Canadian Issuers

Canadian Securities Administrators Staff Notice 51-331


On November 20, 2009, the Canadian Securities Administrators (CSA) issued CSA Staff Notice 51-331 (the Staff Notice) reporting findings of their targeted compliance review of executive compensation disclosure of 70 (unnamed) reporting issuers in relation to compliance with the new executive compensation rules that were implemented on December 31, 2008. The focus of the reviews was to assess compliance with the new executive compensation disclosure requirements, use the review results to educate companies about the new requirements, and identify any requirements that need clarification or further explanation to assist companies in fulfilling their disclosure obligations.

The Staff Notice is fairly short (eight pages) and contains some useful guidance for issuers in relation to preparing executive compensation disclosure for this year.

Based on the reported findings, issuers should consider the following in preparing this year’s executive compensation disclosure:

  • Ensure that the Compensation Discussion & Analysis (CD&A) explains sufficiently the process of making executive compensation decisions, including determining performance goals, and how each element of compensation is specifically tied to the performance of the named executive officers (NEOs). Also ensure that the discussion in the CD&A can be linked to the rest of the company’s executive compensation disclosure and the compensation that is reported, specifically the Summary Compensation Table (SCT).
  • Provide meaningful disclosure of specific corporate-based and individual performance metrics.
  • Provide complete disclosure regarding the selection criteria for the benchmark comparator group, a list of all peer companies, and a description of how benchmark information is used and for what purposes.
  • Fully disclose how the trend shown in the performance graph, showing the company’s cumulative total return over five years, compared to the trend in the compensation of executive officers over that period.
  • Include appropriate disclosure in the SCT, in the year of the grant, of the grant date fair value of multi-year share-based awards that are subject to conditions being satisfied, or vesting, in future years, where it may be appropriate to discount the accounting fair value — and quantify and explain the difference between the reported grant date fair value and accounting fair value.
  • Provide expanded disclosure of pension plan benefits (including non-compensatory amounts under defined contribution plans and annual lifetime benefits payable at the end of the most recently completed financial year) and quantification of termination and change of control benefits.
  • Use caution in deleting columns or adding additional information to the tables in the SCT, in order to avoid de-emphasizing the total compensation column.

Compensation Discussion and Analysis

Performance Goals or Similar Conditions

CSA staff found more significant disclosure issues regarding performance goals than for any other disclosure item.

The CSA expect issuers to explicitly link and tie the CD&A discussion regarding performance goals with the NEOs’ compensation reported in the SCT. For example, if a company discloses a performance goal based on an objective measure in the CD&A, and the SCT discloses a bonus was earned, the CD&A should also disclose the actual objective measure achieved in explaining why the bonus was paid. Conversely, if the CD&A discloses that performance goals were met, but no bonus is reflected in the SCT, the CD&A should provide an explanation. Issuers should consider cross-referencing the information in the CD&A and SCT.

The CSA also indicated that companies must fully and accurately describe the relative importance between corporate-level goals and individual performance objectives in determining the NEO’s compensation. They were critical of companies that provided meaningful disclosure regarding corporate-level performance goals and less than full disclosure that individual performance is also evaluated based on other performance goals.

Where a company applies discretion to either increase or decrease compensation following initial setting of performance goals, the CD&A should fully explain the discretionary process.

A number of companies did not quantify performance goals that were based on objective measures. Even if objective performance measures are intended only to be guidelines and not hard targets, and payment of and criteria for payment of bonuses remains at the discretion of the board, the CD&A should quantify the objective measures and fully explain the discretionary process.

The CSA provided guidance regarding the "seriously prejudice" exemption from the requirement to disclose specific performance goals. Generally the CSA believe that disclosing past performance metrics based on broad corporate-level financial performance measures such as earnings per share, revenue growth and EBITDA would not seriously prejudice the company’s interests, as these measures are generally publicly available in other disclosure documents.

If a company is able to rely on the exemption, where that may be appropriate (e.g., in respect of performance goals based on historical operational targets), the company must disclose what percentage of the NEO’s total compensation relates to the undisclosed information and state how difficult it would be for the NEO, or for the company, to achieve the undisclosed performance goal, in sufficient detail to provide context and permit investors to understand how the executive compensation decisions are made. For example, the company could disclose whether the undisclosed performance goal was achieved in the past, and, if the undisclosed performance goal is intentionally incrementally more difficult to achieve based on prior year results, the CD&A could emphasize that they are "stretch" targets intended to promote enhanced performance year over year.

Although not discussed in the CSA Notice, the CSA likely expect that the CD&A will discuss whether any option-based awards were replaced or amended and whether specific awards (e.g., option grants) were subject to performance conditions.


The CSA compliance reviews found that 42 of the 70 companies reviewed had significant disclosure issues in relation to benchmarks.

The prescribed Form requires, if applicable, clearly stating "the benchmark" and explaining its components, including the companies included in the benchmark group and the selection criteria. The commentary in the Form includes, as an example of items that will usually be significant elements of disclosure, whether the company used any benchmarking in determining compensation or any element of compensation. The CSA had not previously provided much other guidance regarding this requirement.1

The Staff Notice criticized companies for (i) not clearly explaining their benchmarking methodologies regarding how they used the benchmark or peer group information in decisions about executive compensation, and (ii) failing to disclose the complete list of the composition of the benchmark group. Although not expressly stated in the Staff Report, the CSA also expect companies to explain their choice of comparator companies.

The CSA suggest that if a company uses different peer groups for different components of compensation, or for different NEOs, the company should clearly describe which peer group is used for each component or NEO, and how the benchmark is used.

Although not discussed in the CSA Notice, the CSA may expect that the benchmarking disclosure should discuss whether the company is targeting compensation for any percentile of the comparator group.

The CSA further indicated that the use of compensation data collected from a peer group of companies as a guideline (and not to set hard targets) for compensation constitutes benchmarking. In such a case, companies should disclose the peer group components. Clarification in the CD&A that the compensation data is only used as a guideline may be appropriate.

Although not referred to in the Staff Notice, a July 2008 "Compliance and Disclosure Interpretation" from the United States Securities and Exchange Commission (SEC) might be considered. In response to a question regarding the meaning of "benchmarking" in the context of the SEC’s executive compensation disclosure rules, the SEC indicated that benchmarking generally entails using compensation data about other companies as a reference point on which – either wholly or in part – to base, justify or provide a framework for a compensation decision. It would not include a situation in which a company reviews or considers a broad-based third-party survey for a more general purpose, such as to obtain a general understanding of current compensation practices.

Performance Graph

The CSA critically commented that a number of companies they reviewed did not fully satisfy the comparison requirement to discuss how the trend shown by the performance graph of the company’s cumulative total shareholder return over the five most recently completed financial years compares to the trend in the compensation to executive officers over the same period. Companies should "specifically" describe the trend in executive compensation and describe how that trend compared to the trend in cumulative total shareholder return.

The CSA further noted that the comparison requirements apply to the five-year period covered by the performance graph in the CD&A not the shorter three-year period reported on in the SCT.

The CSA also commented that the voluntary practice adopted by some companies of providing an additional line in the performance graph showing the trend of the NEOs’ total compensation over the same period was an "effective and meaningful way" of comparing compensation trends with total shareholder performance when combined with a narrative discussion. This could be considered as a possible "best practice."

Summary Compensation Table

Grant date fair value of multi-year share-based awards

Share-based awards (particularly awards that are only cash-settled) that include conditions (including performance goals or vesting) in relation to future years raise difficult disclosure issues. Many companies have struggled with disclosure of such awards under the new requirements.

Unfortunately, the guidance previously provided by the CSA regarding disclosure of "grant date fair value" of share-based awards generally seemed to be more applicable to equity instruments or equity-settled instruments, such as a stock option,2 and less applicable to share-based awards, particularly cash-settled awards. For share-based awards, such as a deferred share unit (DSU), restricted share unit (RSU) or performance share unit (PSU), which are only cash-settled, application of the disclosure requirements is less clear.3

The application of the disclosure requirements to share-based awards is further complicated if an award is subject to conditions being satisfied in future financial years (e.g., performance goals, or vesting). For example, an award might contemplate that vesting only occurs after "service" conditions (the executive continuing to be employed or render services for a requisite period) or performance conditions, providing for different payouts depending on the achievement of different performance conditions, and may provide for (i) a minimum payout; (ii) a threshold or target payout; and (iii) a maximum payout, dependent upon achievement of performance conditions. It is not clear whether such conditions necessarily impact the determination of grant date fair value, either for accounting purposes or as contemplated by the CSA.4

In addition, for companies that may be subject to, or familiar with, US executive compensation disclosure requirements, these issues are further complicated by the fact that, the SEC, and US accounting requirements, have provided some guidance that might be relevant.5 However, although many of the US executive compensation disclosure requirements are generally comparable to the 2008 Canadian requirements, US requirements for disclosure of option-based and share-based awards have been completely different.6

The CSA do not seem to have addressed these issues, either in the Commentary in the Form or in prior notices. In addition, to the extent that, for accounting purposes, the accounting grant date fair value, or compensation cost, might not require discounting or deduction to take into account service or performance conditions (for example, on a basis consistent with treatment in the United States or, for a cash-settled award classified as a liability because, for accounting purposes, no compensation cost is recognized until settlement), the prior Form, including the Commentary therein, seemed to contemplate that companies may calculate the grant date fair value in accordance with a valuable methodology identified in the CICA Handbook, or may choose to use another valuation methodology, if it produces a more meaningful estimate of fair value.

The Staff Notice, however, provides guidance that suggests that for a share-based award that relates to multiple financial years and that has a payout that is subject to performance goals and similar conditions, including vesting, to be applied in future financial years, the grant date fair market value methodology used should take into account the fact that the NEO will not receive the award until the performance goals, including vesting, for the subsequent financial years, are satisfied, and the grant date fair value of the entire award, including the parts related to subsequent years, as so determined, must be reported in the SCT in the year of the grant. As a result, it seems that the CSA is mandating that the grant date fair value of share-based awards subject to performance goals, including vesting, may have to be calculated by appropriately discounting the accounting fair value. This seems to be the case even if the determination of accounting fair value might not require any discount to reflect the service or performance conditions. The CSA do not, however, provide any guidance regarding determination of an appropriate discount factor.7

The Staff Notice further makes clear that, where the grant date fair value reflects a discount from accounting fair value (or otherwise is different from accounting fair value), the company must both state and explain the difference and include a description of the methodology used to calculate the grant date fair value, a description of the key assumptions and estimates used for each calculation, and an explanation of why the company chose that methodology.8

It should be noted that the grant date fair value, determined in accordance with the guidance described above, must be included in the SCT, but the "outstanding share-based awards and option-based awards" table required by section 4.1 of the Form requires, for share-based awards, disclosure of (i) the value of the award based on the "payout" if a share-based award provides only for a single payout on vesting; or (ii) if the share-based award provides for different payouts depending on the achievement of different performance goals, or similar conditions, the value calculated based on the minimum payout, except, if the NEO achieved a performance goal or similar condition in a financial year covered by the award that on vesting could provide for a payout greater than the minimum payout, the value should be calculated based on the payout expected as a result of the NEO achieving the performance goal or similar condition.9

In December 2009, the SEC published amendments to the US rules that include requiring the full grant date fair value of stock and option awards, computed under Financial Accounting Standards Board Accounting Standards Codification Topic 718(FASB ASC Topic 718), to be reported in the SCT, rather than the amount recognized for accounting purposes. The SEC proposal published in July 2009 commented that, for awards with performance conditions, under the proposed amended requirement, the full grant date value would be reported "without regard to the likelihood of achieving the performance objective." In the final rule adopted in December 2009, the SEC revised the proposal and the rule requires disclosure of the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718, with a special instruction clarifying how performance awards are disclosed. The instruction specifies that awards that are subject to performance conditions should be reported based on the "probable outcome" of such conditions (which should be consistent with the estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under FASB ASC Topic 718, excluding the effect of estimated forfeitures). The instruction further requires, in a footnote to the table, disclosure of the value of the award at the grant date assuming that the highest level of performance conditions will be achieved if an amount less than the maximum was included in the table. The SEC proposal, and final rule, can be contrasted with the position of the CSA indicated in the Staff Notice.10


Although subsection 1.3(2) of the Form permits companies to add tables, columns and other information, the Staff Notice suggests that the SCT should not be presented in a different format, for example, to de-emphasize the total compensation column.

Pension Plan Benefits

The Staff Notice provides guidance regarding the requirement in the Form relating to defined benefit pension plans to disclose the annual lifetime benefit payable. For the purposes of quantifying the annual lifetime benefit payable at the end of the most recently completed financial year, companies should assume that at year-end the NEO is eligible to receive pension benefits and calculate the annual lifetime benefit based on the annual benefits payable, and years of credited service, at the presumed retirement age used to calculate the accrued obligation at year-end.

Termination and Change in Control Benefits

The CSA critically noted that a number of companies failed to quantify the estimated incremental payments, payables and benefits triggered by a termination, resignation, change in control or change in an NEO’s responsibilities. For example, narrative disclosure that an executive officer would be entitled to three years’ salary and bonus is not sufficient, and the amounts must be quantified. In addition, individual disclosure for each NEO is necessary, and aggregate disclosure for all NEOs does not satisfy the requirement.

Although the Form does not require tabular disclosure, the CSA commented that tabular presentation used by some companies was an effective and meaningful way of disclosing the information. This might be considered as a possible "best practice."

Defined Contribution Pension Plans

The CSA confirmed that section 5.2 of the Form requires, for defined contribution pension plans, disclosure of both compensatory and non-compensatory amounts, and companies cannot choose to not disclose non-compensatory items such as the NEO’s contributions on the basis that it is "personal."

Director Compensation

The CSA Staff Notice includes a reminder that the director compensation table must be completed in the same manner as the SCT, and companies must provide the same incentive plan awards disclosure for directors as is required for NEOs. Companies must narratively describe and explain any significant factors necessary to understand the compensation disclosed in the director compensation table.

Other Guidance

The CSA also provided additional clarification and guidance:

  • Grant date definition – the requirements to disclose grant date fair value of equity incentive awards do not apply to commitments to grant awards in future periods if the date the commitment made is not the "grant date" as determined for financial statement reporting purposes.
  • Non-equity incentive plan compensation value earned during the year – companies must disclose in column (f2) of the SCT amounts earned that are related to long-term non-equity incentive plans and earnings on such outstanding awards only in the year earned, which typically would be the year in which the award vests or is paid out. Companies must disclose in the "incentive plan awards-value vested or earned during the year" table, required pursuant to section 4.2 of the Form, the value for non-equity incentive plan compensation earned during the year; this should be the same as the value for non-equity incentive compensation earned during the year required to be disclosed in column (f) of the SCT.

Other Emerging Trends and US Reforms

Link Between Risk and Compensation

Investors and regulators, particularly in the US, are increasingly becoming concerned regarding "enterprise risk" and ensuring that activities that materially affect a company’s risk, or management of that risk, are fully disclosed to shareholders and investors. As a result, even prior to implementation of the US reforms referred to below, some companies are considering reviewing and revising their CD&A to include an expanded discussion about (i) the company’s risk management objectives, and how the company rewards and incentivizes employees; (ii) the extent to which that may relate to or affect risk taking by the employees or affect the company’s risk; and (iii) risk management, and the risk assessments and related incentive consideration considered by the company in structuring compensation policies and awarding and paying compensation. In addition, some boards and compensation committees are rethinking how to better incorporate risk and risk management into their incentive compensation policies and whether changes may be appropriate to compensation policies or practices to address changes in the company’s risk profile (which extends beyond issues of disclosure).

US Reforms

In December 2009, the SEC adopted new requirements to enhance required compensation and corporate governance disclosures, including the following:

  • enhanced disclosure regarding overall compensation policies and practices for compensating all employees, including non-executive officers, and their impact upon, and relationship to, the company’s risk and risk management, where such policies and practices are reasonably likely to have a material adverse effect on the company (see above);
  • amended requirement to disclose the total grant date fair value of option and share awards instead of the amount recognized for accounting purposes (see above);
  • enhanced disclosure regarding the experience and qualifications of directors and director nominees;
  • new disclosure about the company’s leadership structure and the board’s role in the risk management process;
  • new disclosure regarding compensation committees and the role played by compensation consultants and potential conflicts of interest of compensation consultants; and
  • accelerated reporting of voting results.

Although Canadian regulators often follow the lead of the SEC and subsequently adopt comparable reforms, in this case the Canadian regulatory position already reflects a requirement to disclose grant date fair value in the SCT, and National Instrument 58-101-Disclosure of Corporate Governance Practices and Form 58-101F1 already include requirements in relation to disclosure regarding compensation committees and the role of compensation consultants. In addition, Canadian regulators may determine that in Canada there has not been misalignment of short term incentives created by compensation policies and long-term well-being of Canadian companies, particularly large financial institutions, to the same extent as there may have been in the US, such that all the same reforms may be less necessary in Canada. Nonetheless, Canadian companies should monitor the status of the proposed US reforms, their implementation, and early experience following implementation.

Say on Pay

To date proposals for non-binding shareholder votes on executive compensation for Canadian companies have been limited, with adoption by 13 financial institutions or companies, and a relatively small number being targeted this year. As indicated in our prior Legal Update, there are serious issues to be considered by many Canadian public companies before they agree to adopt ‘say on pay.’ Regardless of whether a company might adopt ‘say on pay,’ the company’s executive compensation policies and plans (and, for example, the extent to which they might comply with the Canadian Coalition for Good Governance’s (CCGG) "Executive Compensation Principles") and executive compensation disclosure (for example, the extent to which the company may be considered to follow "best practices" of executive compensation disclosure published by the CCGG (see below) and others), may influence whether the company might become a target for a say-on-pay proposal (or, if an issuer adopts ‘say on pay,’ the number of negative votes it may receive on the shareholder advisory vote).11 As a result, the quality of the company’s executive compensation disclosure may now have greater consequences than in the past.

CCGG Best Practices in Executive Compensation Related Information

In December 2009, the CCGG released its "Best Practices in Executive Compensation Related Information 2009" (CCGG Best Practices). The CCGG Best Practices document provides useful guidance to highlight methods and forms of effective executive compensation disclosure, and is very worthwhile reading, particularly for issuers striving to follow "best practices."

Among the observations and comments included in the CCGG Best Practices document are the following:

  • Identification of areas of CD&A disclosure most in need of improvement.
  • Observations regarding the constitution of, and disclosure regarding, the compensation committee, the committee’s work plan and its in-camera meetings.
  • Guidance regarding issuers developing an independent point of view, including retention and disclosure regarding independent compensation consultants, pre-approval requirements for consulting engagements, and acknowledgement that compensation should not depend on surveys alone.
  • Guidance regarding testing pay performance linkages, including: relating pay to performance and basing pay on performance compared to a peer group; explaining why performance metrics are chosen, what they measure and any adjustments made to standard calculations; providing illustrative disclosure as to how variable compensation may vary for performance between various targets; stress-testing compensation packages; and expressly acknowledging that extra or bonus compensation will only be paid or awarded when it is earned and targets are met.
  • Observations regarding share ownership guidelines, including post retirement holding requirements, vesting hurdles for options and other equity based compensation based on performance rather than passage of time, prohibiting monetization of equity incentives, post-exercise holding periods and pre-arranged trading plan requirements.
  • Guidance regarding disclosure, including:
    • a three-year look-back table showing the full annual cost of the CEO and the total actual income of the CEO;
    • pay for performance disclosure based on conclusions from the "look-back" table;
    • voluntarily including compensation for the current year already determined;
    • policy required repayment of performance related compensation where there is a restatement;
    • full and complete disclosure of employment contracts and senior executive employment agreements;
    • where possible, tabular disclosure regarding employment contracts including change of control and termination provisions;
    • compensation committee certification of understanding long-term implications of contracts and limitations, and compensation committee availability at the AGM; and
    • full disclosure of future obligations, including capping Supplemental Executive Retirement Pension (SERP) benefits, disclosure of present value of total SERP costs, changes in accrued SERP liability and estimated annual pension benefits at retirement.

The CCGG Document includes observations and guidance regarding improved executive compensation disclosure, includes examples of "best practices" disclosure, as well as "innovative disclosure practices" adopted by some companies to improve their disclosure practices over and above mandated or prior disclosure. It also includes a useful checklist of the CCGG’s best practices.

Shareholder Engagement

Spearheaded by the CCGG, institutional shareholders are seeking an expanded involvement, dialogue and regular, constructive "engagement" in corporate governance; and, in particular, executive compensation. Some companies have been approached for meetings with the board and compensation committee to explain their perspective on governance, compensation and disclosure practices. So far, the number of Canadian companies approached has been relatively small, but is increasing. As is the case with ‘say-on-pay’ proposals, there are significant issues that should be considered by companies that might become involved in this process, including selective disclosure restrictions and the time and resources that may be required. While engagement initiatives are generally intended to build relationships and seek increased dialogue, rather than influence disclosure, as is the case with ‘say on pay,’ the quality and clarity of a company’s executive compensation disclosure, and adoption of ‘best practices,’ may take on greater significance.


The new executive compensation disclosure requirements that were introduced last year posed a significant challenge for most Canadian public companies. The Staff Notice indicated that the CSA’s overall observation from the compliance reviews is that there remains room for improvement.

Although the reforms implemented last year represented very significant new disclosure requirements, the Staff Notice reflects that the CSA generally had high expectations regarding companies complying with both the spirit as well as the letter of the new obligations, and is not providing any "grace period." In preparing executive compensation disclosure this year, companies should carefully consider the guidance provided by the CSA in the Staff Notice to endeavour to improve their disclosure, and avoid the disclosure issues discussed in the notice. The Staff Notice indicates that the CSA will continue to review executive compensation disclosure, focussing in particular on the significant disclosure issues discussed in the notice. The CSA required eight of the 70 companies that were reviewed in 2009 to file supplemental executive compensation disclosure and asked most of the others to improve their disclosure in future filings. It is likely the CSA will continue to be vigilant, perhaps even more so, in the second year.

As is noted in this article, in addition to the recent Staff Notice, prior to implementing the new requirements the CSA provided some observations and responses to comments that provide some further guidance regarding interpretation of the required Form. In addition, in some cases, where there is a comparable disclosure requirement under US rules, SEC Compliance and Disclosure Interpretations might be useful. If companies have questions regarding interpretation of the requirements they should seek appropriate advice.

The implementation of the new executive compensation rules was previously discussed in our November 28, 2008 summary Article and in our more detailed October 31, 2008 Legal Update and discussed in materials from our 6th Annual Disclosure and Governance Seminar available on our website. In addition, the requirements, including the Staff Notice, were discussed at our 7th Annual Disclosure and Governance Seminar on November 24, 2009.



1 In a February 2008 notice, the CSA indicated that they believe that companies "must" disclose the names of "comparator" companies in their CD&A "if necessary to satisfy the obligations of executive compensation disclosure" as set out in section 1.1 of the Form, and that they believe that disclosure of benchmarking data generally would not seriously prejudice the company’s interests and should be included. In a September 2008 notice, the CSA indicated that they believe a complete list of the benchmark group should be disclosed because the complete list would be meaningful to users, even if the list is extensive.

2 For such instruments, pricing models exist for determining fair value. These models take into account, for example, the exercise price, the expected life of the option, the current price of the underlying stock, its expected volatility, expected dividends on the stock and the "risk-free interest rate" for the expected term. For accounting purposes, the fair value of the stock option (or equivalent) is estimated using such a pricing model, and the fair market value estimated at grant date is not subsequently adjusted for changes in the price of the underlying stock, its volatility, the life of the option, dividends or the risk-free interest rate that the valuation model took into account.

3 Such awards that are only cash-settled may generally be a liability for accounting purposes. Such awards often do not have any exercise price, and some (e.g., DSUs) often do not have any fixed contractual term. In general, for accounting purposes, for such awards that call for settlement in cash, the compensation cost may be measured as the amount by which the market value of the underlying shares exceeds the option price or value specified, subject to any appreciation limits specified in the plan or award. Changes between the grant date and "measurement date" result in a change in the measure of compensation for the award. For accounting purposes, the measurement date for such liability may usually be the settlement, or exercise date. As a result, for a cash-settled, deferred vesting DSU, RSU or PSU, or similar share-based aware where the holder is entitled, on settlement, to receive an amount based on the entire value of underlying shares, with no exercise price, the accounting grant date fair value may be the market price of the underlying shares as at the grant date.

4 The CICA Handbook does not seem to address these issues.

5 Under prior US rules, the SEC indicated that (i) compensation cost for share-based awards with service-based conditions was to be disclosed in the SCT, assuming that the executive officer will perform the requisite services to vest in the award; and (ii) compensation cost for awards containing a performance-based vesting condition was to be disclosed in the SCT only if it is "probable" that the performance condition will be achieved. As a result, under US requirements, if an award with service or performance based conditions ultimately vests, the amount recognized in the SCT would be equal 100% of the grant date fair value of an equity award or the total fair value at the date of settlement for a liability award. The SEC also summarized treatment of these awards under US accounting rules, as discussed in Note 6.

6 US requirements adopted in December 2006 required disclosure in the SCT that reflected the accounting compensation cost recognized over the requisite service period, rather than the grant date fair value being disclosed in the SCT in the year of grant. The US requirements contemplated a cumulative reporting in the SCT of the total or full grant date fair value of an award over the requisite service period during which the executive is required to provide service in exchange for a share-based payment. Under these US requirements, the compensation cost was initially measured on the grant date, but generally recognized for both financial reporting and US executive compensation disclosure purposes over the service period. For an award classified as a liability, the amount was remeasured at each financial statement reporting date through the date the award was settled. For awards containing service-based vesting conditions, the award was required to be disclosed assuming that the executive officer would perform the requisite service to vest, but if the executive officer failed to perform and forfeited the award, the compensation cost previously disclosed in the SCT would be deducted in the period during which the award was forfeited. Similarly, under these US rules, compensation cost for awards containing a performance-based vesting condition was required to be disclosed in the SCT only if it was probable that performance would be achieved. If achievement of the performance condition was not probable on the grant date, but became probable in a subsequent period, the proportionate amount of the compensation cost based on service previously rendered would be disclosed in the SCT during the period in which the performance condition became probable. Likewise, if the achievement of a performance condition was previously considered probable but in a later period was no longer considered probable, the amount of compensation cost previously disclosed in the SCT would be reversed during the period in which it was determined that achievement was no longer probable. As is noted below, in December 2009, the US rules were amended to require reporting the full grant date fair value in the SCT in the year of grant. See also the additional discussion below.

7 It is clear from the Staff Notice that a company cannot defer reporting a value in the SCT for an award until the conditions have been satisfied in the future or on the basis that the board of directors intended to pay part of the award in a future financial period. However, it is possible that if the company believes the executive will perform the requisite service to vest, and also believes it is probable that performance conditions will be achieved, it could be determined that the board of directors intend to award the full value of the award, without discount. In that case, the full fair value should be included in the SCT in the year of grant.

8 In the discount example, the company must quantify the difference from accounting fair value and provide a footnote explaining the difference in methodology, including the fact that it applied a discount factor to the accounting fair value to reflect that payout of the award is subject to the satisfaction of future performance goals.

9 For a share-based award that is not subject to performance-based conditions and provides for a single payout on vesting, for a cash-settled award, the grant date fair value may be the market value of the underlying shares on the grant date, and the table 4.1 value would seem to be the market value of the underlying shares as at year end.

10 The SEC publications noted that grant date fair value guidelines under FASB ASC Topic 718 call for management to exercise judgement in valuing awards and refer to, among other things, the fact that (i) for financial statement recognition purposes, the grant date fair value measure of compensation cost of an option is expensed over the expected term of the option; (ii) compensation cost for awards containing a performance-based vesting condition is recognized only if it is probable that the performance condition will be achieved; and (iii) awards that are classified as "liability awards" (such as an award that is cash-settled) are remeasured at each financial statement reporting date through the date the award is settled.

11 The CCGG’s policy links ‘say on pay’ with executive compensation, stating that a shareholder advisory vote on executive compensation is a best practice that gives shareholders an opportunity to express to the board of directors their satisfaction with the prior year’s compensation plans and actual awards (i.e., the current year’s disclosure).