July 11, 2017
Executive compensation is a complex issue boards must navigate in order to address the priorities of both executive talent and shareholders. It is important that businesses formulate and communicate compensation plans which are reasonable and justifiable to shareholders, particularly in light of the recent rise of activist shareholders pushing for transparency and improved governance practices.
Canadian Lawyer reached out to Torys counsel and pensions and benefits expert Lynne Lacoursière, who explains the impact of compensation transparency and accountability. Below is an excerpt from the article.
Lynne Lacoursière, counsel at Torys LLP in Toronto, says good governance includes being able to explain clearly the rationale behind any executive compensation plan. “It is about engagement with shareholders,” says Lacoursière, who heads the executive compensation practice at the firm. “How are we going to describe the narrative when it comes to total payments for senior executives at a company?” she adds.
While executive compensation is a topic loaded with the potential for scrutiny, there are methods companies can use in order to produce plans that appease boards and shareholders. Lacoursière says, “there is a push toward trying to devise compensation that matches performance over a longer term, such as three years, rather than quarterly results. You may also look at other operational metrics, such as cash flow.” Torys’ 2016 Capital Markets Mid-Year Report article “The C-Suite has Skin in the Game: Governance Trends in Executive Compensation,” states that “total shareholder return” remains the most prevalent factor for determining executive performance among S&P/TSX 60 index issuers, but this weighing is expected to decline.
To read the full article from Canadian Lawyer, click here.