The CCGG Guidebook: Moving Forward in Executive Compensation Governance - Part 2

Eddington Eron Ruiz
2 days ago
6 min read

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.

In this 2-part series, we are outlining 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. Our first article covering the first 2 sections of the guidebook can be found here.

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 3: Executive Compensation Risk Mitigation

Share Ownership Practices – How Aligned are Executives?

Publicly-traded Boards and executives are no strangers to shareholder ownership guidelines; since the 2008 financial crisis, the adoption of share ownership guidelines (“SOG”) has become widespread to the point where more than 75% of the TSX 100-300 in 2024 and over 90% of the TSX 60 now have share ownership guidelines covering their named executive officers (“NEOs”), with many outlining ownership requirements for executive tiers below the NEO ranks.

The CCGG has consistently favoured the use of SOGs to encourage the build-up of company shares, but now suggests more enhanced methods for increasing share ownership, including:

Share purchase requirements as opposed to simple ownership requirements (either purchased out-of-pocket or from LTI settlement proceeds);
Expressing SOGs in the form of multiples of total direct compensation, as opposed to base salary;
Requiring a specific portion of the SOG to be met through common shares alone;
Only counting fully-vested, full-value share awards in SOGs (i.e. not including unvested PSUs or RSUs); and
Avoiding policies that take the higher of market value and acquisition price.

Some of the CCGG’s suggestions are novel in the Canadian market. Share purchase requirements and common share-only SOGs are rarely seen in the TSX; that said, both encourage the purest form of share ownership by excluding unvested LTI from the calculation and/or forcing executives to truly put “skin in the game”.

For organizations who may be interested in implementing such requirements, it may be more feasible to implement them as an additional longer-term requirement once a sufficient “baseline” requirement of unvested full-value LTI (i.e. RSUs, PSUs and DSUs) and common shares is met.

Equity Compensation and Shareholder Dilution

The CCGG now outlines several items for consideration for Boards when approving and issuing from equity-based compensation plans, specifically from the perspective of the “cost” to shareholders. These considerations include:

Types of Awards Used – Full-value awards, particularly RSUs, are more costly to issue than options, as they are more likely to vest with value;
Historical Vesting Range – If the organization’s PSUs have consistently vested above target for a prolonged period of time, then Boards should consider/assume above-target payouts when assessing plan costs;
Limits and Caps – Limits should be placed on time-based LTI issued during downturns (whether due to commodity or business cycles), as well as the total amount of LTI issued to any one insider each year;
Market Capitalization – Issuers with larger market capitalization should be using a lower % of shares for equity incentive plans given the significant associated dollar value;
Rolling and Reloading Plans – Rolling maximums for equity incentive plans (e.g. 10% of outstanding shares) are less favourable compared to fixed issuances (e.g. 10,000,000 shares can be issued before requiring additional shareholder approval).

Most of these considerations should not be news for TSX-listed Boards; in fact, proxy advisors like ISS and Glass Lewis consider similar factors when evaluating equity incentive plan proposals.

For example, ISS’s Equity Plan Scorecard assesses if an equity plan proposal will likely result in excessive transfer of value away from shareholders based on historical granting practices (and recommends a vote for or against the proposal), and considers factors such as:

Full value awards as being more costly than stock options;
Benchmarking of plan costs relative to other similarly-sized peers by market capitalization (which also indirectly adjusts for industry downturns); and
Viewing rolling plans less favourably than fixed share requests.

Nevertheless, the CCGG’s expanded guidance on this topic serves as an important reminder that while equity compensation plans allow for direct linkage of management interests with those of shareholders, such linkage should be examined from time-to-time to ensure that return to shareholders is not diminished by overly generous granting practices.

Section 4: Target and Realized Value of Total Compensation

Peer Groups – Idealism vs. Practicality

CCGG now outlines four major factors (size, industry, country and avoiding outliers) to consider when constructing a peer group. While these factors are all considered when we review and construct peer groups for our clients, we have witnessed some of the practical difficulties of implementing two of the more specific approaches proposed by CCGG.

First, with respect to size, CCGG advises Boards to “not use revenue to shortlist companies for inclusion in the peer group especially when picking peers from an industry that is very different from that served by the organization.”

We would agree that solely relying on revenues to construct a peer group without restricting industries would likely result in the inclusion of inappropriate peers. That said, we caution against completely excluding revenue or other financial metrics from your selection process, as these metrics are far less volatile than CCGG’s ideal criteria of no greater than 2 times market capitalization or enterprise value.

From firsthand experience, executive compensation in established industries is more correlated to revenues, profit and return metrics than pure market capitalization, and omitting these metrics from the screening criteria may result in false negatives where potential peers may be passed over despite posing tangible threats to executive retention.

Second, with respect to Canadian companies with United States operations, CCGG recommends that Boards “consider reviewing compensation offered to executives in developed markets other than the United States, for example the United Kingdom”.

Theoretically, these companies’ market for talent is not restricted to Canada and the U.S., but practically speaking these two geographies would still be the most immediate concern in terms of loss of executive talent. It would be difficult to justify comparisons to other developed markets unless there are companies of extreme relevance in terms of industry and business model, and would also be conflicting with typical proxy advisor guidance to expand out to additional industries within the same sector before first. The inclusion of other geographies is also complicated by differing compensation disclosure and structures even in developed markets (e.g. lower overall quantum, superannuation, mandatory incentive deferrals, lack of above-target payout opportunities) that hinder straightforward comparisons.

While we do not advocate for the inclusion of American companies for all companies that have operations in the U.S. (particularly as executive pay levels are often substantially higher), we believe that it is more practical to expand the size and industries of companies examined before including peers from regions that do not represent true concerns for loss of talent.

Section 5: Non-executive Director Compensation

Board Compensation Vesting

One of the more notable additions by CCGG to its guidelines is the recommendation that director share-based compensation should not be subject to any vesting periods or conditions, even if they are simply time-based.

From a market perspective, this is not a surprising recommendation given that vesting for director DSUs is typically immediate or very short (e.g. 1 year), though a handful of TSX organizations still maintain a 3-year vesting period. As annual director elections are now mandated by most major stock exchanges, it would be unusual for organizations to require longer-term vesting given that Board members are not guaranteed to be re-elected for the full vesting period.

Moreover, if vesting was subject to multiple years of re-election, the potential for a “golden handcuff” effect on Board members increases significantly. Directors with a large amount of unvested equity may be reluctant to step down in circumstances where they may otherwise have been inclined to resign out of principle, discouraging Board members from using their most powerful tool for disapproval and compromising their ability to be remain independent.

While this guidance may not necessarily be revolutionary, the use of little-to-no vesting conditions is nevertheless a consideration for publicly traded companies looking to formally structure their Board compensation.

Closing Thoughts – Guidebook Sections 3 to 5

Sections 3 to 5 certainly stand out compared to Sections 1 and 2 as containing more brand-new guidance from CCGG, particularly on the topics of peer group construction and Board compensation. While the principles put forward by CCGG are ultimately guidance as opposed to mandatory requirements, CCGG represents major institutional investors and subsequently reflect those investors’ expectations for compensation structure and governance in their updated guidance. Board members should consider where improvements to compensation structure are feasible and be prepared to defend or address where practices may deviate from CCGG guidance.