On October 31, 2011, various amendments to Form 51‐102F6 – Statement of Executive Compensation ("Form 51‐102F6") applying to financial years ending on or after October 31, 2011, came into force. The amendments are intended to improve the information issuers provide investors relating to key risks, governance and compensation matters. This article highlights three of the material amendments to the compensation discussion and analysis disclosure required by Form 51‐102F6.
Form 51‐102F6 requires that an issuer disclose performance goals or similar conditions of compensation paid to a named executive officer (an "NEO") that are based on objective, identifiable measures such as the issuer's share price or earnings per share. Form 51‐102F6 exempts an issuer from disclosing this information if such disclosure would seriously prejudice the issuer's interests. However, the recent amendments provide that the disclosure of goals or conditions based on broad corporatelevel financial performance metrics such as earnings per share and revenue growth does not constitute serious prejudice and therefore must be disclosed by an issuer.
Further, if an issuer intends to rely on this exemption, the issuer must explicitly state this and explain the serious prejudice that would result from such disclosure. Consequently, the amendments are likely to make the financial planning processes, future expectations and compensation strategies of an issuer more transparent, which may provide some undesirable insight to competitors about an issuer. Form 51‐102F6 now also requires an issuer to disclose whether its board of directors, or a committee of the board, considered the implications of the risks associated with its compensation policies and practices.
If so, disclosure must include (a) the extent and nature of the board of directors' or committee's role in the risk oversight of the issuer's compensation policies and practices; (b) any practices the issuer uses to identify and mitigate compensation policies and practices that could encourage an NEO or individual at a principal business unit or division to take inappropriate or excessive risks; and (c) any identified risks arising from the issuer's compensation policies and practices that are reasonably likely to have a material adverse effect on the issuer. As a result of these new requirements, issuers should consider implementing mechanisms to address risks associated with their compensation policies and practices. Moreover, Form 51 102F6 now requires an issuer to disclose whether or not an NEO or director is permitted to purchase financial instruments designed to hedge or offset a decrease in market value of equity securities held by or granted as compensation to the NEO or director. As a result, issuers may wish to consider introducing policies addressing hedging by executives and directors of the issuer's securities.
It is recommended that issuers engage in some advanced planning to ensure compliance with the new Form 51‐102F6 disclosure requirements.
About Fraser Milner Casgrain LLP (FMC)
FMC is one of Canada's leading business and litigation law firms with more than 500 lawyers in six full-service offices located in the country's key business centres. We focus on providing outstanding service and value to our clients, and we strive to excel as a workplace of choice for our people. Regardless of where you choose to do business in Canada, our strong team of professionals possess knowledge and expertise on regional, national and cross-border matters. FMC's well-earned reputation for consistently delivering the highest quality legal services and counsel to our clients is complemented by an ongoing commitment to diversity and inclusion to broaden our insight and perspective on our clients' needs. Visit: www.fmc-law.com
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
