Canadian securities regulators have proposed rule amendments designed to improve the disclosure investors receive regarding executive compensation.

The Canadian Securities Administrators said Friday it believes the proposed changes, which range from drafting changes, to substantive new requirements, “would enhance the quality of information provided to investors and
assist companies in fulfilling their executive compensation disclosure obligations.” It also says that the changes will help investors make informed voting and investing decisions.

The proposals, which are out for comment until Feb. 17, 2011, come on the heels of both a review of executive compensation disclosure practices by regulators in Alberta, British Columbia, Ontario and Quebec; and by regulatory reform in the United States, including new disclosure requirements imposed by the U.S. Securities and Exchange Commission, and further changes that may yet be required under the Dodd-Frank Act.

Among other things, the CSA is proposing to require companies:

> disclose whether their board has considered the implications of the risks associated with the company’s compensation policies and practices;

> disclose whether executives are allowed to hedge their exposure to their equity compensation;

> disclose fees paid to compensation advisors; and

> reconcile any difference between the fair value of equity or options awards when they are granted and their accounting fair value.

The CSA is aiming to have the amendments in effect for the 2012 proxy season and will require companies to comply with the amendments for financial years ending on or after Oct. 31, 2011.

“Improved disclosure helps investors understand how boards of directors make decisions about executive compensation and also helps them determine whether management’s incentives are aligned with shareholder interests,” said Jean St-Gelais, chair of the CSA and president and CEO of the Quebec’s Autorité des marchés financiers, in a release.

Review finds shortcomings in executive compensation disclosure

The CSA also released a staff report setting out the findings of its review of executive compensation practices. Of the 70 firms reviewed, it found that 62 filed disclosure that generally met the requirements. “Nevertheless, we asked most of these companies to improve their disclosure in future filings,” it says. And, the other eight didn’t meet the minimum standards and had to file supplemental disclosure.

It notes that a number of companies did not adequately explain how each element of compensation is tied to each executive’s performance, and that discussion provided “did not fully or accurately describe the process of making executive compensation decisions”. Additionally, “We were often unable to tie the discussion… to the rest of the company’s executive compensation disclosure, including the summary compensation table. This was of particular concern with respect to performance goals and similar conditions.”

The CSA staff report that they also found “significant issues” with the disclosure of pension plan benefits and the disclosure of termination and change of control benefits.