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CORPORATE GOVERNANCE

Board Games 2012: Methodology Add to ...

15. c) Does the company explain the rationale for the peer group it has chosen for performance benchmarking? For example, a company might say peer group members are similar-sized companies or operate in the same industry or have similar business characteristics. If the company ONLY uses a peer group for benchmarking general pay levels and not performance-based pay levels, no points will be given unless a rationale is provided. One mark if yes to either, zero marks if no.

16. Are there performance hurdles for stock options or share units, beyond simply requiring the share price to rise over time? One mark if yes, zero if no.

17. Does the company disclose the total value of the CEO’s accumulated shares, DSUs or other equity holdings? (The company must provide the value, and not just number of units held.) Two marks if yes, zero if no.

18. Does the company disclose the gains reaped by executives from exercising stock options over the prior year? Two marks if yes, zero if no.

19. Does the company disclose the total cost of compensation to the top executive team as a percentage of the total profit or total shareholder return for the year, or does the company include a table or graph that compares total executive compensation to financial performance over at least three years? One mark if yes, zero if no.

Shareholder rights: worth 31 marks out of 100

20. a) Does the company allow shareholders to vote for individual directors, or only the entire slate of nominees? Three marks if there is voting for individual directors with clear options beside each director’s name. One mark if investors must cross out or write in the names of directors for whom they are not voting. Zero marks if there is only slate voting.

20. b) Does the company have a majority voting policy, asking directors to resign if they do not receive a majority of votes in support? Three marks if yes, zero if no.

20. c) Does the company give shareholders an advisory vote on executive compensation (known as say-on-pay)? Two marks if yes, zero if no.

20. d) Does the company report its annual voting results for each item on the proxy, including the number or percentage of shares voted on each matter? One mark if yes, zero if no. (Note: It must be clear how many votes were cast both “for” and “withheld” either by giving both numbers, or by giving “for” and the total number of votes cast. Just disclosing the “for” vote alone without context is not sufficient.)

21. Does the company disclose it has a provision to “claw back” bonus payments to the CEO if wrongdoing is discovered late? One mark if yes, zero if no.

22. Does the company have a holding period for shares after a CEO leaves the company to ensure there is a performance “tail” to the CEO’s work? This is an incentive to make good long-term decisions prior to departure. One mark if yes, zero if no.

23. a) Are stock options excessively dilutive? Dilution is based on the number of options outstanding at the company’s fiscal year-end as well as the number of options approved for future issuance, expressed as a percentage of all shares outstanding. Where the company has more than one class of shares, dilution is measured for whichever class of shares is diluted by the outstanding options.

Two marks if the dilution is less than 5 per cent of outstanding shares, or if the company has no option plan. One mark if the dilution is between 5 per cent and 8 per cent of outstanding shares. Zero marks if the dilution is over 8 per cent. Zero marks if the company has adopted an evergreen option plan that automatically “reloads” the number of options available for issuance – even if the option dilution level falls within the guidelines listed above. And zero marks if the company has re-priced any of its options within the prior year.

23. b) Is the annual stock option grant rate excessive? Two marks if the number of options granted in the prior fiscal year was less than 1 per cent of all shares outstanding. One mark if the grant rate was between 1 per cent to 1.49 per cent. Zero marks if the grant rate exceeded 1.5 per cent annually.

23. c) Is there a vesting period before options can be exercised? Three marks if yes. Zero marks if some options vest in less than 12 months after issuance, including director options.

24. a) Does the company calculate and display the year-end dilution level of stock options as a percentage of shares outstanding? One mark if yes, zero if no.

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