Thought Capital

With the 2021 proxy season nearly at a close, HR and compensation committees are in the process of gathering information for the coming year. Partnering with the Institute of Corporate Directors (ICD), Hugessen has reviewed executive pay disclosure among large Canadian public companies. Along with our panelists, we will discuss how boards approached pay for 2020 and 2021 and inform boards and management teams about expected executive pay trends for the coming year.
 

Deloitte and Hugessen have teamed up to present two webinars on the new stock option taxation rules. The first webinar is high level and is a good general information session and the second webinar is more technical in nature.

This briefing is Part two of our thought capital series on the changes to Canadian stock option taxation – please see Part One for a detailed overview of the upcoming changes. Our next article will focus on alternative equity compensation approaches and is expected to be published in Q2 2021.

The long-anticipated changes to Canadian stock option taxation are set to be effective July 1, 2021. The federal government, in the draft legislation released on November 30, 2020, provided details regarding the new limit on the eligibility of employee stock options to receive preferential “capital gains-like” treatment. For many companies, the impending changes mark an opportune time to review the LTIP design. This briefing is focused on the new stock option taxation rules; a follow-up briefing will cover revamping the LTIP strategy and design.

The past few years have been increasingly challenging for some Canadian sectors where companies have struggled with rapid share price decline and pending debt renegotiations. There are many cases where the company’s going-concern status is at risk and debt restructuring under the Canadian Business Corporation Act (“CBCA”) or the Companies’ Creditors Arrangement Act (“CCAA”) is on the horizon. These pressures have accelerated with the impact of COVID-19 on public and private companies, particularly in industries that have been most impacted or faced additional pressures (energy sector, retail, tourism, etc.). While the ultimate impact of the crises of recent months is still to be determined, Boards and management teams have been forced to consider the impact of these challenging business conditions on their employees.

This briefing provides insight on the use of a key employee retention program (“KERP”) in preparation for situations where a CCAA/CBCA filing is expected and provides insight on the Board’s role in KERP implementation.

Larry Fink’s annual Letter to CEOs has become known for its emphasis on stakeholder capitalism, climate change, and sustainability. The 2021 edition of this highly influential letter builds on these themes, which have become even more significant considering the global pandemic, the increasing physical toll of climate change, and political turmoil in the US.

Consistent with prior years, the themes and issues highlighted indirectly have implications on executive pay as they provide insight on the priorities and expectations of the institutional shareholder community which may influence executive pay considerations (e.g. incorporating climate change in performance metrics). This summary provides our key takeaways from his 2021 letter, and potential implications for executive pay.

Hugessen Consulting recently conducted a Fall 2020 COVID-19 Director Pulse Survey to gather director views and corporate actions related to year-end incentive decision-making amidst the COVID-19 pandemic.

Institutional Shareholders Services and Glass Lewis have updated their 2021 voting guidelines for Canadian and US  issuers. The updated guidelines from ISS will apply to shareholder meetings for publicly-traded companies on or after February 1, 2021, while those from Glass Lewis will apply to meetings held on or after January 1, 2021. This briefing provides a summary of updates on compensation-related and select governance-related topics for the Canadian market.

Below, we define a number of key terms relevant to compensation discussions.

Discussions on environmental, social, and governance ("ESG") topics are not new to companies in the energy sector. In December 2018, Royal Dutch Shell PLC ("Shell"), the British-Dutch oil and gas company, went a step beyond health and safety compliance when it announced it would incorporate carbon reduction metrics into its executive incentive plan.

This article examines the process Shell undertook in implementing these metrics, and the role shareholders played throughout.