Thought Capital

The 2021 proxy season made it apparent that the “Environmental” pillar of ESG continues to be top of mind for stakeholders. In particular, the laser-like focus on climate change is targeting companies from multiple angles. This piece provides an overview of recent shareholder pressures on emissions targets in the energy sector, including highlights from the 2021 US proxy season and the implications for Canadian companies and smaller producers.

The changes to stock option taxation mark an opportune time for companies to reassess and, if necessary, revise their long-term incentive plan (LTIP) strategy and design. In March, Hugessen provided an overview of the tax changes – please see Part One for a detailed overview of the upcoming changes. This was followed by a briefing outlining approaches to reassessing long-term incentive design – please see Part Two of our series.  This “Part Three” briefing looks beyond the mainstream LTIP alternatives and focuses on real long-term equity and ownership approaches. Much of the material in this briefing was covered in a paper produced for a conference hosted by Caisse de dépôt et placement du Québec in October 2015 – please see Rethinking Long Term Incentives and Ownership Guidelines.

Hugessen has completed its annual review of the 2021 TSX60 proxy circulars, and we are pleased to share key findings on pay levels, pay design, regulatory updates and Say-on-Pay results. This year’s review has provided specific thoughts and considerations around COVID-19 actions on executive pay in Canada and other emerging trends this proxy season. Please click above for the webinar recording, download the TSX60 slides here and the full briefing here.

Hugessen’s June 29th webinar focused on emerging trends in the intersection between executive compensation and environmental, social and governance factors. Our session covered what we are seeing with respect to environmental factors in compensation programs and shareholder activism; the emergence of diversity, equity & inclusion within compensation programs, the ongoing evolution of board and management diversity policies, and how shareholders are addressing these issues; and how ESG trends are evolving in the US market. Please click above for the video and download the slides here.

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.