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  • Corporate Board Governance and Director Compensation in Canada

    A Review of 2011

    In Partnership with Patrick OCallaghan and Associates

  • $110.00 per copy Korn/Ferry International, December 2011All rights reserved. No part of the contents of this report may be reproduced or transmittedin any form or by any means without the written permission of the Publisher.

    This report is also available in French.

  • Corporate Board Governance and Director Compensation in Canada A Review of 2011 | 1

    TABLE OF CONTENTS

    The Surveyed Companies 3

    Special Report: Retirement Age and Term Policies A New Focus 6

    Board Independence 21

    Board Composition 27

    Board Size 35

    Board Assessments, Director Selection and Director Development 39

    Meetings and Attendance 43

    Board Committees 49

    Director Compensation 53

    Board Chair Compensation 61

    Lead Director Compensation 65

    Committee Chair Compensation 67

    Committee Member Compensation 71

    Stock-Based Compensation 75

    Compensation Summary 79

    Director Share Ownership 83

    Company Data 87

    Endnotes 98

    Korn/Ferry International 101

    Patrick OCallaghan and Associates 103

    Women On Board 104

  • The Surveyed Companies

    2 | Corporate Board Governance and Director Compensation in Canada A Review of 2011

  • Corporate Board Governance and Director Compensation in Canada A Review of 2011 | 3

    here we refer to equities, we are referring to all members of the research sample that are not income trusts. In this

    sixth year that we have included income trusts in our analysis, approximately 13% of the sample fall into this category. The reduction in this category (down from 20% last year and a high of 26% in 2007) can likely be attributed to changes in income tax rules affecting trusts that took place in January 2011.

    Thedataiscollectedfrompubliclytradedequities and income trusts that were on one or more of the following lists:

    * The Financial Post Top 250 (June 2011) * The Report on Business Top 250 (July 2011) * The S&P/TSX Composite Index (at any time during 2010)

    Wedrawdatafromannualreports,management proxy circulars and annual information forms for fiscalyear-endsinlate2010,orthefirstfewmonths of 2011. All references to 2010 data include data for year-ends in early 2011.

    AllfiguresreportedinUnitedStatesdollarshavebeen converted to Canadian dollars at an exchange rate of 1.03, which was the average exchange rate for 2010.

    Allfractionshavebeenroundedoff tothenearest whole number, thus all totals do not add up to exactly 100%.

    WherethisreportusescomparativeU.S.data,itis drawn from the following sources:

    * 2010-2011 Director Compensation Survey, a publication of the National Association of Corporate Directors in collaboration with Pearl Meyer & Partners. This study is based on 1,400 companieswithfiscalyearendsbetweenFebruary 1, 2009, and January 31, 2010 with revenues over US$50million.

    * 2011 Public Company Governance Survey, a publication of the National Association of Corporate Directors. This study is based on insights from 1,300 public company directors and the proxy data from 2,400 public companies.

    The Most Comprehensive Canadian Governance Study

    We are pleased to present the most comprehensive review of public issuer governance data available in Canada. This nineteenth annual report examines governance in Canadian companies and income trusts and includes our

    special report, Retirement Age and Term Policies A New Focus. Our commitment is to provide directors and trustees with accurate and relevant Canadian data across a wide spectrum.

    W

    Percent Income Trusts Percent Equities All

    5B 6% 94% 28%

    All 13% 87% 100%

    Breakdown of Asset Size Groups in the Research Sample, by Board Type

  • 4 | Corporate Board Governance and Director Compensation in Canada A Review of 2011

    Percent Income Trusts Percent Equities All

    Consumer Discretionary 8% 92% 13%

    Consumer Staple 8% 92% 4%

    Energy 16% 84% 20%

    Financials 27% 73% 18%

    Health Care 33% 67% 2%

    Industrials 12% 88% 11%

    Information Technology 0 100% 2%

    Materials 0 100% 24%

    Telecommunication Services 20% 80% 2%

    Utilities 22% 78% 3%

    All 13% 87%

    Breakdown of Industry Groups in the Research Sample, Comparing Equities and Income Trusts

    5B All Percent**

    Consumer Discretionary 5 10 14 9 38 13%

    Consumer Staple 0 2 7 4 13 4%

    Energy 9 6 28 18 61 20%

    Financials 3 5 20 27 55 18%

    Health Care 1 3 1 1 6 2%

    Industrials 6 5 16 6 33 11%

    Information Technology 1 1 4 1 7 2%

    Materials 14 18 29 11 72 24%

    Telecommunication Services 1 0 2 2 5 2%

    Utilities 0 0 4 5 9 3%

    All 40 50 125 84 299 99%

    Percent* 13% 17% 42% 28% 100%

    Breakdown of Research Sample by Assets and Industry Group

    * Asset group as a percentage of total. ** Industry group as a percentage of total.

  • Corporate Board Governance and Director Compensation in Canada A Review of 2011 | 5

    Terminology and Standards Used Throughout this Report

    Special Report: Retirement Age and Term Policies - A New Focus

    Korn/Ferry International and Patrick OCallaghan and Associates surveyed 154 board chairs, directors and CEOs to produce this special report, which can be found on pages 7 to 18. Respondents were either personally interviewed or completed an on-line survey.

    Size: Most tables in this report compare results between companies and income trusts within asset groups. The short forms M for millions of dollars and B for billions of dollars are used in the tables.

    Comparisons: Where tables present data by year, thedataisgivenfor2010,2009and2001orthefirstyear we began tracking the particular subject. This allows readers to compare between the two most recent years, and also to see how the subject has changed over time.

    Regulatory Documents: Where we use CSA disclosure requirements, we are referring to the Canadian Securities Administrators National Instrument 58-101, Disclosure of Corporate Governance Practices. Where we use CSA governance guidelines, we are referring to the Canadian Securities Administrators National Policy 58-201, Corporate Governance Guidelines.

    Independent Directors: Where we refer to directors as independent, we are basing the categorization on the companys assignment of the term to individual directors under the definitionintheCSAdisclosurerequirements.

    Directors and Trustees: With the inclusion of income trusts, we are now including organizations with both directors and trustees. For the sake of brevity in this document, where we refer to director, we are referring to both directors and trustees.

    Types of Organizations: Where we use company we are referring to any member of the research sample as a whole, which could be either an equity or an income trust.

    Income Trust Names: In some cases, income trusts presented governance data for a board other than its own board of trustees (e.g., for the board of an Administrator or Manager). The name cited is always the name we have drawn from one of the three sources we used to compile the research sample.

    Retainers: Whenever the term retainer is used alone, it refers to whatever combination of cash and shares is paid to directors by the company as a retainerforservices,unlesswereferspecificallytothe cash portion of a retainer or the share portion of a retainer.

    Compensation based on Shares, Trust Units and Equivalents: Where we discuss compensation in the form of shares, trust units, deferred share units, etc.,weusesharesunlessreferringtoonespecifictype of compensation in this group. This does not include compensation in the form of stock or trust options.

  • 6 | Corporate Board Governance and Director Compensation in Canada A Review of 2011 | Special Report

    Special Report 2011

  • Corporate Board Governance and Director Compensation in Canada A Review of 2011 | Special Report | 7

    anadian boards are getting older. In 1997, 8% of directors were 71 or older. In 2010, 15% of directors fell into this category.

    The 61 to 70 category has also increased, going from 39% in 1997 to 45% in 2010. In all other age categories, the numbers have decreased since 1997.

    An increased focus on retirement ages and term policies is not a surprise to us. It is consistent with the increased emphasis boards have placed on recruiting, attracting, selecting and retaining directors who have the skills, experience and background to provide effective oversight and add value to the corporation. Boards are increasingly engaged in strategy, risk assessment and management succession planning. Ensuring

    the corporation has attractive compensation policies and board operating policies including a position on retirement and terms is ever more important in attracting and retaining the very best directors in a highly competitive market. We interviewed 154 Canadian directors and reviewed our proxy circular data of Canadas largest 300 corporations for 2010 in an effort to provide some perspectives on the use of policies to retire directors from the board when theyhaveattainedaspecificageand/orhaveservedaspecifictermlength.Nearlyallof theintervieweddirectors emphasized the need for active, engaged and experienced directors, but most argued this was not necessarily a function of having reached a particular age or having served on the board for a specifi

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