CANADA Trends and Developments Contributed by: Bill Gilliland, Dentons
Furthermore, Glass Lewis will take a holistic approach when analysing executive compensa - tion programmes and not use a pre-determined scorecard approach when considering individual features. Glass Lewis reviews unfavourable fac - tors in a pay programme in the context of ration - ale, overall structure, overall disclosure quality, the programme’s ability to align pay with perfor - mance, and the trajectory of the programme as a result of changes introduced by the compensa - tion committee. Transparency – Incentive Awards and Clawback Policies A clawback policy allows an employer to reclaim compensation previously paid to employees. Clawback policies typically relate to compensa - tion paid under incentive-based plans to certain executives and are typically administered by a company’s compensation committee or board of directors for the purpose of responding to changing financial metrics. Clawback policies may also extend to incentive-based compensa - tion based on non-financial results of the com - pany (ie, safety, retention and production). Many public companies have already established clawback policies. Effective 2 October 2023, the United States Securities and Exchange Commission has adopted new amendments and rules governing clawback policies, establishing standards that needed to be adapted by companies listed on the New York Stock Exchange and Nasdaq by 1 December 2023. The CBCA, under proposed Section 172.3, could also require a company to disclose prescribed information about the recov - ery of incentive benefits paid to directors and employees who are members of senior manage - ment.
Innovation, Science and Economic Development Canada (ISED) provided further guidance on the prescribed information outlined in the pro - posed CBCA amendments. ISED explains that the prescribed information should follow “dis- close or explain” regime where companies indi - cate whether they have a clawback policy, and if not, the reasons why they have not adopted one. If the company does have a policy, it will be required to disclose the policy’s objectives and key provisions. Starting from 2023, Glass Lewis has raised con - cerns about executive pay programmes where less than half of an executive’s long-term incen - tive awards are subject to performance-based vesting conditions. As with the past years, Glass Lewis may refrain from a negative recommenda - tion in the absence of other significant issues with the programme’s design or operation, but performance-based awards that are significantly rolled back or eliminated from a company’s long- term incentive plan may be viewed negatively. Glass Lewis continues to support clawback or “malus” provisions in 2025 to safeguard against unwarranted short-term and long-term incentive awards. In situations where a company determines not to follow through with financial recovery from an executive officer, Glass Lewis will assess the appropriateness of such determination for each case. A thorough, detailed discussion of the company’s decision to not pursue recoupment and, if applicable, how the company has oth - erwise rectified the disconnect between execu - tive pay outcomes and the shareholder experi - ence will be considered. The absence of such enhanced disclosure may impact Glass Lewis’ assessment of the quality of disclosure and, in turn, may play a role in Glass Lewis’ overall rec -
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