The CCGG Guidebook: Moving Forward in Executive Compensation Governance - Part 1

In late 2025, the Canadian Coalition for Good Governance (“CCGG”) announced updates to its guidance around the subject of executive compensation, the first major update to its policies since 2013. The new Executive and Director Compensation Guidebook re-organizes and expands on CCGG’s six principles from 2013 to provide more detailed and up-to-date guidance on how to structure executive and Board compensation.

While CCGG itself notes that “it is difficult to espouse compensation best practices which may be consistently applied across industries and companies”, we have nevertheless found its publications to be excellent in educating Boards and management regarding good governance practices. As executive compensation consultants to publicly-traded organizations, many of our recommendations incorporate elements of CCGG’s principles by default; as such, we have examined the new guidance issued by CCGG and determined where it can be applied in situationally and/or where deviation may be necessary.

In this 2-part series, we will outline some of the major additions and updates put forward by CCGG compared to its 2013 guidance, including our commentary on where the implications are significant in terms of structuring and disclosure.

Note: This article uses a number of abbreviations for long-term incentive (“LTI”) vehicles; for more information, please refer to our article covering LTI plan designs in the TSX mid-market.

---

Section 1: Executive Compensation Structure

Stock Options – Are they performance-based?

Perhaps the most significant update to CCGG guidance is its softened stance on whether options should be considered as performance-based compensation, recognizing that there may be circumstances in which “vanilla” options (i.e. options without performance conditions) can be considered performance-based. CCGG acknowledged that there may be valid reasons for stock option usage, particularly in organizations where cash flow is a greater concern than burn rate / dilution. This is consistent with our experience.

We also often observe the use of options in situations where:

1. The organization is implementing publicly-traded LTI practices for the first time and favours simplicity in implementation;

2. There is little consensus on core metrics that would be better indicators of organizational success than raw share price; and/or

3. The key metrics for the organization are so critical that they are implemented as a consistent metric into short-term incentive plans, leaving retention as the primary objective.

CCGG also proposes practices for reducing the risk inherent to stock options; while some are certainly more feasible and may already be reflected in current market practice (e.g. reduction in the overall LTI mix, lengthening of term, limitations on option issuances during downturns in commodity or business cycles), others are comparatively rare and may not see significant uptake in adoption without precedents set by Canada’s largest publicly-traded organizations (e.g. strike prices higher than existing market price, performance-vesting conditions). In particular, our experience is that performance conditions layered onto stock options can be seen as doubly punishing recipients for poor performance, and a PSU plan and stock option mix is often preferred in lieu.

CCGG’s relaxed stance towards options mirrors a recent relaxation in voting recommendations by ISS for U.S.-listed companies, where time-vested awards with a suitably long vesting period and/or post-vesting hold requirements can be viewed positively in its pay-for-performance assessment methodology. While this is not currently a consideration in ISS’s Canadian pay-for-performance model, these precedents may hint towards a similar update to Canadian voting guidelines by ISS (and possibly Glass-Lewis and other proxy advisors).

Notwithstanding the above, CCGG still prefers the usage of PSUs as the primary vehicle for performance-based LTI; that said, we view this move away from a hardline stance to be largely reflective of current practices and nuances that preclude a wholesale discontinuation of stock option usage in LTI plans.

Special Incentive Compensation

CCGG has also put forward new guidance around the structuring of special incentive compensation grants on top of normal course compensation, in addition to encouraging clear disclosure to shareholders of all grant details (e.g. vesting conditions, performance targets, term):

1. If the incentive is not intended to replace forfeited LTI from the incumbent’s previous organization, special compensation should be based on company and/or individual performance (i.e. time-vesting conditions are largely insufficient)

2. Avoid structuring special compensation such that outperformance can be achieved by virtue of “luck” rather than “skill”

3. Vesting conditions should be longer-term and require stronger performance than regularly-issued LTI (e.g. longer time restrictions, more aggressive targets than those established in normal LTI)

4. A meaningful portion of special incentive compensation should be settled in common shares or DSUs to encourage stronger alignment with shareholder interests

In our view, the first 3 points of guidance above are generally applicable (particularly if the incentive is not in replacement of annual LTI grants), though we would recommend a cautious approach to the final guidance point, specifically if utilizing DSUs as a settlement vehicle.

In principle, DSUs can be viewed as an extremely long-term compensation vehicle as the participant does not have access to their value until their employment / service is terminated by the organization (and this may even result in advantageous tax deferral in some circumstances). In practice, DSUs are rarely used in executive compensation as they can be seen as generating a perverse incentive to resign from the organization, as many plans do not have provisions that prevent DSU payouts for non-retirement resignations. Given this, a careful examination of your current equity incentive plan document should be considered if DSUs are being considered for executive compensation (regardless of if they are used for annual LTI or solely for special incentive grants).

---

Section 2: Performance Metrics and Targets

Enhanced Disclosure of Performance

CCGG now explicitly encourages disclosure of performance metrics, targets, and payouts. This is a notable enhancement from previous years’ guidance, which was largely limited to a general expectation that enough detail is given such that compensation structures are understood by management, the board and shareholders. As part of its rationale, CCGG notes that most TSX Composite constituents already disclose performance targets for financial and key operating performance metrics, and a lookback on actual performance achieved under previous years’ incentive plans.

In our view, while disclosure with respect to achieved performance provides important context to shareholders when examining a company’s pay-for-performance relationship, there is a balance to be struck in terms of how much should be disclosed or kept confidential in terms of forward-looking targets. Many organizations that choose not to disclose targets usually cite competitive risks as their primary concern, as their projections may potentially reveal too much detail regarding growth expectations and associated strategies (e.g. goals based on confidential trade secrets or information). Board and Committees of organizations with precarious links between their executive compensation increases and company performance should expect mounting pressure from shareholders and proxy advisory firms for detailed disclosure, or an equally-detailed rationale for why certain metrics were selected without disclosing their targets (particularly for measures based on relative metrics, which are rarely reliant on confidential information).

---

Closing Thoughts – Guidebook Sections 1 and 2

Much of the CCGG guidebook contains similar content to the 2013 principles with some reorganization; most updates to CCGG’s guidance in sections 1 and 2 simply expand on previously-addressed topics to provide more detailed rationale and expectations (while maintaining a general, non-industry specific lens).

The major updates to guidance so far appear to be focused on directly addressing topics that previously were only touched upon in passing (e.g. special incentive compensation), though we caution that some of the guidance provided (e.g. some stock option-related recommendations, disclosure of performance targets) may not be immediately actionable and should be considered in the specific context of your organization.

In part 2 of this series, we will continue our examination of the guidebook, focusing on Sections 3 to 5.