Executive Compensation & Corporate Goverance

Question 1

What is corporate governance?

Answer 1

• rules and procedures for decision making
• tools for monitoring what companies do
• determination of rights and responsibilities among stakeholders

Question 2

Why do we have corporate governance?

Answer 2

• fraud
• incompetence
• creates transparency

Question 3

Names corporate governance bodies.

Answer 3

• Canadian Securities Administrators (CSA)
• Securities Exchange Commission (SEC-US)
• Canadian Coalition for Good Governance (CCGG)
• Institutional Shareholders Service (ISS)

Question 4

What does the Canadian Securities Administrators (CSA) do?

Answer 4

• sets the min rules for provincial regulators
• requires public companies to have a board level comp committee
• linking at risk pay to performance
• disclosure rules: must list and price/ value every item
• must report total comp as “one figure”

Question 5

What is the CSA requirement and what does it do?

Answer 5

Compensation Discussion and Analysis (CD&A) section in Management Proxy Circulars which must include:

• plan design
• plan objectives
• every element of exec comp
• why each element is included
• performance levels and metrics

Question 6

What does the Exec comp legislation apply to?

Answer 6

• most publicly funded entities

- covers CEOs and next 4 highest paid executives with annual base pay of $125,000 or more

Question 7

Discuss Shareholder Activism.

Answer 7

• shareholders speaking up at annual public meetings
• organize people to get a voice
• voting power to vote boards in or out
• US: legislated
• Canada: shareholders vote on pay

Question 8

List the first 3 principles of the CCGG.

Answer 8

1= a significant component of executive compensation should be “at risk” and based on performance

2= “performance” should be based on key business metrics that are aligned with corporate strategy and the period during which risks are being assumed

3= executives should build equity in the company to align their interests with those of shareholders

Question 9

List the last 3 principles of the CCGG.

Answer 9

4= a company may choose to offer pensions, benefits and severance and change of control entitlements (when such perks are offered, the company should ensure that the benefit entitlements are not excessive)

5= compensation structure should be simple and easily understood by management, the board and shareholders

6= boards and shareholders should actively engage with each other and consider each other’s perspective on executive compensation matters

Question 10

Name some trends in executive compensation.

Answer 10

• pay mix is evolving ( more “at risk” pay
• pay for performance (shareholders and boards want to see a stronger linkage between pay and performance)
• long-term incentives (time based vs. performance based incentives)
• pay linked to targets which in turn are linked to organizations’ goals

Question 11

What does NEO stand for?

Answer 11

Named Executive Officers