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Consultation on regulatory proposals

Purpose of the consultation

Bill C-97 An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2019 and other measures made amendments to the Canada Business Corporations Act (CBCA) concerning executive compensation and the well-being of employees, retirees and pensioners.

The amendments were developed in response to concerns about the security of workplace pensions and following a consultation with stakeholders. The result was a whole-of-government approach with amendments made to the Bankruptcy and Insolvency Act, Companies' Creditors Arrangement Act, Canada Business Corporations Act, and Pension Benefits Standards Act, 1985. The aim of the amendments was to enhance retirement security, while ensuring that our economic framework and retirement security laws continue to serve as strong platforms for growth, innovation and good middle class jobs for Canadians.

The CBCA amendments:

Before most of the CBCA amendments in Bill C-97 can come into force, there are details that need to be set out in the regulations to complete the provisions. Innovation, Science and Economic Development (ISED) is seeking feedback and suggestions from stakeholders in relation to the following:

  1. prescribing the corporations that are subject to the new obligations
  2. prescribing the definitions of "members of senior management", "retirees" and "pensioners"
  3. prescribing the time and manner for disclosing the results of the say-on-pay vote
  4. prescribing the information that needs to be disclosed to shareholders about the recovery of incentive and other benefits
  5. prescribing the information that needs to be disclosed to shareholders about the well-being of employees, retirees and pensioners.

Consultations

Issue A: prescribing the corporations that are subject to the new obligations

The intention is for the CBCA amendments to apply to distributing corporations. A distributing corporation is a publicly-traded CBCA corporation.

Question A1. Do you agree that distributing corporations should have the new obligations? Please explain.

Issue B: prescribing the definitions of "members of senior management", "retirees" and "pensioners"

The CBCA amendments use three new terms that can be defined in the regulations. ISED proposes to define the terms to clarify their meaning so that corporations fully understand their obligations.

Members of senior management

Currently the CBCA uses the phrase "members of senior management" in relation to the diversity disclosure provisions. The regulations define the phrase as:

For the purpose of subsection 172.1(1) of the Act members of senior management means, in respect of a distributing corporation, the following individuals:

  1. the chair and vice-chair of the board of directors;
  2. the president of the corporation;
  3. the chief executive officer and chief financial officer;
  4. the vice-president in charge of a principal business unit, division or function, including sales, finance or production; and
  5. an individual who performs a policy-making function in respect of the corporation.

This definition would also be used in relation to the obligations regarding the approach to remuneration and the disclosure on recovery of benefits as they apply to members of senior management.

Retirees and Pensioners

Currently there is no definition of "retirees" or "pensioners" in the CBCA. Both definitions are used in relation to the disclosure to shareholders of information on the well-being of employees, retirees and pensioners. The intent is for the disclosure to cover both a pension received from a corporation as well as other benefits received by employees and retirees, such as health insurance or life insurance. The definitions aim to distinguish between ex-employees who receive a pension ("pensioners") from those who receive other benefits ("retirees"). A person may be both a retiree and a pensioner, or only one. For example, an ex-employee may receive benefits from the corporation before they are eligible for a pension.

For 'retiree', a definition could be:

a person who has concluded their working or professional career with a corporation, and receives or will receive post-employment benefits other than a pension from that corporation.

For 'pensioner', a definition could be:

a person who receives regular payments from a corporation from a fund accumulated during that person's employment with that corporation, or a spouse or dependents of such a person receiving the payments after the person is deceased.

Question B1. Do you agree with the proposed definition of "members of senior management"? Please explain.

Question B2. Do you agree with the proposed definitions of "retirees" and "pensioners"? Please explain.

Question B3. Do you have other suggestions or comments in relation to these definitions?

Issue C: prescribing the time and manner for disclosing the results of the say-on-pay vote

The CBCA amendments require corporations to develop an approach to the remuneration of directors and members of senior management. The approach to remuneration is to be placed before shareholders at each annual meeting and the shareholders are to have a non-binding vote on the approach. The results of that vote are to be disclosed to shareholders. How and when the results are to be disclosed are to be set out in the regulations.

Say-on-pay votes are a common practice around the world. The United Kingdom was the first country to adopt such votes in 2002. Since then, several jurisdictions have adopted a say-on-pay vote including the United States, Australia and SwedenFootnote 1.

The aim of the say-on-pay vote is to establish better oversight of executive compensation and set higher expectations for corporate behaviour by mandating shareholder votes on approaches to compensation and making clear that the best interests of the corporation can include consideration of more than short-term profit and interests.

After the vote, prompt and accessible communication of the results will help to facilitate the engagement of shareholders in corporations' remuneration approaches. Given that, it is proposed that the results of the say-on-pay voting be disclosed by:

  1. Reporting the results at the meeting;
  2. Posting the results on the corporate website, no later than 30 days after the meeting; and
  3. Setting out the results in the next annual general meeting's management proxy circular.

Question C1. Do you agree with the proposed times and manner for providing the results of the say-on-pay vote? Please explain.

Question C2. Do you have other suggestions for the time and manner of the disclosure of the results of the say-on-pay vote?

Issue D: prescribing the information that needs to be disclosed to shareholders about the recovery of incentive and other benefits

The approach to remuneration of directors and members of senior management may include the recovery of incentive and other benefits in certain circumstances. Information on the recovery of incentive and other benefits is to be placed before shareholders at each annual meeting. The information to be disclosed is to be set out in the regulations.

The recovery of incentive and other benefits – often called clawbacks – has become a significant issue in corporate governance and executive compensation. They are a useful tool to mitigate risk by providing corporations with the ability to take back undeserving incentive payments. The Canadian Coalition for Good Governance, the Canada Pension Plan Investment Board and the Financial Stability Forum have advocated for them. Clawbacks are also referenced in the American Sarbanes-Oxley law of 2002 and the UK Corporate Governance Code (July 2018). Although Canada had no law that mandated disclosure about a clawback policy prior to the Bill C-97 amendments, the Canadian Securities Administrators require reporting issuers (publicly-traded companies) to disclose, in the proxy circular, details of any clawback policy they may haveFootnote 2.

ISED proposes that the prescribed information should:

Question D1. Do you agree with the information to be disclosed about recovery? Please explain.

Question D2. Do you have other suggestions for information that should be included or excluded in the disclosure for shareholders on a corporation's recovery policy?

Issue E: prescribing the information that needs to be disclosed to shareholders about the well-being of employees, retirees and pensioners

The CBCA amendments require information about the well-being of employees, retirees and pensioners to be placed before shareholders at each annual meeting. The information to be disclosed is to be set out in the regulations.

The aim of requiring the disclosure of this information is to motivate boards of directors to consider the interests of employees, retirees and pensioners in their decision-making, and to annually report on their policies in this regard.

Disclosure to shareholders about the well-being of employees, retirees and pensioners provides better oversight of corporate behaviour and promotes the interests of the corporation's current and former human resources.

ISED proposes that the prescribed information should:

Question E1. Do you agree with the information to be disclosed about well-being? Please explain.

Question E2. Do you have other suggestions for information that should be included or excluded in the disclosure for shareholders on a corporation's well-being policy?

Feedback

Comments received will be treated as part of the public record and may be made publicly available on ISED's website. Stakeholders wishing to make comments should send their written submissions to Corporations Canada:

By email: ic.corporationscanada.ic@canada.ca

By mail:
Corporations Canada
Innovation, Science, and Economic Development Canada
235 Queen Street, Floor 7
Ottawa ON K1A 0H5

If you have questions about this consultation, please contact Corporations Canada.

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