OSC to get tougher on financial disclosure
Executive bonuses outstanding issue
TORONTO While companies are more compliant in disclosing executive compensation to investors, they are still “fuzzy” on their reasons for increasing or decreasing bonuses or pension perks, the Ontario Securities Commission said in a report Friday.
Executive bonuses have been a major bone of contention during the economic crisis as executives stockpiled millions while the stock prices of their firms plummeted. Concerns about beefy bonuses forced the Canadian securities regulator to release new compensation disclosure rules to force transparency on the boards of directors.
The hope was that the new rules, which became effective across all jurisdictions on Dec. 31, 2008, would do for executive pay what the U.S. Sarbanes-Oxley Act did for auditing firms — ensuring they would no longer give short shrift to audits to protect other lucrative lines of business.
But so far, the results appear to be mixed.
According to the OSC, 62 of the 70 companies it reviewed filed executive compensation disclosure documents that “ generally met the requirements” set by the Canadian Securities Administrators in September 2008. But the discussions and disclosure around the process of making executive compensation decisions is still rather vague.
For example, a company will discuss the awarding of a bonus but does not explain that the company granted it because performance goals were met. Conversely, one company disclosed that performance goals were met, but did not report whether a bonus was earned.
The issue of benchmarking salaries and bonuses also needs more clarity, according to the regulators. While many companies said they are benchmarking compensation to peer groups, they do not explain how they applied that information when making decisions about executive compensation within their own firm.
In addition, many companies are cherry-picking which peer group they want to benchmark.