Canada Weighs Impact of U.S. Plans to Cut Executive Pay Disclosures
A U.S. plan to dramatically reduce the amount of information American companies must give shareholders about their executive pay practices is spurring a debate in Canada about whether to adopt similar disclosure rules.
In late May, the U.S. Securities and Exchange Commission proposed what law firm Latham & Watkins LLP described as sweeping reforms to public company executive compensation disclosure requirements. If adopted, the SEC said roughly 81 per cent of U.S. public companies will no longer be obliged to reveal certain key details of their leaders’ pay packages.
The proposal would restrict the most onerous level of disclosure to companies worth at least US$2-billion (up from the current threshold of US$700-million) that have also been public issuers for five years (up from the current threshold of one year). Companies below those thresholds would be allowed to omit holding say-on-pay and other shareholder advisory votes, reduce the number of executives whose compensation must be disclosed from five to three, and stop providing compensation committee reports, CEO pay ratios and pay versus performance disclosures.
“This is very significant, they are scaling back completely,” Richard Leblanc, professor of governance, law and ethics at York University, said in an interview. “What companies have argued to the Trump administration is that there is a huge compliance cost for say-on-pay, for pay-for-performance and the Trump administration has said we agree and we are going to eliminate all of it.”
Proxy advisory firms such as Institutional Shareholder Services and Glass Lewis need that data, Prof. Leblanc said. If the SEC proposal is adopted, he said Canadian securities regulators should “definitely not” enact similar changes.
“There is a really strong current to match up with what the Americans are doing,” Prof. Leblanc said, referring specifically to the American plan to move from quarterly to semi-annual financial reporting that Canada is now piloting. “There really is a pressure on Canadian firms to follow suit. I think regulators need to understand that pressure but at the same time maintain a Canadian environment.”
The Canadian Securities Administrators, an umbrella group for the country’s provincial and territorial market watchdogs, published a consultation paper last week seeking comment on how to “modernize the regulation of public companies.” Reduced requirements for executive compensation disclosure is among the many questions the document poses.
According to Kai Li, a finance professor at the University of British Columbia’s Sauder School of Business and the Canada research chair in corporate governance, the SEC proposal and CSA consultation are both part of a broader effort to encourage more companies to go public in hopes of reversing the decades-long decline in the number of public companies globally.
“It is a tradeoff,” Prof. Li said in an interview. “More transparency is better but it is a balancing act. Some disclosure can be overwhelming. It is extremely time-consuming for the company and shareholders can sometimes be nitpicky.”
Kathleen Ritchie, a partner at law firm Gowling WLG with expertise in corporate governance, said current SEC rules are actually much more prescriptive and extensive than the rules facing Canadian companies.
“The existing burden in the U.S. is more significant than in Canada,” Ms. Ritchie said in an interview. “I expect that the SEC has the same motivations as Canadian securities regulators. They are asking what can be done to help with the regulatory burden while still protecting investors and ensuring the integrity of our capital markets.”
“They are trying to strike the right balance.”
This article was first reported by The Globe and Mail
