For the 24th year in a row, Report on Business’s Board Games project has rated the work of Canada’s corporate boards using a rigorous set of governance criteria designed to go far beyond minimum mandatory rules imposed by regulators.
The Globe and Mail’s comprehensive ranking of Canada’s corporate boards for 2025
The Globe and Mail’s data partner, Global Governance Advisors, has examined the boards of directors of companies and trusts in the S&P/TSX Composite Index to assess the quality of their governance practices and disclosure. Each company’s detailed scores for each question can be found at https://tgam.ca/board-games.
The marks are based on information published in the most recent annual shareholder proxy circulars of companies that were members of the composite index as of June 30. Companies added to the index after June 30, as well as companies that do not publish proxy circulars, were not marked. Companies were also excluded if they were removed from the index after June 30.
A company must disclose its policies and practices in its circular for the company to receive marks.
All references to directors also include trustees at real estate investment trusts and other trusts. All references to shares also include trust units.
The Globe made some revisions to the criteria used last year.
For example, a new criterion requires a company to explain any adjustments it makes to mandated International Financial Reporting Standards/Generally Accepted Accounting Principles figures when setting financial targets or determining payouts in an executive compensation plan. The explanation in the proxy circular must include a table reconciling the company’s adjusted figures to the IFRS/GAAP figures from which they are derived. Board Games modelled the criteria after a policy from proxy adviser Glass Lewis & Co.
Board Games has also consolidated the criteria it uses to assess a company’s approach to diversity. Requirements for the numbers of diverse directors on the board are unchanged.
However, the requirements for discussion and disclosure of diversity policies for women and for diversity other than women have been combined into one criteria. The change recognizes that many companies have one overarching policy for diversity that covers all groups. (The total number of points devoted to diversity criteria has not changed from 2024.)
New criteria requires the average tenure of a company’s board of directors to be less than 10 years and that no more than one independent director, other than the chair, has served for more than 12 years at the time of the annual meeting. Companies must disclose the average tenure of their board of directors so shareholders need not attempt to calculate it themselves.
Other adjustments include:
- Directors who are former full-time chief executive officers of a company will no longer be considered independent – there is no longer a “cooling off” period that allows them to regain independent status. Board Games modelled the criteria on a policy change from proxy adviser Institutional Shareholder Services Inc.
- Directors who are related to a “significant” shareholder – defined as having 10 per cent or more of company ownership – will no longer be considered independent. The previous criteria considered a director to be related, and therefore not independent, if they represented a controlling shareholder with 30 per cent or more ownership.
- A new criterion considers other public company board commitments of directors who are full-time executives of another public company. There is an exception for related company boards.
- Independent directors must meet without management at every regular meeting for companies to receive any credit under the criterion. Previously, Board Games gave partial credit if the independent directors met at some, but not all, meetings.
- Board Games revised the definition of performance-based stock awards to eliminate eligibility of shares or options that vest based on nominal price appreciation, with no relative comparison to peers or an index.
- Companies must now disclose how their boards deal with artificial intelligence issues, along with information technology and cybersecurity matters.
- For full credit, board audit committees must now have at least two current or former CPAs (chartered professional or certified public accountant) or chief financial officers. Previously, one was satisfactory for full credit.
- For 2025, Board Games eliminated criteria for disclosure of equity holdings for CEOs and directors. The change was made to recognize that many companies were providing disclosure of holdings while failing to meet one of many elements in the criteria.
Board Games adjusted point levels for several other criteria.
The elimination of the disclosure for equity holdings brings the number of Board Games criteria to 36, down from 38 last year.
Board Games Methodology for 2025
Board Composition and Oversight, 1 through 14, worth 46 marks out of 100
1. Board independence
FOUR marks for boards with at least two-thirds independent directors.
THREE marks if more than 50 per cent of directors are independent.
ZERO marks if there is a majority of non-independent or related directors.
For a director to qualify as independent as measured for this question, the director must have no links to the company beyond their role as a director. That means that they are not:
- executives/employees;
- relatives of executives/CEO;
- executives/employees of a parent/sister/subsidiary company that controls the company;
- former members of management at the company or a parent/sister/subsidiary company within the previous five years;
- a former, non-interim CEO of the company, a subsidiary, affiliate, acquired company or former parent company at any time in the past;
- people whose firms do business with the company, regardless of compensation amount, including, for example, lawyers, accountants, suppliers, consultants, advisers or investment bankers;
- paid extra compensation by the company for providing non-board services, such as consulting work;
- significant shareholders (at least 10 per cent voting power) or related to the controlling shareholder of the company.
2. Splitting the role of chair and CEO
FOUR marks if the roles are split and there is a fully independent chair.
TWO marks if they are split, but the chair is a related director.
ONE mark if they are split, but the chair is a member of management.
ZERO marks if the roles are not split.
Any company with fewer than full marks will receive ONE additional mark if there is a lead independent director on the board.
3. Director commitments
3(a) Directors sitting on other boards
ONE mark if no directors sit on four or more public company boards.
ZERO marks if any director sits on four or more public company boards.
There is an exception for related company boards so long as the director sits on zero outside public company boards.
3(b) Directors who are executives
ONE mark if no board member is a full-time executive of another public company who also sits on a second public-company board, other than their own. There is an exception for related company boards.
ZERO marks if a board member is a full-time executive of another public company and sits on a second public-company board other than their own.
This criterion recognizes that a public company executive may sit on their own board as part of their job duties and serve on one additional public-company board. Any additional public-company board obligations, other than on related companies, are considered overboarding. A company that has this over-boarded director on their board loses the point.
4. Diversity
4(a) Representation of women on the board
FOUR marks if more than 33 per cent of directors are women.
TWO marks if 25 to 33 per cent of the board are women.
ONE mark if two members of the board are women, regardless of proportion.
ZERO marks regardless of proportion if the board doesn’t have at least two women.
4(b) Representation of diverse groups other than women
For the purposes of the diversity criteria, “member of a diverse group” other than women is any of the following: Indigenous; a racialized person (persons, other than Indigenous peoples, who are non-Caucasian in race or non-white in colour); has a disability; or is LGBTQ2SI+ (lesbian, gay, bisexual, transgender, queer, 2-spirit, intersex). Board Games does not consider political beliefs, marital status, professional backgrounds or geographic locations of directors to be forms of diversity.
FOUR marks if a company explicitly discloses it has more than one board member from a diverse group and the company specifies to which group each member belongs.
THREE marks if a company explicitly discloses it has more than one board member from a diverse group but the company does not specify to which group each member belongs.
TWO marks if a company explicitly discloses it has one board member from a diverse group and the company specifies to which group each member belongs.
ONE mark if a company explicitly discloses it has one board member from a diverse group but the company does not specify to which group each member belongs.
The company must make clear if one director belongs to two or more diverse groups. A disclosure of percentages of the total board in each category of diverse groups may make a director that is part of two groups appear to be two directors, not one.
In identifying specific groups, the company may use a narrative or a board diversity matrix. The company cannot rely on shareholders looking at pictures of the directors to evaluate diversity. The company does not need to name the specific directors in each category as part of this disclosure.
4(c) Policies on diversity
FIVE marks if the company discloses details of a process used to consider potential board candidates who self-identify as a member of a diverse group and includes internal targets both for the proportion of women and the proportion of members of diverse groups other than women on the board. The targets must be specific and include a timeline for achieving them. One goal for “diverse directors” that does not distinguish between women and members of other diverse groups does not count for full credit. Companies do not need to have a process that explicitly considers each individual diverse group. Companies that have both targets and have already met them do not have to have timelines for achieving their targets. Also, companies with at least 40 per cent women on the board and 20 per cent of board members from members of a diverse group other than women will receive FIVE marks even if they have not adopted formal targets.
FOUR marks if the company details of a process used to consider potential board candidates who self-identify as a member of a diverse group but includes only one internal target. This target may be only for the proportion of women or a goal for “diverse directors” that does not distinguish between women and members of other diverse groups. The targets must be specific and include a timeline for achieving them. Companies do not need to have a process that explicitly considers each individual diverse group. Companies that have a target and have already met it do not have to have a timeline for achieving their target. Also, companies with at least 40 per cent women on the board will receive FOUR marks even if they have not adopted formal targets.
THREE marks if the company has no targets, but discloses details of processes used to consider potential board candidates who are women and those who self-identify as a member of a diverse group. Examples are recruitment practices aimed at ensuring female candidates are considered for board seats; required proportion of potential candidates in recruitment; inclusion on an evergreen list of potential candidates; or mandating search firms to ensure that these types of diverse candidates are included. The policy/processes disclosed must consider at least one diverse group other than women.
ZERO marks if the company doesn’t have a diversity policy or doesn’t describe specific steps it takes to ensure diversity is reflected in recruitment. Companies will receive ZERO marks if a policy mentions several types of diversity without disclosing any specific measures related to improving the representation of women. Companies will receive ZERO marks if a policy mentions several types of diversity without disclosing any specific measures related to improving diversity, other than the representation of women, or simply states that the board considers diverse candidates other than women.
5. Board performance evaluation systems
THREE marks if there is a formal board evaluation and a formal individual director evaluation, including peer review, with detailed disclosure of what sort of process is used for both.
TWO marks if there is a formal board evaluation and director evaluation, but no peer review. Or TWO marks if the company has a formal peer review process but does not mention or describe any board or committee review process.
ONE mark if there is a formal board assessment, but not an assessment of individual directors, or if there is reference to a director assessment but not board or committee review.
ZERO marks if there is no evaluation or there is only a vague description of how the assessment is done with no details of the process used.
6. Independent directors meeting without management
THREE marks if they meet without management at every board meeting, including special meetings and not just regularly scheduled meetings.
ONE mark if they meet without management at regular board meetings, but not all board meetings.
ZERO marks if they meet sometimes, but not every regular board meeting; if there is no mention; or if there are no meetings without management. Also ZERO marks if the company uses vague wording – for example, that “time is available for in-camera meetings” – that does not specify whether the meetings are actually held.
7. CEO succession planning
ONE mark if the company discloses the process the board uses to manage succession planning for the CEO’s job.
Disclosure must go beyond simply noting that the board or one of its committees is responsible for managing succession planning. There must be evidence a formal process is in place and some detail of how the board approaches the task must be given.
8. Director education processes
TWO marks if the company fully describes director education processes, including details of each specific training session it held and who attended during the fiscal year. Director education can include, but is not limited to, educational events offered to the entire board during the year, site visits to company facilities by directors, or specifics about special briefings, courses or training offered to some or all directors. Management update presentations are not considered training sessions for the purpose of this question.
To be clear, the company will not be awarded TWO marks for additional details if the company simply lists educational topics without giving details of the specific training sessions, because it is unclear whether the topics were dealt with separately at specialized training sessions, or at a single training session during the year, or during a regular board meeting. It is also insufficient to list training topics “offered” or “available” to the board if the disclosure is not clear whether the training actually occurred and who attended. The company does not have to list each name if it says everyone on the board or a specific committee attended but does have to disclose details of who attended if the session was attended by a smaller number of directors and not the entire group.
ONE mark if the company gives a full description of education processes but leaves out some details about events and who attended.
ZERO marks if no training is disclosed or if there is so little detail that it is unclear what training occurred.
9. Director tenure
9(a) Average tenure of board service
ONE mark if the company calculates and discloses the average tenure of its directors and that average tenure is less than 10 years.
ZERO marks if the company calculates and discloses the average tenure of its directors and that average tenure is greater than 10 years.
ZERO marks if the company does not calculate and disclose the average tenure of its directors.
9(b) Long-serving directors
ONE mark if no more than one independent director, other than the chair, has served for more than 12 years at the time of the annual meeting.
ZERO marks if more than one independent director, other than the chair, has served for more than 12 years at the time of the annual meeting.
ZERO marks if a company does not disclose the years in which directors began their service on the board, because Board Games will be unable to calculate service length.
Note: To calculate service, Board Games will take the calendar year in which the annual meeting covered by the proxy circular is held and subtract the calendar year in which a director began serving.
9(c) Retirement and term-limit policies for directors
TWO marks if the company has a retirement-age or term-limit policy for its directors and it specifically says the age and/or length of service that triggers a director’s departure.
ZERO marks if no disclosure or it has no retirement-age or term-limit policy for its directors.
Note: The disclosure must be explicit, and marks will not be given for generic statements about board renewal that do not specifically mention retirement-age or term-limit policies.
10. Cybersecurity and artificial intelligence
TWO marks if the company describes how its board considers cybersecurity, technological and artificial-intelligence risk issues. The disclosure should identify a board committee or committees responsible for cybersecurity, technological and artificial-intelligence risks or describe how and how often it or other board committees consider these issues, including as they review strategy, risk management and operating performance. The disclosure must mention artificial intelligence and cybersecurity oversight details for full marks.
11. Audit committee composition
TWO marks if more than one audit committee member is a current or former CPA (chartered professional or certified public accountant) or chief financial officer, so long as the CPAs are not or were not employed by the company’s current auditor and the CFOs are not current or former CFOs of the company.
ONE mark if one audit committee member is a current or former CPA (chartered professional or certified public accountant) or chief financial officer, so long as the CPA is not or was not employed by the company’s current auditor and the CFO is not a current or former CFO of the company.
The information should be found in the company’s skills matrix, directors’ biographies or elsewhere in the proxy circular.
12. Board responsibility for climate
TWO marks if the company describes how its board considers climate issues.
The disclosure should:
- explicitly state the board is responsible for oversight of climate-related targets and monitoring progress against these targets.
- identify a board committee or committees responsible for assessing material climate risks and opportunities, or state that it is a matter for consideration by the full board.
- describe how the full board or its committees consider climate-related issues, including as they review strategy, risk management and operating performance.
- describe the processes and frequency by which the board and its committees consider climate-related issues, including as they review strategy, risk management and operating performance.
Simply saying a committee or the full board “considers” or “reviews” climate matters is insufficient, absent additional details. Details on frequency must give some indication the board or committees have considered climate at one or more meetings, whether by giving a number of meetings or saying it is done “regularly” or “frequently.”
Companies cannot get credit if the policies and procedures are described broadly, such as “ESG” or “environment”; disclosure must be climate-specific, using words or phrases such as “climate change,” “global warming,” “greenhouse gases” or “carbon.”
ONE mark if two or three of the four elements are present in the company’s disclosure
ZERO marks if one or none of the four elements is present.
13. Climate disclosure
13(a) Climate goals
ONE mark if the company discloses in its proxy circular any specific time-based climate goals, measures of climate impact or time periods for which it is conducting a scenario analysis on the impact of climate change. The company can refer shareholders to a separate document for additional details on these matters, but must describe at least one in the circular itself.
ZERO marks if the company does not disclose any goals, targets, measures or analysis.
13(b) Climate standards
ONE mark if the company identifies standards it uses for climate disclosures, such as the recommendations of the Task Force on Climate-Related Financial Disclosures, the Sustainability Accounting Standards Board, or IFRS S1 or IFRS S2.
ZERO marks if the matter is left unaddressed.
14. Climate board expertise and training
14(a) Climate expertise
ONE mark if the company includes climate expertise as a “required skill” in the board skills matrix and at least one director is attributed with climate expertise. Companies can get credit if “ESG” is listed as the required skill and the identified directors’ biographies include climate competency.
14(b) Climate training
ONE mark if at least one education session provided to the board or a board committee during the fiscal year is a climate-related session. Companies cannot get credit for education described as “ESG” or “environment”; disclosure must show the education is climate-specific, using words or phrases such as “climate change,” “global warming,” “greenhouse gases” or “carbon.”
Shareholding, 15 through 18, worth 11 marks out of 100
15. Director share ownership requirements
FOUR marks if a requirement for a director to own shares or share units is equal to at least three times the annual retainer paid to directors (calculated as the value of cash payments and equity grants) – including the value of grants of shares or share units – and if there is a time frame disclosed for directors to reach their ownership requirement and return to the required level if they fall below.
TWO marks if there is a requirement, but it is lower than three times the value of the retainer and share units.
ONE mark if the company allows directors to meet their ownership value by using a measure other than the current market value of their equity – such as using a historic average value or using the acquisition value of equity at the date it was first obtained. This is because these values over time can lead to lower actual share ownership by directors when the share price declines.
ONE mark if the company allows stock options or types of share units that have not yet been earned by directors to be counted toward share ownership requirements.
ZERO marks if there is no share ownership requirement.
16. Explanation of directors’ equity ownership versus guidelines
TWO marks if the company clearly explains how each director’s share ownership meets (or fails to meet) a required share ownership guideline. The disclosure must show the number or value of shares required to be owned, the director’s equity ownership level and must explain how the ownership compares to the requirement as a percentage, multiple or dollar value.
Note: Simply disclosing whether a director has met the requirement is not sufficient. The ownership must be presented in the same units as the requirement, allowing shareholders to better interpret each director’s investment in the company compared to the guideline. For example, if directors are required to own a certain dollar value of shares or a specific number of shares, the chart should compare the requirement to the actual ownership in those units.
ZERO marks if any of the elements are not disclosed for each director. Also ZERO marks if there is no share ownership requirement for directors. And ZERO marks if the disclosed share ownership level of each director is not the current market value, but is instead a historic value, such as the value when the shares were acquired or a historic average value.
17. CEO share ownership requirements
THREE marks if the CEO owns a minimum threshold of shares in comparison to the CEO’s total direct compensation (TDC) in the past year. Only shares held directly and fully vested restricted stock units (RSUs), performance stock units (PSUs) or other non-option instruments will count toward share ownership. TDC is the sum of all columns in the company’s Summary Compensation Table except for Pension Value and All Other Compensation. The market value of the shares can be based on either the fiscal year end or record date.
For THREE marks:
- A CEO who has served 10 years or more in the position at their current company must hold shares worth at least two times TDC.
- A CEO who has served five years or more in the position at their current company, but fewer than 10 years must hold shares worth an amount equal to or greater than TDC.
- A CEO who has served less than five years in the position at their current company must hold shares worth an amount equal to or greater than TDC, or the CEO ownership policy includes one or more of the following share-purchase requirements:
- to use a portion of the cash proceeds received upon vesting of any cash-settled share-based awards to purchase common shares of the company;
- to retain a portion of shares they receive upon settlement of any share-based award
- to annually invest some amount in common shares of the company.
For TWO marks:
- A CEO who has served 10 years or more in the position at their current company must hold shares worth between one and two times TDC.
- A CEO who has served five years or more in the position at their current company must hold shares worth between one-half and one times TDC.
For ONE mark:
- A CEO who has served more than five years in the position at their current company must hold shares worth an amount equal to or greater than TDC or be subject to at least one share-purchase requirement.
- The CEO has served less than five years in the position and the company has no share-purchase requirements
ZERO marks if a CEO who has served more than five years in the position at their current company misses the minimum threshold and the company has no share-purchase requirements.
18. Named executive officer share ownership requirements
TWO marks if there is a requirement for other named executive officers (those officers whose compensation is included in the proxy circular) to own at least one times salary in shares.
ZERO marks if there is no requirement, or if the requirement does not apply to all named executive officers, or if it is less than one times the base salary.
Compensation, 19 through 30, worth 23 marks out of 100
19. CEO bonus plans
19(a) Disclosure of plan design
ONE mark if the company provides a percentage weighting of the factors considered in determining the CEO’s bonus and provides the specific targets for all goals in the annual bonus plan that are based on financial metrics.
ZERO marks if it provides just weightings, just targets or neither.
ZERO marks if it provides an overall weighting for “corporate performance,” but fails to provide specific weightings for specific metrics used to measure corporate performance.
ZERO marks if the company names financial measures but fails to disclose the specific targets.
19(b) Performance outcomes
ONE mark if the company explains the outcome of what actually happened with performance goals and how the outcome affected the CEO’s bonus.
ZERO marks if it does not.
20. Use of a peer group in setting incentive compensation
TWO marks if the company uses relative financial performance metrics, making performance against that of the company’s peers, a factor in short- or long-term incentive compensation, and discloses the composition of the group used for comparing relative performance. This criterion addresses concerns that executives can underperform compared to their peers, but still earn pay that indicates high performance.
For credit, relative metrics can be used to either pay current year cash bonuses and equity (restricted stock or option) grants, or as performance hurdles for grants of PSUs or performance vesting options. For credit, the company must explain the rationale for the peer group it has chosen for measuring its comparative performance for equity payouts, such as similar-size companies or those that operate in the same industry.
Note: An established stock index will be considered a peer group so long as the company does not modify it without disclosing the additions or deletions.
TWO marks if the CEO does not participate in any short-, medium- and long-term incentive plans due to extensive current share ownership.
ONE mark if relative metrics are used but the company fails to explain how it chose members of the peer group.
ZERO marks if payouts are not based on relative performance metrics, if the company does not disclose the composition of a peer group, or if the company does not use one.
21. Performance-based stock awards
21(a) Performance hurdles
TWO marks if are there performance hurdles attached to stock options or share units representing at least half the value of the grants in the fiscal year. Performance hurdles are financial, operational or stock-price metrics that must be met for awards to vest, as opposed to time-based vesting based on continued employment. However, vesting of shares or options based on nominal price appreciation, with no relative comparison, will not be considered a performance hurdle. Examples of this include shares or options that vest only if a price threshold is met; options that are issued with an exercise price above the market price on the day of the grant; or a plan that uses total shareholder return without comparing it to a peer group or index. The company must disclose a valuation for each component of its equity awards to facilitate this evaluation.
ONE mark if some stock awards have performance hurdles, but more than half do not. ONE mark if the proportion of the awards is not explicitly disclosed, but some awards have performance hurdles. Or ONE mark if the stock awards are a mix of time-based vesting and vesting based on nominal price appreciation with no relative comparisons.
ZERO marks if no stock option or share unit awards have any performance-based criteria or any vesting based on nominal price appreciation with no relative comparisons.
TWO marks if the company never pays the CEO with options or share units.
21(b) Potential for zero payout
TWO marks if there can be no payout for the CEO’s performance-based options or PSUs. This addresses investor concerns that metrics for some PSUs allow some level of payout under any scenario, even when performance is weak. There must be the possibility for no payout as part of the compensation formula. It is not acceptable that no payout can only occur if the board applies discretion because no clear performance threshold is disclosed and it is unclear whether this will occur.
ZERO marks if there is a guaranteed minimum payout which effectively means part of the award vests based on time only.
TWO marks if the company never pays the CEO with options or share units.
22. Historical compensation disclosure
ONE mark if the company provides a “look-back” or “back-testing” table in the proxy circular showing how much the CEO has earned over the past five years from all compensation elements, including long-term features such as stock options and share units. The table must show investors how the CEO’s actual pay compared to the intended compensation reported at the time of granting.
The chart should show all long-term pay elements with an annual breakdown showing the amount awarded in each year over the past five years, and how the actual payout outcome compares to the intended compensation for each year over the past five years.
ZERO marks if no information is provided or if it does not include all pay elements.
Note: If a new CEO has been on the job for less than a year, ONE mark even if there is not a “look-back” chart. For CEOs with more than one year but less than five years of tenure, the “look-back” chart should cover their full period on the job.
23. Stock option gains
ONE mark if the company discloses the gains reaped by executives from exercising stock options over the prior year.
ZERO if it does not.
24. Cost of compensation comparisons
ONE mark if the company discloses the total cost of compensation to the top executive team compared to a financial metric such as income or revenue. It is not acceptable to only provide disclosure that compares the cost of compensation to the rate of share price growth. This is because comparison to a financial metric such as income makes it clear how much the compensation costs relative to the company’s financial resources. The calculation should show a percentage, and not an approximation such as “less than 1 per cent of revenue.”
ZERO if it does not.
25. Compensation Clawbacks
ONE mark if the company has a provision to claw back bonus payments to the CEO if wrongdoing is discovered. The policy must allow directors to claw back payments for anything the board determines to constitute wrongdoing.
ZERO marks if there is a policy, but clawbacks can only be ordered if the company’s financial statements have been restated due to wrongdoing.
ZERO marks if there is no policy.
26. CEO share-holding periods
ONE mark if the company has a holding period for shares after a CEO leaves the company to ensure there is a performance “tail” to the CEO’s work. This is an incentive to make good long-term decisions prior to departure. Minimum requirement is a one-year holding period after leaving the company.
ZERO if it does not.
27. Double-trigger severance requirements
Note: Double-trigger provisions require both a change of control of the company – the first trigger – and a termination event – the second trigger – for a severance payment and/or option award vesting to be accelerated. The company’s provisions cannot provide for payouts or accelerated option vesting based on the board’s discretion or if the termination event includes provisions for voluntary termination, resignation or resignation for “good reason” without disclosing the “good reason” definition outlined in an employment agreement or agreements.
ONE mark if the company requires a double trigger before paying compensation and permitting equity units to vest for top executives upon a change of control of the company. Such a rule means executives don’t automatically receive payments when a company’s ownership changes unless they also lose their jobs.
ZERO if there is no double trigger.
ONE mark if the company has no change-of-control payment provisions.
ZERO marks if the company allows executives to resign voluntarily after a change of control and still receive payments, unless the permitted circumstances are detailed in the proxy circular. Such reasons might include a material change in responsibilities or a relocation of a job, but they must be specified in the proxy. Companies cannot simply state that executives can resign for “good reason” and receive severance payments.
28. Stock option compensation
28(a) Excessive dilution
Dilution is based on “overhang,” or the number of options outstanding at the company’s fiscal year end, as well as the number of options approved for future issuance, expressed as a percentage of all shares outstanding. If a company has more than one class of shares, dilution is measured for whichever class of shares is diluted by the outstanding options.
TWO marks if the dilution is less than 2.5 per cent of outstanding shares, or if the company has no option plan.
ONE mark if the dilution is between 2.5 and 5 per cent of outstanding shares.
ZERO marks if the dilution is more than 5 per cent. Also ZERO marks if the company has adopted an evergreen option plan that automatically “reloads” the number of options available for issuance – even if the option dilution level falls within the guidelines listed above. And ZERO marks if the company has repriced any of its options within the prior year.
28(b) Excessive grant rates
TWO marks if the number of options granted in the prior fiscal year was less than 1 per cent of all shares outstanding.
ONE mark if the grant rate was between 1 and 1.5 per cent.
ZERO marks if the grant rate exceeded 1.5 per cent annually.
28(c) Vesting period for CEO options
ONE mark if no options vest prior to the first anniversary and at least some of the options vest on the fourth anniversary of the grant. This encourages a long-term focus by management.
ZERO marks if any options vest prior to the first anniversary of the grant or prior to the fourth anniversary of the grant.
ONE mark if the CEO does not receive options.
29. ESG and climate in compensation
THREE marks if a company discloses it has used or will use any quantifiable ESG metrics in awarding or setting either its short-term or long-term incentive plans (STIP, LTIP) and at least one of the metrics is related to climate matters. To receive marks, any current (STIP) or future (LTIP) payout from the plan is, at least partly affected by the target achievement value of the ESG/climate metric. The setting of 2030 or 2050 climate goals, for example, is not a quantifiable metric used in determining and awarding compensation.
TWO marks if the company uses quantifiable ESG metrics in either its STIP or LTIP, but none of the metrics make reference to climate.
ONE mark if “ESG” or “climate” is mentioned as a determinant in either plan, but there are no quantifiable metrics, or specifics.
ZERO marks if there is no reference to any elements of ESG in either the STIP or LTIP.
30. Use of adjusted financial metrics in compensation
ONE mark if the company explains any adjustments to IFRS/GAAP earnings measures made when setting targets or determining payouts in the annual incentive in an executive compensation plan. The explanation in the proxy circular should contain a reconciliation table that shows how the company arrived at the adjusted figure, compared to the IFRS/GAAP figure in audited financial statements. This criterion applies only to financial measures for which Canadian securities regulators require reconciliation. References to a reconciliation table that appears in a different document or securities filing or on the company website are not acceptable.
ONE mark if the company does not use adjusted metrics in the executive compensation plan.
ZERO marks if the company uses adjusted IFRS/GAAP figures in the executive compensation plan without providing a reconciliation in the proxy circular.
Shareholder rights, 31 through 36, worth 20 marks out of 100
31. Shareholder voting rights
This section looks at voting rights in two steps, first assessing whether there are non-voting or subordinate voting shares, then assessing whether there are other types of unequal voting rights.
Companies with equal voting rights for all shareholders can score a maximum of 10 marks.
Companies start with 10 marks if they have no dual-class shares. If the common shares available on a major exchange are subordinate voting shares, marks are reduced depending on the gap between the percentage of votes controlled by the superior voting shares and the percentage of the company’s equity they represent, using the following guidelines:
FOUR marks if the vote-to-equity ratio less than 2.1.
THREE marks if the ratio is between 2.1 and 3.1.
TWO marks if the ratio is between 3.1 and 4.1.
ZERO marks if the ratio is 4.1 or worse.
Companies that offer subordinate shareholders zero votes for board director elections will receive ZERO marks regardless of the vote-to-equity ratio.
Companies that have a sunset provision on the dual-class shares with an explicit end date that will occur in 10 or fewer years will receive two additional marks. Companies that have a sunset provision on the dual-class shares that will occur at an indefinite time in the future, such as the retirement or death of a controlling shareholder, founder or executive, will receive one additional mark.
If the company has no dual-class shares, we will then review two other issues related to voting rights, each worth a maximum of FIVE marks.
The first issue is whether shareholders can elect the whole board, or whether some directors are appointed (by a shareholder or manager, for example) and their names don’t appear on the proxy ballot.
FIVE marks if all directors are elected.
THREE marks if one director is appointed and not elected.
TWO marks if more than one is appointed, although not a majority.
ZERO marks if a majority are appointed and not elected.
The second issue looks at whether any whether any agreement provides a party – an administrator, manager or shareholder, for example – with rights unequal to ownership. For example, does an agreement allow for anyone to nominate or appoint directors out of proportion to ownership? Is there a voting power top-up or right that guarantees a minimum level of voting power or base right that would make rights unequal to ownership? Can anyone veto key issues – such as changes to senior management or asset sales or purchases – without majority ownership?
FIVE marks if all rights are equal.
THREE marks if a party has disproportionate rights compared with ownership stake.
ZERO marks if a party has rights that have little or no relationship to ownership stake.
32. Say on pay
FOUR marks if the company gives shareholders an advisory vote on executive compensation (known as say on pay) and the company received at least 90 per cent of the vote in the prior year in favour.
THREE marks if the company gives shareholders an advisory vote on executive compensation and the company received between 85 per cent and 90 per cent of the vote in the prior year in favour.
TWO marks if the company gives shareholders an advisory vote on executive compensation and the company received between 80 per cent and 85 per cent of the vote in the prior year in favour.
ONE mark If the company if the company gives shareholders an advisory vote on executive compensation and the company received less than 80 per cent of the vote on its say-on-pay vote in the prior year, but it clearly explains in its proxy circular what changes it has made to its compensation plan and how it has responded and engaged with shareholders. If the company does not disclose any changes to its compensation plan, it does not get credit.
ZERO marks if there is no advisory vote on executive compensation or if the company received less than 80 per cent of the vote in the prior year and has not explained changes it has made to its compensation plan and how it has responded and engaged with shareholders.
This question is designed in part to consider how a company reacts to a low say-on-pay result, so it measures the prior year result and what subsequent engagement and pay plan revisions are disclosed in the following proxy circular.
33. Shareholder engagement
TWO marks if there is a description of a shareholder engagement process outlined in the proxy circular and if the company provides information about how to directly contact the board. The proxy circular needs to offer details or examples of specific things the company has done to engage with shareholders, beyond inviting shareholders to attend the annual general meeting. The contact information must include a way to reach the board directly, such as an e-mail or postal address for the board or the chair of the board. It is not sufficient to only provide indirect contact information, such as including the company’s general mailing address in the proxy circular or directing investors to the company’s website.
ZERO marks if no shareholder engagement process is described in the proxy or if there is no board contact information.
34. Related-party transaction governance
TWO marks if the company identifies a board committee responsible for reviewing related-party transactions and provides disclosure of policies that govern them, such as defining related parties or addressing how the company evaluates the value of transactions. Disclosure must be more robust than simply stating that directors must declare if they have a material interest in a transaction and recuse themselves from discussions.
ZERO marks if a company merely states there were no related-party transactions, but does not identify its committee or policies.
35. Annual general meeting voting results
ONE mark if the company discloses exact vote totals, not percentages, for each measure on the prior year’s proxy, for each class of shares allowed to vote. Companies should disclose voting results for the board of directors and any say-on-pay measure from the prior year in the proxy circular. The company may disclose the voting results for other matters in the Report of Voting Results filed pursuant to its continuous disclosure obligations. ONE mark if the company’s public shareholders did not vote on any matters in the prior year because it is a newly public firm.
ZERO marks if no.
36. Virtual shareholder meetings
ONE mark if the company holds a hybrid virtual and in-person annual shareholder meeting. No mark if the AGM is in-person, or virtual, but not both.