Canadian Lawyer InHouse

27 CANADIANLAWYERMAG.COM/INHOUSE JULY 2017 "You must have a good board, which is able to stand up to management. You want an independent compensation committee, which you hope has no real stake in the [compensation] game," he states. When companies hire outside counsel or advisers, they should seek individuals who are not just telling firms what they expect to hear. "You want people to challenge the status quo and who are not worried about losing the client," says Sweatman. As well, an effective executive compensa - tion plan should not just be limited to the most senior employees at the company, he adds. "You need to go further down the pay scale" in terms of incentives, says Sweatman, because that is where the future executives of a company may be found. Measures such as Say on Pay votes by shareholders, which are not binding on boards, are still an effective tool, say lawyers in this field. "It is a real avenue for share - holders to express their views," says Med- land. The embarrassment of losing such a vote is enough of a deterrent for a board to ensure that the executive compensation plan is acceptable. While they are not mandatory, an increasing number of publicly traded companies in Canada have instituted clawback or recoupment policies related to bonus compensation. These policies can be triggered if there is a financial restatement. They do not guarantee these funds will be recovered, yet, "it gives a company a way to protect itself," says Medland. Litigation may still be necessary, but a clawback policy is helpful in estimating damages in any civil action, Lacoursière explains. The rules regarding executive compensa - tion disclosure in Canada are arguably not as strict as some of the provisions of the Dodd- Frank reforms in the United States. One example is a requirement that was supposed to take effect later this year, which would require disclosure of the ratio between chief executive compensation and that of the me - dian employee of the company. That disclosure is not mandatory in Canada and Lacoursière does not see it being adopted by many companies. "It is just CEO shaming," she says. The ratio is not necessarily a meaningful figure, agrees Medland. "It tells you more about the nature of the business than about the performance of the CEO," explaining that the ratio will be higher in a retail operation, for example, than other sectors. However, it now appears that many of these measures, including stricter clawback rules and frequency of Say on Pay votes, are about to be rolled back. The U.S. Congress started the process this spring in legislation entitled the Financial Choice Act, aimed at rescinding many Dodd-Frank measures. In Canada, though, whether it is mandatory or not, more transparency on executive compensation appears to be an accepted part of doing business. "This is not about any witch hunt," says Sweatman about the increased scrutiny. "It is about being good companies." IH Untitled-9 1 2017-06-06 3:23 PM

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