Board Advisory Services

We provide the Committee/Board with our views on recent developments in compensation, compensation governance practices, regulatory updates, updates to institutional investor and other stakeholders’ proxy voting guidelines, the inclusion of ESG factors into executive compensation programs, etc.

The Board’s involvement in the succession planning activities of the executive team is critical to ensure that open positions within this team caused by departing executives or a significant change in strategic direction are managed effectively. Boards need to know the members of the executive team, understand their roles and impact on the organization as well as understand if there are candidates within the organization that can step up should the need arise. In addition, the Board should have opportunities to meet and get to know possible candidates for executive succession. This can be achieved by establishing:

• An executive equity, diversity & inclusion policy
• Regular succession planning discussions on the Board’s calendar
• The executives and key employees whose succession planning requires Board involvement

With a sound understanding of the regulatory reporting requirements and expectations of institutional shareholders and their advisors, we can provide a third-party review of the Compensation Discussion & Analysis (CD&A) section of your Information Circular, or in conjunction with internal resources and/or legal counsel, draft the CD&A and other compensation-related sections of the Information Circular for you, including:

• Letter from the Chair of the Compensation Committee describing the last year of activities and how compensation decisions were made
• A description of your company’s approach to compensation, including compensation philosophy and strategy, how the company benchmarks compensation, such as frequency of reviews, peers, and the use of external advice
• Footnotes to required disclosure tables
• Key terms from your Company’s executive agreements, including treatment under various termination provisions (use of single or double trigger change in control provisions and normal course termination due to not-for-cause and for cause termination, resignation, retirement and death/disability)
• Realizable pay charts and tables to assist in illustrating the correlation of executive pay to shareholder value creation
• The committee’s approach to compensation risk assessment
• Board compensation disclosure

Section 2.1 of the Canadian Securities Administrators’ Form 51-102F6 governing the annual disclosure of executive compensation requires issuers to disclose whether or not the Board or Committee considered the implications of the risks associated with the company's compensation policies and practice.

Our compensation risk assessment services audit our clients’ compensation program to identify potential risks that the Board or Compensation Committee should be aware of to allow it to confidently meet its obligations under Section 2.1 of the disclosure obligations.

Our analysis comprises two parts:

Retroactive Analysis

We benchmark realized and realizable total compensation value against the client’s compensation philosophy and the company’s relative performance (including performance measures such as relative TSR, ROIC, production per share growth, Cash CROIC, etc.) versus its peer group and/or relevant stock exchange indices to determine the extent to which the compensation program has been operating as intended and whether adjustments are required to mitigate the risk of:

• External criticism/activism (compensation in excess of relative performance)
• Executive retention risk (compensation well below relative performance)

Prospective Analysis

Starting with any material pay for performance misalignment identified in the retroactive analysis above, we will:

Test current target levels for various KPIs in the company’s incentive programs against historical market performance to determine if target levels are unrealistically high or low.  

Prepare forward modelling to test the upper and lower bounds of incentive compensation payouts under different performance scenarios, including:

• Resulting total compensation under minimum and maximum performance scenarios
• The appropriateness of scorecard categories, metrics, KPIs, and weightings given institutional investor and proxy advisor expectations for the company’s sector, stage of development, etc.
• Conduct a stakeholder scan to identify expectations (i.e., metrics/targets) other stakeholders consider important, including environment, social, and governance (ESG) expectations in terms of both inclusion and weighting in executive incentive pay programs

Finally, we will identify compensation risk mitigation policies and programs the company employs and to what extent they reflect best practices, including a review of:

• Share ownership guidelines align executives and directors with shareholders
• Clawback policies to correct incentive plan payments not aligned with actual results
• Anti-hedging policies to prevent misalignment with shareholders
• Caps on variable pay programs to prevent gross overpayment
• Use of an external consultant to provide independent third-party advice and recommendations to the Committee/Board
• Positive and negative use of board discretion for compensation outcomes

To assist clients in renewing the share reserves underpinning existing or proposed equity incentive plans, we evaluate the risk to maintain or increase to the share reserve at the company’s next annual general meeting (AGM), including:

• An analysis of the client’s shareholder dilution, overhang and burn rate relative to both competitive practice and institutional investor and proxy advisor guidance
• A review of the client’s equity-based incentive plans for best practices in compensation governance
• An assessment of expected proxy advisor recommendations on plan renewal
• We then recommend any revisions for plan provisions to correspond with best practices while maximizing the probability for positive voting recommendations from proxy advisors and positive reception from shareholders

Board Renewal

The process of Board renewal isn't new, but it has never been more important or under more scrutiny by stakeholders. Whether your Board is undertaking a significant renewal process or replacing members that are reaching current tenure limits, it's a good time to consider the following policies/processes to ensure that the future Board reflects the stakeholder community and has the diversity of skills, experiences, and backgrounds to help the organization reach its strategic objectives:

• Board diversity & inclusion policy
• Tenure policy balancing board stability with renewal
• Skills matrices to identify meaningful gaps to be rectified with education and future Board appointments

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Board/Committee Charters

The Board never relinquishes it mandate, however, delegating certain tasks to the Committee level can ensure that there is time to properly consider situations and decisions prior to taking action. This is true for both the Compensation and Human Resources Committee as well as the Governance and Nominating Committee. Each of these Committees can dive into areas that are very top of mind for investors, employees, and other stakeholders. Make sure these Committees are operating effectively with the right charters (terms of reference), policies, and board members by having:

• Established a Board and Committee Independence policy
• Identified key Board level accountabilities
• Identified appropriate tasks to be leveraged to committees (Compensation and/or Governance Committees)
• Staffed Committees based on members’ interests and skills