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Investors seek disclosure on stock options

Canada's largest investors are urging regulators to bring back a requirement for companies to disclose how much their top executives earn from exercising stock options.

The Canadian Coalition for Good Governance, which represents most of Canada's largest institutional investors, says disclosure of stock option gains allows investors to track how much executives actually earn over the long term.

"We think that is an important piece of information that boards should be looking at themselves, and they should be disclosing to investors," said CCGG executive director Stephen Griggs.

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The disclosure has shown huge payouts for some executives who received large option grants, but it disappeared from shareholder proxy circulars last year after Canadian securities regulators adopted new rules governing the way companies disclose the details of their executive compensation arrangements.

Last year, the median CEO bonus rose 5.6 per cent

Most of the rule changes led to a significant increase in disclosure -- including new requirements for companies to tally all elements of pay awarded in the previous year and to display pension plan costs -- but the changes also eliminated a long-standing requirement for a chart showing how much profit executives had earned from stock options.

Leslie Byberg, director of corporate finance at the Ontario Securities Commission, said the new disclosure rules were designed to ensure companies disclose the board's compensation decisions in the year the options are awarded, not to track how and when executives decide to exercise the options down the road.

"The disclosure is focused on the board's compensation decisions, rather than the executive officer's investment decisions," Ms. Byberg said.

Barrick CEO tops the list with $24.2-million

She said the Canada's option disclosure rules are the same as U.S. rules.

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While there is no plan in the works to reverse the change, Ms. Byberg said regulators are "monitoring" international developments as well as Canadian compliance with the new rules.

The Challenge Mr. Griggs said the problem with the new approach is that estimates of the future value of options that are done at the time of granting -- often done using a mathematical tool known as the Black-Scholes formula -- can prove to be inaccurate when the company's share price doesn't perform as expected.

"They grant options and the Black-Scholes formula spits out a value of $1-million, and that $1-million has no resemblance to what the executive may actually get," Mr. Griggs said. "It could be zero, it could be $2-million."

Mr. Griggs said the CCGG is not necessarily asking regulators to require the same sort of disclosure chart as before, and is also interested in new ways of disclosing long-term CEO compensation gains.

Some executives saw their total compensation rise dramatically in fiscal 2009

The coalition, for example, supports the publication of so-called "look back" tables that summarize everything CEOs have earned over their time on the job.

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"It's a very complex issue, but it is one we are encouraging regulators to consider," Mr. Griggs said.

In the meantime, some Canadian companies have decided to voluntarily publish the information even though it is no longer required. The most recent annual shareholder proxy circulars for companies including Agrium Inc., Atco Ltd., Eldorado Gold Corp., Emera Inc., Open Text Corp. and Sun Life Financial Inc. all contain information about executives' gains from exercising stock options last year.

Sun Life chairman Ronald Osborne said the disclosure was not a "major item of discussion" at the company.

"We look upon the regulations as a minimum," he said. " If we can supplement it where appropriate and helpful, that's fine."

More from Executive Compensation 2009:

  • Full story: Executive compensation set to rise
  • Full story: Investors seek disclosure on stock options
  • Full results: Full compensation rankings of largest companies
  • By the numbers: Compensation trends for 2009
  • Discussion: Your questions on executive compensation
  • In pictures: The Top 10: Highest-paid Canadian executives
  • In pictures: Executives who saw the biggest 2009 pay increases

Stock option stockpiles

CEOs with the largest value of in-the-money, unexercised stock options

1. William Doyle, Potash Corp. of Saskatchewan, $283-million

2. Hunter Harrison, Canadian National Railway Co., $76.7-million

3. Mike Lazaridis, Research in Motion Ltd., $76.5-million

4. Gerald Schwartz, Onex Corp., $59-million

5. Patrick Daniel, Enbridge Inc., $51-million

6. Richard George, Suncor Energy Inc., $50.5-million

7. Ed Clark, Toronto Dominion Bank, $49.8-million

8. John Macken, Ivanhoe Mines Ltd., $47-million

9. Jim Balsillie, Research in Motion Ltd., $45.8-million

10. Richard Waugh, Bank of Nova Scotia, $32.8-million

Source: The Globe and Mail

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About the Author
Real Estate Reporter

Janet McFarland is the real estate reporter for The Globe and Mail’s Report on Business, with a focus on residential real estate trends. She joined Report on Business in 1995, and has specialized in reporting on corporate governance, executive compensation, pension policy, business law, securities regulation and enforcement of white-collar crime. More

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