Executive Compensation Packages

Executive Compensation: Legal Insights for Complex Packages

Executive compensation packages in Ontario, whether in the public or private sector, are intricate and multifaceted. Executives often receive a significant portion of their compensation through non-traditional methods such as stock options, bonuses, restricted share units, and long-term incentive plans (LTIP). Structuring these packages is a complex endeavor that demands a comprehensive understanding of various factors.

Executive Compensation and the Public Sector

In the public sector, executive compensation is regulated by the Broader Public Sector Executive Compensation Act, 2014 (BPSECA). This legislation primarily applies to entities like public hospitals, school boards, universities, colleges, and select public bodies. Its fundamental purpose is to ensure transparency and consistency in executive compensation. Consequently, most public organizations are mandated to disclose the key components of compensation awarded to named executive officers and directors. This includes elements such as cash and non-cash base salary, bonuses, securities, shares or units subject to resale restrictions, LTIP payouts, and all other forms of compensation.

The BPSECA grants authority to the Lieutenant Governor in Council to establish compensation frameworks that govern designated employers and executives. In 2018, the introduction of Regulation 406/18 brought forth new requirements for designated employers when determining compensation for designated executives. Notably, this regulation places a cap on salaries for designated executives, restricting them to their existing salary as of the effective date. However, exceptions exist for certain employers, contributing to the complexity of executive compensation in the public sector.

Given these recent changes and the intricacies of the BPSECA, it becomes paramount for both public sector employers and employees to seek legal advice when crafting and navigating executive compensation packages.

Executive Compensation and the Private Sector

While private companies are not subject to the same disclosure requirements as their public sector counterparts, they face unique considerations when developing executive compensation packages. For instance, private firms must adhere to securities laws concerning the issuance of stock options and other securities. These intricacies are extensive and intricate, often requiring in-depth legal expertise to ensure compliance. Recent case law concerning the entitlements of executive employees upon termination has signaled that changes are on the horizon for how courts handle executive compensation packages in the private sector.

Uncertainty Surrounding Executive Compensation Packages and Termination

In 2020, the Supreme Court of Canada rendered its decision in Matthews v Ocean Nutrition Canada, a case that significantly impacts executive compensation. This case centered on an executive employee’s entitlements under an LTIP after they experienced constructive dismissal. The lower courts awarded the executive employee, Mr. Matthews, a fifteen-month pay in lieu of reasonable notice. However, they disagreed on his entitlement to a payout under the LTIP, which amounted to over 1 million dollars. In response, Mr. Matthews appealed to the Supreme Court of Canada.

The Supreme Court’s judgment indicated that, except for Mr. Matthews’ dismissal without reasonable notice, he would have been entitled to the LTIP payout, as the company was sold during his reasonable notice period. The Court further held that the detailed terms of the employment contract did not limit Mr. Matthews’ common law right, leading to compensation for the loss of the payout, totaling $1,086,893.36.

How an Employment Lawyer Can Assist with Executive Compensation Planning

Structuring executive compensation packages is a multifaceted endeavor that often necessitates legal insights to ensure compliance with the intricate web of laws and regulations. Employment lawyers play a pivotal role in navigating the complexities of executive compensation, offering tailored solutions that benefit both organizations and executives. Here’s how an employment lawyer can assist in this critical aspect of the business world:

Legal Experience: Employment lawyers are focused in employment and labour law. They possess a deep understanding of the ever-evolving legal landscape, enabling them to interpret and apply the latest legal regulations and case law to executive compensation matters. Their knowledge ensures that compensation packages align with the law, reducing the risk of legal disputes.

Customized Solutions: Lawyers work closely with organizations to design compensation packages that meet the unique needs and goals of both the company and the executives. They take into account various factors, such as industry standards, corporate objectives, and individual executive preferences, to create packages that are both competitive and attractive.

Legal Compliance: Ensuring that every component of an executive’s compensation package complies with relevant laws and regulations is of paramount importance. Employment lawyers meticulously review each element to guarantee compliance, reducing the risk of legal issues down the road.

Negotiation and Dispute Resolution: Lawyers are skilled negotiators and can assist in discussions with executives regarding their compensation. In cases of disputes or disagreements, legal experts can provide solutions for amicable resolutions, preventing protracted legal battles that could harm the organization’s reputation.

Protection of Interests: Employment lawyers are committed to safeguarding the best interests of the organization, its stakeholders, and the executives involved. They work to strike a balance that satisfies all parties while adhering to the law.

Adaptation to Legal Changes: The legal landscape is continually evolving. Employment lawyers stay current with these changes, ensuring that compensation packages remain compliant with the latest laws and regulations. This proactive approach helps organizations avoid potential legal pitfalls.

Prevention of Legal Issues: By working closely with employment lawyers, organizations can preempt potential legal issues and mitigate the risk of costly litigation. Lawyers offer guidance on best practices, helping clients avoid common pitfalls in executive compensation planning.

In the intricate domain of executive compensation, legal guidance is indispensable. Employment lawyers are your allies in designing, implementing, and managing executive compensation packages that are not only competitive and appealing but also fully compliant with the law. Their experience helps organizations and executives navigate the complex and ever-changing landscape of compensation planning. If you’re embarking on the journey of executive compensation planning, enlisting the support of an employment lawyer is a wise and strategic choice.

Conclusion

Executive compensation packages are undeniably complex, with their legal landscape continually evolving due to legislative changes and developing case law. For organizations, whether in the public or private sector, navigating this complexity necessitates seeking legal advice. Employers and employees alike must consult with legal professionals to ensure that their executive compensation packages are structured, executed, and protected within the intricate framework of employment law in Ontario.

Contact Achkar Law

If you are an employer and need assistance structuring executive compensation plans, or an employee and would like assistance with understanding an executive compensation plan, our team of experienced workplace lawyers at Achkar Law can help.

Contact us by phone toll-free at 1 (800) 771-7882 or email us at [email protected] and we would be happy to assist.

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