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thinking going forward will be how effec- tively companies offset the increased risk with effective mitigation strategies. "There is a fine balance that needs to be achieved. Companies that get it wrong one way will find they have loaded their compensation system with risk, while companies that get it wrong the other way may find they have inadvertently created a culture of excessive conservatism, leading to slower growth and low returns for their share- holders. Either way the stakes are high." each new measure introduced to regulate compensation, public companies will have an increasingly tougher time keeping their top executives. "Like other employees, executives want some degree of certainty regarding how much they will be paid. The level of 'at risk' compensation that an executive is willing to accept will depend on a number of factors, including how close he or she is to retirement," he notes. "Private companies and/or companies Shakeel also wonders whether with based in geographic markets outside of North America and the U.K. may have greater flexibility to structure an executive compensation package in a way that the executive finds more appealing. Tradition Business A of Whether conducting business in Canada or across the globe, Aird & Berlis LLP understands the realities of your work. Our clients benefit from the firm's solid relationships with major institutions, government authorities and renowned national and international law firm affiliates. We combine the depth and strength of Canada's largest firms with the creativity and effectiveness of smaller firms. Count on us for legal counsel from a business perspective.® Eldon Bennett Managing Partner ebennett@airdberlis.com 416.865.7704 of his or her career, the upside potential may be a fair trade-off against the down- side risk. However, as an executive in the last stage of his or her career, does it have the same appeal? If not, a private company or a company located outside of North America or the U.K. may be more appeal- ing, since companies elsewhere don't face the same pressures on their compensation systems. "It' For a young executive in the early part " pensation structures may create the incentive toward excessive risk-taking, but incentive alone does not result in risk being realized. It is the combination of incentive plus opportunity that equals risk and, typically, such opportunity aris- es as a result of lax controls," he says. Lehman Brothers Holdings Inc. serves as an example — there was a failure of basic investment controls such as the excessive concentration of business in sub-prime residential mortgages. But in the Canadian environment the s also important to note that com- obsession around risky compensation packages is more muted, says Neill May, a partner with Goodmans LLP, mostly because director responsibility is reduced, the incidence of class action is reduced, and Canada generally has a more con- servative culture. "This whole dynamic, unfortunately, manifests a distrust of executives which I don't have. Most exec- utives I know are well intentioned. Brookfield Place, 181 Bay Street T 416.863.1500 F 416.863.1515 Suite 1800, Box 754 Toronto, ON M5J 2T9 www.airdberlis.com always orient themselves by forcing dis- closure as a way of guiding behaviour. It motivates boards of directors to consider compensation frameworks and to ask, 'what does this compensation motivate our internal service providers to do? How does it work in practice? Were we right or wrong and are the motives aligned with other stakeholders in the country and are they suitably balanced between long- and short-term goals?'" However, so far May says he isn't see- May says: "Our securities regulators " chair and say there should be clawbacks 20 • JUNE/JULY 2012 ntitled-2 1 INHOUSE 8/25/11 12:01:27 PM s easy to sit in a regulator's ing clawbacks or some of the other tools making up more structured compensa- tion plans. "It'

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