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executive compensation packages in some sectors are chang- ing to reflect more conservative times. But at what cost to shareholders and the growth of companies? Others argue those same executives had large investments in R their own company bank stocks and when those stocks dropped they lost fortunes as well. "The issues of executive compensation are constantly changing, author of Executive Compensation: A Director's Guide. "Definitely the compensation committee's responsibilities are increasing and Canadian Securities Administrators announced it would require public companies to disclose to investors whether their board of directors "adequately considered the implica- tions of the risks associated with the com- pany's compensation policies and practices. "Issues of executive compensation have isk management has become the hot topic for general counsel these days and covers myriad subject matter, but managing the risk around executive compensation has attracted greater attention since the recession. The economic crisis in 2008 changed the a way to characterize departure payments in a different way such as a deferred payment or a departure bonus." Much of the change in attitude has, of course, been driven by landscape for executive compensation. Some say executive pay schemes in the U.S. helped cause the economic meltdown due to incen- tives put in place to make short-term gains rather than looking at the long-term impact of those decisions on shareholders. Today, regulatory influences in the last couple of years, says Level Chan, a partner with Stewart McKelvey in Halifax. "There is greater scrutiny in general in the attention paid to the packages and compensation and it' and greater shareholder scrutiny as a result of disclosure and in business reporting services online, matter with multiple pressures to be addressed and many differ- ent voices weighing in on how it should be handled. "Everyone wants a say in how executives are paid, Risk management of executive compensation is a complex " says Nadine Côté of CSuite Law and the there is more scrutiny of the committee and compensation plans." Following regulatory changes in the U.S., in July 2011 the New York office. "I think the word bonus has become a four- letter word. I think we need a new word to describe achievement incentives. "One emerging principle from the economic crisis is risk s been driven largely by legislative changes " he says. a compensation lawyer in Osler Hoskin & Harcourt LLP's " says Sandra Cohen, management and compensation, 'Did we analyze the risk?' Companies need to be prepared to explain themselves to share- holders as to whether appropriate measures are in place in their bonus plans. The question to consider is, 'did my compensation plan require my company to take unnecessary risks for my busi- ness?'" Cohen says. "People ask, 'what does risk management mean in compensation?' It doesn't mean taking no risk; it means always grabbed headlines, but never have companies been held under the microscope more than now. If we look back over the years there was a huge problem with stock options and back dating, then from there with the financial crisis the initial prob- lem was retention payments," says Côté. "Employees worldwide were protesting reten- tion payments being made to executives when around the world people were losing their jobs and pensions were at risk. Today, experts say the goal for everyone involved is to find the right mix with a compensation package that keeps good executives engaged and rewards them but also factors in the long-term health of an organization from a financial perspective. "There is a balance between making sure you are incenting people and making sure you are still positively reflecting where the company wants to go in the long run as opposed to just short- term cash accrual, Toronto. "I'd say a few years ago we were being a little too heavy " says Shana French of Sherrard Kuzz LLP in with the pen in terms of developing 36-month severance pack- ages with single-trigger change of control. We were a little more generous with severance packages, with how to trigger severance, with incentive compensation plans, and now we're seeing it go the other way. We can't have severance packages like that any- more — it' s just not going to fly. Instead we're looking at is there They are looking to find a balance between pay that is linked to company performance and at the same time mitigating the temptation to engage in risky behaviour. SANDRA COHEN, Osler Hoskin & Harcourt LLP finding appropriate risk and did we analyze the risk inherent in the pay package? Does it cause executives to take appropriate risks with the business and reward them for success and doesn't reward short-term inappropriate risk-taking. executive compensation."They are looking to find a balance between pay that is linked to company performance and at the same time mitigating the temptation to engage in risky behav- iour, the right risks to spur growth could end up in stunting growth, says Bassem Shakeel, vice president and secretary with Magna International Inc. "The effort to tie compensation to perfor- mance is positive, however, the closer the two get linked, the greater the inherent risk in the compensation system. This puts the pay/performance objective in conflict with the risk-man- agement objective, Going too far away from encouraging executives to take " says Cohen. Today compensation committees face difficult decisions on " " says Shakeel. As a result, he says the critical INHOUSE JUNE/JULY 2012 • 19 STEVE MUNDAY

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