Corporate Board Governance and Director Compensation in Canada. A Review of In Partnership with Patrick O Callaghan and Associates

Transcription

1 Corporate Board Governance and Director Compensation in Canada A Review of 2016 In Partnership with Patrick O Callaghan and Associates 2016 Corporate Board Governance and director compensation Report

2 $ per copy Korn Ferry, January 2017 All rights reserved. No part of the contents of this report may be reproduced or transmitted in any form or by any means without the written permission of the Publisher. This report is also available in French. KORN FERRY Canada

3 Table of contents The Surveyed Companies 2 Emerging Governance Issues Report 2016: Are Risk Management and Strategy Enough? Making Succession and Talent Management True Board Priorities. 6 Board Independence 26 Board Composition 34 Board Size 46 Board Assessments, Director Selection and Director Development 50 Meetings and Attendance 56 Board Committees 60 Director Compensation 66 Board Chair Compensation 74 Lead Director Compensation 80 Committee Chair Compensation 82 Committee Member Compensation 88 Stock-Based Compensation 94 Compensation Summary 98 Director Share Ownership 100 Company Data 105 End Notes 116 Korn Ferry 119 Patrick O Callaghan and Associates Corporate Board Governance and director compensation Report 1

4 KORN FERRY Canada The Surveyed Companies 2 KORN FERRY Canada

5 The Most Comprehensive Canadian Governance Study We are pleased to present the most comprehensive review of public issuer governance data available in Canada. This twenty-fourth annual report examines governance in Canadian companies and includes our Emerging Issues Report: Are Risk Management and Strategy Enough? Making Succession and Talent Management True Board Priorities. Our commitment is to provide directors and trustees with accurate and relevant Canadian data across a wide spectrum. The data is collected from publicly traded companies that were on one or more of the following lists: The Financial Post Top 185 (June 2016) The Report on Business Top 185 (July 2016) The S&P/TSX Composite Index (at any time during 2015) We source data from corporate filings including annual reports, management proxy circulars and annual information forms for fiscal year-ends in late 2015, or the first few months of All references to 2015 data includes data for fiscal year-ends in early All figures reported in United States dollars have been converted to Canadian dollars at an exchange rate of 1.28, which was the average exchange rate for All fractions have been rounded off to the nearest whole number, thus all totals do not add up to exactly 100%. Where this report uses comparative U.S. data, it is drawn from the Director Compensation Report published by the National Association of Corporate Directors (data from the 2015 Director Compensation Survey by Pearl Meyers). The study is based on 1,400 companies across 24 industries that filed a proxy statement or other financial statement with director compensation information for the fiscal year ending between February 1, 2014 and January 31, Corporate Board Governance and director compensation Report 3

6 Breakdown of Research Sample by Assets and Industry Group Micro Small Medium Large <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL Percent** Consumer Discretionary % Consumer Staple % Energy % Financials % Health Care % Industrials % Information Technology % Materials % Telecommunication Services % Utilities % All % Percent* 32% 23% 22% 23% 100% * Asset group as a percentage of total ** Industry group as a percentage of total Micro <1.5B 32 % 23 % Small 1.5B to 3.5B Large >10B 23 % 22 % Medium 3.5B to 10B Terminology and Standards Used Throughout this Report Size In 2015 we re-balanced our size categories, which are now set at: Micro = companies with assets of less than $1.5 billion (<1.5B) Small = companies with assets between $1.5 billion and $3.5 billion (1.5B to 3.5B) Medium = companies with assets between $3.5 billion and $10 billion (3.5B to 10B) Large = companies with assets over $10 billion (>10B) Comparisons Where tables present data by year, the data is given for 2015, 2014 and This allows readers to compare between the two most recent years, and also to see how the subject has changed over time. 4 KORN FERRY Canada

7 Regulatory Documents Where we use CSA disclosure requirements, we are referring to the Canadian Securities Administrators National Instrument , Disclosure of Corporate Governance Practices. * Where we use CSA governance guidelines, we are referring to the Canadian Securities Administrators National Policy , Corporate Governance Guidelines. Independent Directors Where we refer to directors as independent, we are basing the categorization on the company s assignment of the term to individual directors under the definition in the CSA disclosure requirements. Directors and Trustees With the inclusion of income trusts, we are now including organizations with both directors and trustees. For the sake of brevity in this document, where we refer to director, we are referring to both directors and trustees. Types of Organizations Where we use company we are referring to any member of the research sample as a whole, which could be either an equity or an income trust. Income Trust Names In some cases, income trusts presented governance data for a board other than its own board of trustees (e.g., for the board of an Administrator or Manager ). The name cited is always the name we have drawn from one of the three sources we used to compile the research sample. Retainers Whenever the term retainer is used alone, it refers to whatever combination of cash and shares is paid to directors by the company as a retainer for services, unless we refer specifically to the cash portion of a retainer or the share portion of a retainer. Compensation based on Shares, Trust Units and Equivalents Where we discuss compensation in the form of shares, trust units, deferred share units, etc., we use shares unless referring to one specific type of compensation in this group. This does not include compensation in the form of stock or trust options. Emerging Governance Issues Report: Are Risk Management and Strategy Enough? Making Succession and Talent Management True Board Priorities Korn/Ferry and Patrick O Callaghan and Associates surveyed 185 Board Chairs, directors and CEOs to produce this year s Emerging Governance Issues Report, which can be found on pages 6 to 25. Respondents were either personally interviewed or completed an on-line survey Corporate Board Governance and director compensation Report 5

8 Emerging Governance Issues Report. Are Risk Management and Strategy Enough? Making Succession and Talent Management True Board Priorities. ARE RISK MANAGEMENT AND STRATEGY ENOUGH?

9 Executive Summary A 2016 survey of 185 Canadian directors revealed: Gaps as large as 33% between what directors think boards should ideally be doing and are actually doing regarding succession planning and talent management. Despite 78% of directors rating management succession planning as one of the most important functions of the board: * fewer than half report having a formal board approved succession plan; * only 54% report a formal link between the succession plan and strategic plan, and 47% between the succession plan and risk management plan; * only 45% have confidence that they have processes in place to determine how to fill gaps between ideal talent needed to execute the strategic plan and talent already in place; * only 50% report that their CEOs have measureable objectives for management succession planning; and * only 41% consider their boards extremely well prepared to cope with an immediate and unexpected need to replace a C-Suite executive. Directors clearly identified the need to focus on succession and talent management, particularly as part of strategic and risk management planning. However, they are still grappling with how they should engage with management on these important functions at a time when technology, generational change, globalization and economic uncertainty are changing the ways companies attract, recruit and retain employees at all levels. We provide five practical recommendations to help boards move forward starting on page We consider 80% of the board having comprehensive knowledge to be the minimum target level for effective oversight. Making succession and talent management true board priorities. 7

10 Why did we survey directors on this topic? Every year Korn Ferry and Patrick O Callaghan and Associates interview Canadian directors about an emerging governance issue. In 2016 we focused on board engagement in succession and talent management because: In recent years the demarcation between management and board responsibilities has become less defined as more boards work in partnership with the CEO and the executive team rather than in a pure oversight role. Directors are more deeply engaged with management in the development of strategy, its effective implementation, the financial consequences. Directors have an understanding and are engaged in the oversight of risk and risk management processes. However, human capital 1 management issues are not a high priority at the boardroom table other than the traditional board role of selecting the CEO and approving compensation for the C-suite 2. Over the past decade, changing generational expectations, the speed and nature of technological change, the impact of the new digital environment, globalization, and economic uncertainty have had a significant impact on how organizations attract, recruit and retain employees at all levels. Employees have always been a critical factor in an organization s success. Over the past decade of rapid change, attention to human capital has required more board focus as new risk factors have affected the ability to deliver on strategic plans. Increasingly, we are being asked to assist boards with integrating risk and strategic planning with succession and talent management. We wanted to know how pervasive and widespread this practice is on Canadian boards. In the spring of 2016, we interviewed and surveyed 185 Canadian directors (breakdown on opposite page) about the appropriate level of board engagement in succession planning 3 and talent management 4. The results revealed that succession and talent management are critical and need to be on the board s radar, but directors are clearly struggling with how they should integrate them given the continuing pace and extent of change. As always, we extend our sincere gratitude to those directors that took the time to share with us their experience and views regarding the board s role in succession planning and talent management. 1. Human capital is a reference to talent as a valuable and integral asset of an organization. 2. The senior group of executives in the organization. 3. Management Succession: A process to understand the needs of an organization in terms of key business leadership positions, and then develop the internal supply of leaders/employees with the potential to meet those needs. Succession management increases the supply of ready internal candidates for those key business leadership positions. 4. Talent Management: A set of integrated business and people processes that attract, develop, retain and engage the people the organization needs to deliver on its strategy and business objectives. True talent management is differentiated from basic HR practice by its integrated nature, its formalized alignment to defined business needs now and in the future and its treatment as an essential business process. 8 ARE RISK MANAGEMENT AND STRATEGY ENOUGH?

11 WHO WAS INTERVIEWED? Making succession and talent management true board priorities. 9

12 What are boards doing? What do directors think they should be doing? Directors identified the gaps between what their boards are doing, and what they think ideally boards should be doing regarding succession planning and talent management. IDEAL Succession and talent management is a regular part of risk management discussions Review, provide input to and approve a formal management succession planning process Develop and monitor retention policies 87 % 54 % 84 % 58 % 95 % 70 % 88 % 66 % 84 % 66 % ACTUAL Succession and talent management is a regular part of strategic planning discussions Review reports on high potential individuals provided by the CEO or CHRO 4 95 % 79 % Assessment of succession planning activities Committee chair interviews candidates for C-suite roles (e.g., audit chair interviews CFO candidates) 92 % 76 % 94 % 81 % Monitor turnover rates at senior levels. Review senior level departures with the CEO 96 % 87 % 94 % 86 % Discuss high potential individuals with the CEO Gain exposure to high potential individuals via their attendance at board meetings, strategy retreats, site visits, board dinners, etc. 98 % 91 % 4 Chief Human Resources Officer 10 ARE RISK MANAGEMENT AND STRATEGY ENOUGH?

13 During our interviews, directors indicated gaps, and many indicated they were just beginning to change their practices. The gap between current and ideal practices appears to stem from the difficulty of working with soft issues like culture and talent development. The metrics and objectives are not as well established as those related to hard assets, acquisitions or financial performance. We are just getting started into strategy and how it relates to people. 5 It is an organic, ongoing process and is always discussed, but not when we are on the strategic planning retreat. How can boards close the gap? 30% DIRECTORS THINK THEIR BOARDS DIRECTORS DO NOT SPEND ENOUGH TIME ON SUCCESSION PLANNING 41% THINK THEIR BOARDS DO NOT SPEND ENOUGH TIME ON TALENT MANAGEMENT Boards need to be thoughtful and strategic about how they will work together with management on these issues. Like any other business function, succession planning and talent management need measurable goals. Boards should adopt processes and reporting metrics that tell them how successfully the company manages human capital. This will enable boards and management to work together and react and plan appropriately. 5 All italicized comments in this report come from interviews or surveys with directors. Making succession and talent management true board priorities. 11

14 How involved are boards in succession planning and talent management? Our survey illustrates boards are quite involved in management succession planning, though often informally, and much less so in talent management. Directors frequently commented that their involvement was only at the CEO and C-suite levels (see page 14). Board Involvement with Succession Planning 42% HAVE A DOCUMENTED, FORMAL BOARD-APPROVED MANAGEMENT SUCCESSION PLAN 49% OF BOARDS AND/OR COMMITTEES ARE very INVOLVED with MANAGEMENT SUCCESSION PLANNING 9% OF BOARDS ARE NOT, OR ARE NOMINALLY INVOLVED with management succession planning by company size Assets $2B or less Assets over $2B Documented, formal, board-approved management succession plan 37% 46% Board and/or a committee of the board is very involved with management succession planning, but its involvement is not formally outlined in a process document 48% 51% Board is not, or is only nominally, involved with management succession planning 15% 3% 12 ARE RISK MANAGEMENT AND STRATEGY ENOUGH?

15 Board Involvement with Talent Management TALENT MANAGEMENT by company size Assets $2B or less Assets over $2B Documented, formal, board-approved talent management plan 15% 27% Board and/or a committee of the board is very involved with talent management planning, but its involvement is not formally outlined in a process document 48% 45% Board is not, or is only nominally, involved with talent management planning 37% 28% Making succession and talent management true board priorities. 13

16 Irrespective of company size, human capital management is too important to get such little attention at the boardroom table. While directors report less involvement in talent management, human capital s importance to business will force this issue to the boardroom table. Board Involvement in Succession Planning and Talent Management by Role Boards will get more engaged in succession planning in the more senior levels, but also will insist on improved information and metrics around broader succession planning and talent management processes to ensure that they are meeting objectives. Few directors (33%) reported board involvement in critical talent related succession and talent management. However, critical talent are the individuals that are key to delivering success, and over time boards will become more engaged in ensuring there are plans and processes in place to attract and retain this group of employees. 6 Critical talent includes people that may not be management level but are crucial to the success of the organization. They hold knowledge or skills that are highly sought after in the industry and are difficult to attract and retain. 14 ARE RISK MANAGEMENT AND STRATEGY ENOUGH?

17 The cost of talent is significant. Conger and Lawler comment that, It is a time honored adage that CEOs often repeat: People are our greatest asset, but is it more than talk? Probably not. Research confirms the adage, showing a linkage between superior human capital management practices and superior organizational performance. In addition, talent is a major cost in many organizations, particularly those that are labour or intellect intensive, where it can account for 70% or 80% of an organization s costs. 7 Is there any other operational cost so significant to the balance sheet that is so casually addressed by the board? Management succession has become a key initiative for the Board only in the past year. Nothing formally existed before this. It is probably one of the most important functions we do as a board. Talent is now discussed at almost every board meeting. The Board needs to ask more questions about the talent pipeline. It needs to hold the CEO more accountable for the health of the talent pipeline. You can t have an effective management succession plan without a talent management process; they go hand in hand. Talent management is reported to the Board, but not with the same level of detail as succession planning. We don t really have a formal CEO succession plan. The CEO has been there close to 20 years and we all just pray he doesn t want to leave. We ask him annually about his plan and if we anticipated a change, we d have to do something. We do have an emergency or short-term succession plan. The Board has asked about talent management, but hasn t forced the dialogue. It is concerning if boards or committees get too involved in the details of management succession and talent management. We have a plan, but the board is not heavily involved. 7 Is your board MIA on HR? Conger, J.A. and Lawler III, E.E. Excerpted from The handbook of corporate governance. Edited by Richard Leblanc Making succession and talent management true board priorities. 15

18 How important do directors consider succession and talent management? We reported earlier that directors know there is a gap between what they are doing and ideally what they should be doing. This leads to the question: how important do they consider these issues and how urgent is it to close the gap? Our survey indicated directors place a strong importance on succession planning, and less on talent management. Importance of Succession and Talent Management as Board Responsibilities There is some inconsistency regarding how boards are approaching management succession planning. Seventy-eight percent of directors consider management succession planning to be either the most important function of the board, or one of the two or three most important functions. One has to ask: Why do only 54% have a formal link to the strategic plan and 47% a link to the risk management plan? Why do less than half of boards adopt formal, documented processes? (see pages 12 and 13) Should this activity, which is so core to operational and strategic success, receive more attention at the boardroom table? 16 ARE RISK MANAGEMENT AND STRATEGY ENOUGH?

19 Talent management is given less importance as a board function by directors. We believe that it plays an essential role in delivering on strategy. We would not expect boards to be involved in minute details of talent management. However, they should have this issue regularly on the agenda to know exactly what plans and processes are in place. Directors should have metrics that demonstrate whether these processes will support the achievement of current and longer-term strategy. Assessing the appropriateness of these processes is increasingly being addressed by directors. Leadership and talent drive shareholder value. The best companies have the best teams and leaders. The board needs to ensure there is a robust process, but not have its fingers in. Talent management isn t as obvious or discussed. It should rise in importance. If succession planning is important, how is it recognized at the board level? Boards have clarified and articulated their roles, responsibilities and processes over the last 10 to 15 years. They are actively engaged in the strategic planning process, risk management, financial oversight and also understand how these processes interrelate. Many directors consider succession planning to be an important board function (see graphics on previous page). Far less report formal links between succession plans (or talent management) and the strategic plan or risk management plan (see graphics below). We believe that this is going to change dramatically over the next five years. WHAT PERCENTAGE OF DIRECTORS REPORT A FORMAL LINK BETWEEN SUCCESSION AND TALENT MANAGEMENT PLANS WITH RISK OR STRATEGIC PLANS Only 50% of directors reported that CEOs have measurable objectives for management succession planning, and 35% for broader talent management. Without these measurable objectives, and lacking a formal connection to strategy and risk management, are these issues given enough weight at the boardroom table? Making succession and talent management true board priorities. 17

20 DIRECTOR S CONFIDENCE IN THE COMPANY S ABILITY TO DETERMINE TALENT NEEDS, RESOURCES AND GAPS TO EXECUTE THE STRATEGIC PLAN Confidence in processes to determine the talent needed to execute the strategic plan Confidence in processes to determine talent in place to execute the strategic plan Confidence in processes to close gaps between talent needed and talent already in place to execute the strategic plan Directors do not have as much confidence as we would expect to see regarding talent required to execute on strategy. What is the leadership skill set required for the future? We don t know and should. There is a link with strategy and risk management, but it is not as direct as it should be. Making the link is an explicit expectation for the CEO this year. The CEO succession plan and emergency plan are linked directly to the strategy, but less so below CEO. Risk, which the whole board reviews, includes executive leadership and retention as a key risk for the company. A few years ago, our board didn t think that management succession and talent management were part of our responsibility. We then decided they were but we didn t have the relevant information. Linking this information with strategy is the next step. Planning is all good and well, but action is the differentiator. I would prefer to see more middle management executives ready for succession, which only happens by actively assisting them in making the moves incrementally. We have some processes in place but I think we could be better prepared on how best to fill the gaps. 18 ARE RISK MANAGEMENT AND STRATEGY ENOUGH?

21 Are boards ready to cope with the unexpected? How Directors Describe their Board s Readiness to Cope with an Immediate and Unexpected Need to Replace a C-suite Executive by company size Assets $2 B or less Assets over $2 B Extremely well-prepared 33% 49% Somewhat prepared to cope 56% 48% Not prepared to cope 11% 2% At best, an unexpected departure of a significant leader can cause internal and external confusion and promote a lack of confidence. At worst, a company can lose months, or even years, of progress as it climbs back from such an event. Seven percent of directors reported that their boards are not prepared for such an event. We believe this is a serious risk. Boards and senior management need to get beyond their discomfort talking about the unexpected when it comes to replacing a C-suite executive. They should have a plan in place that is reviewed periodically and states exactly what happens in the case of an unexpected loss of a key leader. We just hope this doesn t happen. The internal candidates are not ready, so this would be a big challenge. We don t have a plan, the board would have to step in. Making succession and talent management true board priorities. 19

22 Are major investors paying attention to succession planning and talent management? Major investors have become more actively involved with boards on many key issues, including succession planning. CEO succession planning received the most attention, with 23% of directors reporting major investor contact on this topic. Other aspects of succession and talent management attracted far less major investor contact; however, this is likely to change in the future as the strategic importance of attracting and retaining talent gains more significance. 23% 12% OF DIRECTORS SAID THEIR BOARD HAD RECEIVED MAJOR INVESTOR CONTACT REGARDING CEO SUCCESSION planning OF DIRECTORS had received MAJOR INVESTOR CONTACT REGARDING C-suitE SUCCESSION planning Directors Reporting Contact from Major Investors about Succession and/or Talent Management in the Past Three Years YES NO DON T KNOW Succession planning at the CEO level 23% 67% 10% Succession planning at the C-suite level 12% 77% 11% Succession planning for other management 3% 86% 11% Succession planning for other critical roles 1% 88% 11% Broader talent management issues 4% 85% 11% 20 ARE RISK MANAGEMENT AND STRATEGY ENOUGH?

23 Smaller companies are more likely to attract investor attention about succession; 24% of directors from companies with $2 billion or less in assets had major investor contact regarding CEO succession compared to 18% of directors from larger companies. Fourteen percent of smaller company directors had major investor contact regarding C-suite succession compared to 8% of directors from larger companies. This may tie into the fact that boards of larger companies are more likely to have formal succession planning processes (see page 12). The lack of a formal process may leave major investors looking for more information, as well as questioning whether the board recognizes the importance of succession planning. I find it startling that investors have not been interested in our leadership succession. It was a major topic during a dissident shareholder discussion in the last year. It happens at the CEO level - especially if a CEO is long-tenured or there are performance issues. There were inquiries as to strength of the C-suite since the market downturn. Attention from our independent outside investors highlighted the need for deeper discussion regarding succession, cross-training and what an appropriate plan B would look like. This commenced about 18 months ago and we are in very good shape now, but essentially nothing existed before this. What significant changes have directors observed over the past three years? 37% of directors indicated an increased level of board involvement in succession and talent management, and there was a strong sense in most interviews that there is discussion regarding how to work with management more effectively in these areas. We ve made it clear - as a Board we want very regular involvement in management succession planning and talent development. I see it as being more hands on now than previously, and boards want to talk about it and expect they should know what is happening, and that it should not be left to management or just one committee. The Board has increased its level of oversight, interest and participation in succession. Now need to move more actively to talent management. Making succession and talent management true board priorities. 21

24 The Board recently asked that succession planning and talent management be hard linked to the financial business plan. Used to be the HR Committee only, now it is the full Board. The shift in attention to these topics is driven by Boards now being increasingly independent of the CEO and they have their own view. Boards have upped their game by way of capacity. There is more tolerance for open constructive dialogue around human resource topics. Changes are not occurring universally though, 12% of directors reported no change at all: We lack the rigor here at the board. There has been little change. We are a smaller company. In big companies you tend to see this a lot more. Summary and Action We learned that there is a considerable understanding of the importance of these topics at the table, but that boards are struggling with how they should be engaging. The questions posed here have caused me to pause and realize our Board needs to bring more rigor and focus to management succession planning and talent development. The world is changing so quickly and in so many different ways that if our focus drifts away from the capacity and potential of our employees, we risk becoming irrelevant. The time has come to put action behind the words in the CEO s letter to shareholders where he or she writes about our people being our most important resource. Our most important resource needs a higher profile, more scrutiny at the Board level. 22 ARE RISK MANAGEMENT AND STRATEGY ENOUGH?

25 Based on our experience and the survey results, we believe that every board should consider the following: 1. Assess Current Practices Assess the board s current practices and human capital related information and metrics, and determine whether they are appropriate. How are they linked with risk management and strategic planning processes? If they are not, why not? To what extent does the board engage with the CEO and executive management team on succession and talent management? Boards should also consider who is at the table. Are there enough directors with the requisite knowledge and expertise in contemporary human capital management (not just compensation) for effective board oversight and engagement? Is the CHRO present at all board meetings? Does he or she participate in a meaningful way, comparable with other senior executives such as the CFO? 2. Formalize the Process Formal succession and talent management processes add weight, importance, and ensure a regular presence on the agenda. Boards should periodically take a deep dive into these processes, including an examination of internal and external human capital factors. Is the CEO held accountable for ensuring that robust succession plans and talent management programs are in place? Formalizing this accountability contributes to the weight and importance of these topics. Boards and management need to be on the same page as to how they will interact on human capital issues. How deep does the board need to go on the details? Where does the board need to know what processes are in place but doesn t need to know the details? Metrics are most powerful when directors and management agree the metrics effectively indicate how successfully plans and processes are being implemented. Making succession and talent management true board priorities. 23

26 3. Connect the Critical Planning Processes Talent is a key element in creating and delivering on strategy, and loss of talent and institutional knowledge or the inability to attract talent is a major risk factor. Formal connections between strategic planning, risk management and human capital management are an essential function of contemporary board governance. 4. Define the Roles and Accountability When asked about what has changed in the last three years, directors responded that boards are much more engaged and demanding more of management on these issues. However, less than half report a formal, board-approved process. A definition of the board s role and accountability in human capital management processes conveys to management that the board is focused and taking these issues seriously. It sends the message to investors that the board understands the importance of these issues and its role in them to the long-term success of the company. 5. Stay Flexible and Proactive The optimization of talent is one of the most dynamic issues facing organizations today. Generational differences are creating new workplace cultures with different factors affecting retention and recruitment. Fast-moving technological changes are creating the need for new, highly-skilled employees and leaders. The focus of investors, social media and regulators are putting workplace culture under the microscope. This means that the board s work in this area is never static. We heard from many directors that the impetus behind the board getting more involved with succession and talent management was the demand for growth and the ability to adapt to change quickly if required. 24 ARE RISK MANAGEMENT AND STRATEGY ENOUGH?

27 We heard a great deal from many experienced directors during our interviews. In particular, one very experienced and thoughtful director made a comment that captures what many Canadian directors are struggling with as they work to make succession and talent management board priorities: The role of boards in strategy, risk management, succession planning is getting better defined and better understood. There is general alignment between boards and management as to the role of boards and the role of management in terms of these responsibilities. I question whether there is as clear alignment with management with respect to the role of the board in terms of talent management and culture. I believe that boards must ensure that a company has and continues to have the necessary talent to deliver on the strategy, to remain competitive, and to deliver overall value to the shareholders. I also believe that boards must understand and regularly review the talent management programs. They are at the very heart of the organization s culture. These responsibilities cannot be in the hands of management alone. Making succession and talent management true board priorities. 25

28 Board Independence 26 KORN FERRY Canada

29 KEY FINDINGS 94% of boards had a majority of independent directors. In 2015, 92% of boards had some form of independent leadership, which is the highest level we have seen since boards began reporting on independence in In 2015, only 6% of boards reported more than two inside directors. Of the companies that combine the CEO and Chair roles, 25% are in the Financials Industry, 18% are Energy companies and 15% are Information Technology companies. 39% of Canadian boards had a lead director in In 2015, 94% of boards had a majority of independent directors, following 96% for the previous two years. This percentage has fluctuated between 92% and 96% since we began tracking it in We consider the drop from 96% to 94% to be representative of fluctuation of different companies moving in and out of the sample from year-to-year rather than a cause for concern. 94 % had a majority of independent directors Large companies have been the most consistent with maintaining a majority of independent directors. For the past 6 years, this percentage has stayed relatively stable between 96% and 98% while companies in the other categories have fluctuated between 90% and 98%. Percentage of Boards with a Majority of Independent Directors Micro <1.5B Small 1.5B to 3.5B Medium 3.5B to 10B Large >10B All % 94% 95% 98% 94% % 90% 98% 98% 96% % 94% 96% 97% 94% 2016 Corporate Board Governance and director compensation Report 27

30 Boards Without a Majority of Independent Directors BMTC Group Inc. BRP Inc. Cara Operations Limited Centric Health Corporation China Gold International Resources Corp. Ltd. FCF Capital Inc. Gemworth MI Canada Inc. IGM Financial Inc. Lassonde Industries Inc. Linamar Corporation Mainstreet Equity Corp. Nobord Inc. Sears Canada Inc. Spin Master Corp. TransAlta Renewables Inc. Winpak Ltd. Labrador Iron Ore Royalty Independent Director Meetings 98 % of boards held meetings of only independent directors Ninety-eight percent of boards reported that they held meetings of only independent directors, as recommended in the CSA guidelines. In 2005, when boards were first required to report on this practice, only 79% of boards held meetings of only the independent directors. Eighty-five percent of boards disclosed the number of meetings held by the independent directors. The average number of meetings has been seven for the past nine years. Meetings of only Independent Directors ALL Average Median Range to to to KORN FERRY Canada

31 Inside Directors An inside director is a director who serves on the board of the company that employs the director. As the trend for independent boards has remained strong in Canada since 2005, the number of inside directors has declined. Most boards today will have only one inside director, usually the CEO. The average number of inside directors is one, as it has been for the past nine years. The median is also one, as it has been for the past thirteen years. In 2015, only 6% of boards reported more than two inside directors. This is a slight increase from 5% in 2014 and the same percentage as This year, the highest number of inside directors was four, at the following boards: 4 Insiders CGI Group Inc. (15) Dorel Industries Inc. (10) Labrador Iron Ore Royalty Corporation (9) Rogers Communications Inc. (15) Shaw Communications Inc. (16) Spin Master Corp. (9) (Numbers in brackets indicate total number of directors on the board) 6 % 5% 6 % Corporate Board Governance and director compensation Report 29

32 Independent Board Leadership The CSA governance guidelines state that board chairs should be independent directors, and where this is not appropriate, the board should appoint an independent lead director. In 2015, 92% of boards had some form of independent leadership, which is the highest level we have seen since boards began reporting on independence in In 2014, 91% of boards had independent leadership, and 88% were in this category in Medium and Small companies had the highest percentage of independent leadership at 97% compared to Micro companies where only 86% of boards had some form of independent leadership. Percentage of Boards with Independent Leadership* Micro <1.5B Small 1.5B to 3.5B Medium 3.5B to 10B Large >10B All % 97% 97% 91% 92% % 92% 98% 90% 91% % 92% 96% 83% 88% * An independent board chair and/or independent lead director The manner in which boards establish independent board leadership has remained relatively stable since 2005: * Between 51% and 58% have had an Independent Chair. * Between 29% and 36% have had a Lead Director. At companies with no Independent Chair, 82% had a Lead Director in 2015: * 87% of boards with an Executive (inside) Chair had a lead director, compared to 82% in 2014; and * 74% of boards with a Non-Executive, Non-Independent chair had a Lead Director, compared to 73% in KORN FERRY Canada

33 In 2015, 8% of boards had no independent leadership, which is the lowest level we have seen since Of this group: * 26% had a combined CEO/Chair; * 22% had an Executive Chair; * 48% had an outside but Non-Independent Chair; and * 4% had no Chair. Independent Board Leadership ALL Independent Chair Only % % Independent Chair and Lead Director % % Non-Independent Chair and Lead Director % % Lead Director Only % % No Independent Board Leadership % % Lead Director Only 1 % 8 % No Independent Board Leadership Non-Independent Chair and Lead Director 34 % % Independent Chair and Lead Director 4 % Independent Chair Only 2016 Corporate Board Governance and director compensation Report 31

34 Board Chairs Canadian boards have widely adopted the practice of separating the Board Chair and Chief Executive Officer. For the past three years, 86% separated the two roles. 57 % 2015 Of the companies that combine the CEO and Chair roles, 25% are in the Financials Industry, 18% are Energy companies and 15% are Information Technology companies. In 2015, 57% of boards had an independent chair. In 2015, 13% of boards had an Executive Chair. This is an increase over 10% to 12% over the previous four years. However, 82% of boards with an Executive Chair also had an Independent Lead Director, and the overall trend for independent board leadership remains high. Percentage of Boards That Have Separated the Board Chair and CEO Micro <1.5B Small 1.5B to 3.5B Medium 3.5B to 10B Large >10B ALL % 91% 88% 85% 86% % 90% 84% 81% 86% % 85% 82% 87% 86% Board Chairs Independent Chair % % % Non-Executive, Not Independent % % % Combined Chair/CEO % % % Executive Chair % % % No Board Chair % % % 32 KORN FERRY Canada

35 Executive Chair 13 % 2 % No Board Chair Combined Chair/CEO Non-Executive, Not Independent 13 % % 14 % Independent Chair Lead Directors Thirty-nine percent of Canadian boards had a Lead Director in These boards cover a variety of leadership situations and breakdown as follows: * 27% were at boards with an outside, Non-Independent Board Chair * 29% were at boards with a combined Board Chair and Chief Executive Officer 39 % * 29% were at boards with an Executive Board Chair * 11% were at boards with an Independent Board Chair * 3% were at boards with no Board Chair 2015 Lead Director 2016 Corporate Board Governance and director compensation Report 33

36 Board Composition 34 KORN FERRY Canada

37 KEY FINDINGS Boards continue to increase the type and quality of information they disclose about directors. In 2015, 90% of boards exceeded the CSA minimum requirements for disclosure about individual directors, compared to 87% in 2014 and 77% in % of boards had at least one female director in 2015 compared to 68% in This is the largest representation of women on Canadian boards that we have ever seen. The most substantial increase was at Micro companies, at which 63% had at least one female director in 2015 compared to 44% in Women comprised 17% of the directors on the boards in our sample. This is an increase of 2% over last year and is the highest level we have seen since we began tracking this information 22 years ago. Of the directors that were newly elected to boards in 2015, 33% were female, compared to 27% in % of companies disclosed a majority voting policy for fiscal year 2015, compared to 91% in Age was provided for 90% of directors in our survey this year. Seventy-six percent of those directors were in the 51 to 70 range. Sixteen percent of directors in 2015 were 71 or older. The most common retirement age is 75 years, which was reported by 15% of boards in 2015 compared to 13% in 2014 and 5% in Corporate Board Governance and director compensation Report 35

38 Bill C-25 and Board Composition SEPT BILL C-25 On September 28, 2016, the Government of Canada introduced Bill C-25, an Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act and the Competition Act. If passed as presented in the first reading, there are some provisions that will affect board composition, including: * Boards will be required to elect directors annually. As this is already a requirement of the TSX, and all companies in our research sample are TSX listed, we do not expect this to have any effect on these companies. * Director elections will be individual by director (rather than slates of candidates). * Votes will be cast for or against directors (not withheld.) Nominees with more for than against votes will be elected. Therefore a nominee for the board that receives a majority of against votes is not elected to the board. This could result in unexpected vacancies on the board, and potentially leave a board without enough directors to constitute a quorum. * Companies will be required to disclose information about diversity among directors and senior management. The details about this disclosure are not provided yet. Director Information In 2015, 90% of boards exceeded the CSA minimum requirements for disclosure about individual directors, compared to 87% in 2014 and 77% in We anticipate that fulsome reporting about director skills and backgrounds will continue to be the norm, regardless of regulation. Information about nominees will be particularly important if Bill C-25 passes and there is a possibility of a nominee failing to gain a majority of for votes. In 2015, 47% of companies included information on their directors areas of expertise, compared to 44% for the previous two years. 36 KORN FERRY Canada

39 Twenty percent of directors were newly-elected in 2015, which was the same as last year. Of these newly-elected directors: * 33% were female directors, compared to 27% in 2014, * 28% were international directors (resident outside of Canada) compared to 29% in 2014, * 47% had a financial background, compared to 42% in 2014, * 18% were active CEOs, compared to 23% in 2014, * 40% had a CEO background (including the active CEOs) compared to 42% in 2014, and * 32% were active C-suite executives (including the active CEOs) compared to 38% last year. Companies are required to disclose whether they have adopted a majority voting policy. If they have not, they are required to explain their practices for electing directors. * Ninety-four percent of companies disclosed a majority voting policy for fiscal year 2015, compared to 91% in * Of those companies that did not indicate a majority voting policy, 75% of them had a controlling shareholder. Fifty-three percent of companies included information on board interlocks (where two or more directors also serve together on the board of another reporting issuer). Of those companies, 16% stated that they have a formal board policy on interlocks. A majority of companies that report on interlocks have a limit on the number of board interlocks allowed, with two being the most common. Director Age Disclosure of each director s age is an increasingly common, but not mandatory, practice. In 2015, 80% of boards disclosed director age, compared to 79% in 2014 and 67% in For the past four years, the average and median age of directors was 63, while in 2011, the average age was 62 and the median age was 63. Seventy-six percent of directors were in the 51 to 70 range. Sixteen percent of directors in 2015 were 71 or older. In the United States, the median age of directors at the Top 200 companies was Director Compensation Report, published by the NACD with data from the 2015 Director Compensation Survey by Pearl Meyer Corporate Board Governance and director compensation Report 37

40 Director Age Distribution Micro Small Medium Large <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL 40 and younger 2015 <1% 1% <1% 1% 1% % 1% <1% <1% 1% % 1% <1% <1% 1% 41 to % 9% 6% 4% 7% % 10% 6% 5% 7% % 10% 7% 7% 8% 51 to % 33% 35% 29% 33% % 33% 33% 29% 32% % 33% 33% 26% 31% 61 to % 39% 45% 48% 43% % 40% 44% 47% 43% % 37% 49% 48% 43% 71 and older % 17% 13% 17% 16% % 16% 16% 19% 17% % 18% 11% 19% 16% Retirement Age, Term Limits and Board Renewal C-25 Focus on board composition has already been under scrutiny by many major investor groups, and it is likely to become more intense if Bill C-25 is passed. We anticipate that boards will increasingly employ and disclose various mechanisms to ensure that investors are aware that they are serious about board renewal, composition and succession planning. These mechanisms most obviously include director retirement ages, term limits and in-depth board composition succession planning processes. However, board and director assessments are also being viewed as tools to help the board plan for a well planned composition and renewal of its members. 38 KORN FERRY Canada

41 In its proxy circular this year, George Weston Limited provided a detailed description of their renewal practices: The Board has adopted a Board Tenure Policy stating that the Executive Chairman and the Governance Committee will undertake an assessment of a director s continued participation on the Board upon reaching the age of 75 or a change in principal occupation, whichever occurs first. The Board Tenure Policy does not apply to the Executive Chairman or any management directors. In addition to its formal Board Tenure Policy, the Governance Committee: 1. undertakes an annual Board effectiveness evaluation that enables the Governance Committee and the Board to solicit feedback regarding director contribution, skill set and expertise; 2. maintains a director skills matrix to ensure that, in choosing director candidates, it focuses appropriately on critical skills and experience; 3. monitors director turnover through the evaluation process and, to the extent appropriate, from time to time requests directors who are long serving and who have a readily replaceable skill set or experience not to stand for re-election; 4. annually reviews Board committee chairs and memberships with a view to balancing the desire for fresh perspectives with the need for experience and subject matter expertise; and 5. provides disclosure in the Circular of director tenure, the evaluation process and turnover with an explanation of how the Corporation s approach ensures diversity of skills, experience and background and an appropriate level of turnover. In summary, each year, the Governance Committee undertakes a review of the composition of the Board, the performance of the individual directors and the mandate and composition of the Committees of the Board. Recommendations for changes, if any, are developed and subsequently discussed with the full Board and with the controlling shareholder. The Board is of the view that these processes have worked well and have resulted in governance that has been both effective and adaptive to the changing nature of the business and the markets in which the Corporation operates. (George Weston Limited, Management Proxy Circular, May 10, 2016) 2016 Corporate Board Governance and director compensation Report 39

42 Retirement Age Thirty-four percent of boards disclosed a retirement age for their directors, compared to 32% in Forty-nine percent of Large companies disclosed a retirement age compared to 43% of companies in this category last year. In 2015, 40% of boards stated that they did not have a retirement age policy for their directors, compared to 38% in Forty-six percent of Small companies disclosed that they did not have a retirement age compared to 34% in this category last year. The most common retirement age is 75 years, which was reported by 15% of boards in 2015 compared to 13% in 2014 and 5% in % 32 % DISCLOSED DISCLOSED Of the companies that specified a retirement age, 74% indicated that the retirement age could be extended or waived at the discretion of the board and/or one of the board committees. In the United States, 82% of the boards at the Top 200 companies disclose that they have a retirement age for directors, with the median reported retirement age being Director Compensation Report, published by the NACD with data from the 2015 Director Compensation Survey by Pearl Meyer. 40 KORN FERRY Canada

43 Prevalence of Retirement Age Practices Micro Small Medium Large <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL Retirement Age % 33% 36% 49% 34% % 32% 34% 43% 32% Waiver Possible* % 65% 79% 82% 74% % 65% 78% 73% 72% No Retirement Age % 46% 45% 38% 40% % 34% 40% 43% 38% No Disclosure % 21% 18% 13% 26% % 27% 19% 10% 30% * Percentage of those boards that have a retirement age for directors. Director Retirement Ages Retirement from the board at age 70 7% 8% 12% Retirement from the board at age 71 <1% <1% <1% Retirement from the board at age 72 10% 10% 7% Retirement from the board at age 73 1% 1% 1% Retirement from the board at age 75 15% 13% 5% Formal Policy, age not specified <1% 0 0 Specify there is no director retirement age 40% 38% 26% Combined retirement age/term limit 7% 5% 1% No disclosure 26% 30% 48% 2016 Corporate Board Governance and director compensation Report 41

44 Term Limits 17 % 16 % 6 % In 2015, 17% of boards reported a term limit for directors compared to 16% in 2014 and 6% in Fifteen-year terms are most common, with 53% of all companies with a term limit at this level. Seventy-six percent of boards with a term limit stated that it can be waived In 2015, 78% of boards stated that they do not use term limits, compared to 74% in In 2015, 70% of boards with a term limit also had a retirement age. Many use a combination of the two to allow for a flexible approach to board renewal. Gender Women comprised 17% of the directors of the boards we studied. This is an increase of 2% over last year and is the highest level we have seen since we began tracking this information 22 years ago. Of the newly elected directors in our survey this year, 33% were women compared to 27% last year. Of these newly elected female directors: * the average age was 57 (compared to 59 for newly elected males) * 29% were not a resident of Canada * 30% had a CEO background (including current CEOs) * 44% had a financial background * 14% chaired a board committee * 45% were audit committee members; 5% were audit committee chairs 42 KORN FERRY Canada

45 Seventy-eight percent of boards had at least one female director in 2015, compared to 68% in The most substantial increase was at Micro companies, at which 63% had at least one female director in 2015 compared to 44% in Boards with at Least One Female Director Micro <1.5B Small 1.5B to 3.5B Medium 3.5B to 10B Large >10B ALL % 73% 89% 94% 78% % 66% 79% 91% 68% % 55% 56% 93% 54% Boards with at Least One Female Director % 73 % 89 % 94 % 25 0 Micro Small Medium Large 2016 Corporate Board Governance and director compensation Report 43

46 Boards with at Least One Female Director, By Industry Consumer Discretionary 94% 88% 87% Consumer Staple 100% 100% 100% Energy 62% 48% 38% Financials 80% 76% 64% Health Care 100% 100% 83% Industrials 85% 73% 50% Information Technology 47% 58% 50% Materials 76% 59% 34% Telecommunication Services 100% 100% 100% Utilities 100% 92% 90% ALL 78% 68% 54% 26 % Twenty-six percent of boards had two female directors, which is the highest we have seen in this category. Twenty-one percent of boards had three or more female directors, an increase from 17% one year earlier. Eighty-eight percent of Large companies had two or more female directors compared to 52% of Medium companies, 33% of Small companies and only 24% of Micro companies. In the United States, 100% of the Top 200 companies had at least one female director, and 86% had at least two female directors. 3 Female Directors Percentage of Boards Number of Female Directors % 27% 26% 2 26% 24% 18% 3 12% 8% 6% 4 5% 5% 3% 5 3% 3% 1% 6 1% <1% 1% For information on the number of female directors on specific company boards, please reference the Company Data section beginning on page Director Compensation Report, published by the NACD with data from the 2015 Director Compensation Survey by Pearl Meyer. 44 KORN FERRY Canada

47 Diversity Policies Fifty-eight percent of companies stated that they had a diversity policy in place, compared to 43% last year. Of these companies, 6% had a policy but with no specific provisions around the identification and nomination of women directors. 58 % Had a diversity policy in place Forty percent disclosed that they did not have a policy and 2% failed to disclose whether or not they had a policy. Sixty-eight percent of Large companies have implemented a policy versus 71% of Medium companies, 53% of Small companies and 46% of Micro companies. Thirty percent of companies with a policy in place have adopted a target for the number of women on their board. This compares to 26% in The targets typically range between 25% and 33% of board members. Forty percent of the companies with targets also stated a timeframe with which to meet that target. 40 % Did not have a diversity policy in place Eighty-eight percent of companies indicated that gender was specifically considered in identifying and nominating candidates. Boards that had a policy in place averaged two female directors, compared to an average of one female director at boards with no policy. Eighty-five percent of companies indicated that they consider the representation of women in executive officer appointments. Five percent of companies stated that they had set a target for executive officer appointments and 60% of these companies indicated a time frame with which to meet their target. Female directors averaged 16% of all board members; while female executives averaged 22% of all executive officer positions at the companies that reported this information. Had a policy in place Did not have a policy in place Percentage of Female Directors on Boards vs. Female Executive Officer Positions Micro <1.5B Small 1.5B to 3.5B Medium 3.5B to 10B Large >10B ALL Female Directors % 13% 18% 23% 16% % 12% 16% 20% 13% Female Executive Officers % 23% 21% 22% 22% % 17% 19% 17% 16% 2016 Corporate Board Governance and director compensation Report 45

48 Board Size 46 KORN FERRY Canada

49 KEY FINDINGS Canadian boards have averaged nine members for eleven years, after averaging 10 members for the eight years prior. Most boards fall into the 6 to 9 member range, with 59% in that category for the past two years. In 2015, only 19% of Large company boards had 13 to 15 directors, compared to 30% in The average and median board size has remained at nine since Large boards average 12 directors, while Micro boards average eight directors. Average Board Size 9 Average Number of Board Members Micro <1.5B Small 1.5B to 3.5B Medium 3.5B to 10B Large >10B ALL In 2015, the smallest boards (Birchcliff Energy Ltd. and Nobilis Health Corp.) each had four directors. The largest board, Great-West Lifeco Inc., had 20 directors. Most boards fall into the six to nine member range, with 59% in that category for the past two years Corporate Board Governance and director compensation Report 47

50 In 2015, only 19% of Large company boards had 13 to 15 directors, compared to 30% in Director compensation cost savings related to smaller board sizes was cited by a couple of companies as their reason for reducing the number of board members. Percentage of Boards in Board Size Categories Micro Small Medium Large Board Size <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL 5 or less % 4% 2% 1% 4% % 1% 1% 1% 5% % 3% 8% 0 6% 6 to % 70% 68% 13% 59% % 73% 66% 14% 59% % 65% 40% 12% 54% 10 to % 21% 26% 54% 27% % 20% 25% 39% 23% % 24% 38% 32% 23% 13 to % 4% 4% 19% 7% % 5% 7% 30% 11% % 8% 12% 37% 12% 16 to % 3% % 3% % 18% 4% 48 KORN FERRY Canada

51 2015 Percentage of Boards in Board Size Categories 13 to 15 Board Size 7 % 3 % 4 % 16 to 19 Board Size 10 to 12 Board Size 27 % or less Board Size 6 to 9 Board Size 59 % Largest Boards 20 directors Great-West Lifeco Inc. 18 directors TMX Group Limited 17 directors Toronto-Dominion Bank 16 directors Brookfield Asset Management Inc. Canadian Tire Corporation, Limited IGM Financial Inc. National Bank of Canada Royal Bank of Canada Shaw Communications Inc Corporate Board Governance and director compensation Report 49

52 Board Assessments, Director Selection and Director Development 50 KORN FERRY Canada

53 KEY FINDINGS In 2015, the prevalence of reported board, committee and director assessment processes dropped slightly below 2014 numbers. We believe this stems more from fluctuations in companies in the research sample than an overall downward trend in these practices. In 2015, 94% of companies had a board assessment, 92% had a committee assessment and 91% had an individual director assessment. Boards are increasingly disclosing the use of a skills and background matrix in their director selection process; 73% reported that they used this tool in 2015 compared to 65% in Percentage of Boards with Assessment Process Board Assessment 94% 96% 91% Committee Assessment 92% 95% 87% Individual Director Assessment 91% 93% 84% Percentage of Boards with Assessment Process, by Company Size Assessment Micro Small Medium Large Type <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL Board % 96% 100% 98% 94% % 97% 100% 98% 96% Committee % 91% 100% 96% 92% % 94% 100% 98% 95% Director % 93% 98% 94% 91% % 94% 96% 97% 93% 2016 Corporate Board Governance and director compensation Report 51

54 Assessment Practices In 2015, the prevalence of reported board, committee and director assessment processes dropped slightly below 2014 numbers. We believe this stems more from fluctuations in companies in the research sample than an overall downward trend in these practices. Board Chair and Lead Director Assessment * Of the boards that report a chair assessment practice (which is not mandatory disclosure), 31% are at Large companies and 30% are at Medium companies. * In 2015, 45% of boards with a non-executive chair reported a chair assessment, compared with 38%, 37% and 40% respectively in the previous three years * In 2015, 14% of boards with lead directors reported that they assessed the lead director s performance, compared with 15%, 10% and 14% in the previous three years. Full Board Assessments 45 % 38 % * In 2015, 94% of companies had a board assessment process, compared to 96% last year. Committee Assessments * In 2015, 92% of companies had a committee assessment process, compared to 95% last year. * In 2015, 26% of boards with a committee assessment process in place stated that it included an assessment of each committee chair, an increase from 21% in Individual Director Assessment * In 2015, 91% of boards assessed individual directors, compared to 93% last year. 52 KORN FERRY Canada

55 Assessment Methodology * Of those companies that conducted a full board, committee or individual assessment in 2015, 89% described the process they used. Between 81% and 89% of companies have disclosed their assessment methodology for the past seven years. * There were fluctuations in reported assessment methods, which we believe is affected by both changes in composition in the companies in the research sample, and boards changing approaches periodically to meet their needs at the time they are implementing their assessment processes. * In 2015, 61% of boards used a questionnaire only, compared to 59% last year. Thirty-one percent of boards used a combination of questionnaires and individual meetings compared to 32% last year. * Of the boards that described their individual director assessment process, 41% used a self-evaluation and 42% reported using a peer assessment. 61 % Questionnaire Only 31 % Questionnaire & Individual Meeting 2016 Corporate Board Governance and director compensation Report 53

56 Prevalence of Board Assessment Methodologies* Questionnaire Only 61% 59% 58% Individual Meetings Only 6% 6% 6% Questionnaire and Individual Meetings 31% 32% 31% * Percentage of boards with board assessment process that report methodology. Director Selection 54 % 65 % 73 % In 2015, 73% of boards identified the use of a skills and background matrix in their director selection process, compared to 65% in 2014 and 54% in This is not surprising, as we are seeing more and more boards not only using matrices, but also putting a great deal of work into developing and defining the categories within the matrices. Reporting the use of a matrix also follows the overall trend of providing more disclosure about directors and board composition planning Many boards provide details about their board composition in a matrix format in their proxy circulars. This nonmandatory practice fluctuates, with 65% publishing a matrix in 2015, compared to 55% in 2014 and 49% in KORN FERRY Canada

57 Of the companies that included a skills matrix in their proxy circular, the key areas of expertise that were identified were: * Finance/Accounting (97%) * Relevant Industry Knowledge (95%) * Compensation/Human Resources (86%) * Board/Governance Experience (81%) * Legal/Regulatory/Compliance/Government/ Public Policy (80%) * M&A/Corporate Finance/Investment Banking/ Capital Markets (74%) TOP 4 AREAS OF EXPERTISE LISTED IN DIRECTOR MATRICES 1 Finance/Accounting 2 Relevant Industry Knowledge * Risk Management (64%) * Executive Leadership (63%) * Strategic Planning (48%) * International (45%) * Environment, Health and Safety (39%) * CEO Experience (38%) 3 Compensation/ Human Resources 4 Board/Governance Experience * Operations (30%) * Sales and Marketing/Business Development (30%) * Information Technology (29%) * Diversity (can include gender, age, ethnicity, etc.) (21%) * Corporate Social Responsibility/Sustainability (17%) * CFO Experience (5%) (numbers in brackets indicate percentage of companies including this area of expertise in their matrix) Director Development Ninety-nine percent of companies have provided some detail on both their board orientation and education practices Corporate Board Governance and director compensation Report 55

58 Meetings and Attendance 56 KORN FERRY Canada

59 KEY FINDINGS The overall board meeting attendance rate is 98%, with 86% of directors having a perfect attendance record. Attendance is even better at committee meetings where the average attendance is 98% and 91% of members have perfect attendance. The average number of board meetings has stayed relatively constant, at either 9 or 10 per year since In 2015, 44% of companies held between 7 and 10 meetings per year. Thirty-one percent of companies held between 4 and 6 meetings per year. The median number of audit and compensation committee meetings held is 5 and the median number of governance meetings held is 4. Attendance Records Ninety-nine percent of boards provided board meeting attendance records for each director. 88 % 91 % 90 % In 2015, 90% of boards disclosed committee meeting attendance for some or all board committees. This compares to 91% last year and 88% in the year prior. Eighty-six percent of directors attended all of their board meetings in Another 13% attend between 75% and 99% of board meetings. Committee meetings are even better attended, with 91% of directors attending 100% of committee meetings and an overall committee attendance rate of 98% disclosed committee meeting attendance for some or all committees Corporate Board Governance and director compensation Report 57

60 Board and Committee Meeting Attendance Board Meetings Average Board Meeting Attendance Rate 98% 97% 97% Percentage of Directors with 100% Attendance Rate at Board Meetings 86% 83% 78% Percentage of Directors with 75% to 99% Attendance Rate at Board Meetings 13% 15% 20% Committee Meetings Average Committee Meeting Attendance Rate 98% 98% 97% Percentage of Directors with 100% Attendance Rate at Committee Meetings 91% 88% 86% Percentage of Directors with 75% to 99% Attendance Rate at Committee Meetings 7% 10% 10% Board Meetings 99 % of boards reported the number of board meeting held Ninety-nine percent of boards reported the number of board meetings held. The average number of board meetings held for the past four years was 9 and the median was 8. In 2015, 44% of companies held between 7 and 10 meetings per year. Thirty-one percent of companies held between 4 and 6 meetings per year. Board Meetings Held Average Median Range Companies Reporting to 31 99% to 55 99% to 38 98% 58 KORN FERRY Canada

61 Board Meeting Frequency Distribution* Number of Micro Small Medium Large Meetings <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL 3 or fewer % 1% 0 0 1% % <1% % 1% 0 0 1% 4 to % 30% 32% 19% 31% % 32% 34% 29% 33% % 32% 24% 22% 27% 7 to % 48% 47% 51% 44% % 45% 39% 42% 40% % 40% 35% 47% 42% 11 to % 18% 17% 19% 18% % 18% 19% 22% 21% % 20% 33% 22% 24% 16 to % 1% 4% 9% 4% % 3% 7% 6% 4% % 4% 8% 10% 5% 21 or more % 0 3% 1% % 0 0 1% % 0 0 1% * Percentages are based only on those boards that disclosed meeting frequency. Committee Meetings Audit and compensation committees averaged five meetings in 2015 compared to an average of four meetings for governance committees. Committee Meetings Held by Major Committees Average Median Range Boards Reporting* Audit Committee to 16 94% to 22 93% to 12 88% Compensation/HR Committee to 12 94% to 18 94% to 15 89% Governance Committee to 12 95% to 13 94% to 15 89% * Percent of boards with the named committee type Corporate Board Governance and director compensation Report 59

62 Board Committees 60 KORN FERRY Canada

63 KEY FINDINGS For the past eleven years, boards have averaged four committees. The most prevalent committee types are audit, compensation and governance, which occur respectively on 100%, 98% and 94% of boards; followed by environment/safety, which occur on 34% of all boards. In 2015, 20% of boards had a risk committee, which is the highest incidence of this committee we have seen. In 2015, 95% of independent directors had at least one committee membership. Independent directors averaged two committees each and non-independent directors averaged one committee each if they were outside directors, or zero committees each if they were inside directors Corporate Board Governance and director compensation Report 61

64 Board Committees For the eleventh year in a row, boards have averaged four committees each. The most prevalent committee types are audit, compensation and governance, all of which occur on 94% or more of all boards, and environment/safety, which occurs on 34% of all boards. Average Board Committees 4 Representation of different committees on boards has not changed significantly over the past few years with a few exceptions: * In 2015, 34% of boards had environment/safety committees, down from 37% in 2014 and 40% in * In 2015, 20% of boards had a risk committee, which is the highest incidence of this committee that we have seen. In 2014, 17% of boards had risk committees, which was up from 14% in * Pension committees have dropped to their lowest number ever; 3% of boards had them in 2015, compared to 4% to 5% since Number of Board Committees Average Median Range 1 to 7 1 to 7 1 to 7 Average Number of Committees, by Asset Size Micro Small Medium Large <1.5B 1.5B 3.5B 3.5B 10B >10B ALL KORN FERRY Canada

65 Percentage of Boards with Types of Committees Audit Compensation/HR Conduct Review Governance* Environment/Safety Executive Finance Investment Nominating* Pension Reserves Risk Strategic Planning Technology Micro % 96% 0 92% 28% 4% 4% 5% 7% 2% 10% 8% 0 3% <1.5B % 94% 0 91% 35% 5% 3% 2% 7% 2% 22% 5% 0 3% % 97% 0 88% 35% 7% 3% 4% 10% 2% 10% 5% 1% 7% Small % 97% 1% 87% 34% 6% 1% 10% 6% 0 11% 13% 0 4% 1.5B 3.5B % 96% 0 90% 33% 5% 4% 11% 4% 0 11% 7% 0 4% % 100% 0 96% 43% 4% 5% 9% 4% 4% 15% 4% 4% 1% Medium % 98% 0 97% 39% 3% 8% 12% 3% 2% 18% 20% 4% 3% 3.5B 10B % 98% 0 97% 45% 3% 6% 12% 3% 3% 21% 21% 4% 3% % 98% 0 92% 50% 8% 4% 10% 12% 4% 23% 19% 0 0 Large % 100% 13% 100% 35% 7% 14% 12% 4% 10% 7% 43% 1% 0 >10B % 96% 13% 98% 35% 7% 14% 12% 4% 12% 10% 41% 1% % 97% 17% 98% 37% 18% 13% 8% 5% 15% 12% 37% 3% 0 ALL % 98% 3% 94% 34% 5% 7% 9% 5% 3% 12% 20% 1% 3% % 96% 3% 94% 37% 5% 7% 9% 5% 4% 16% 17% 1% 3% % 98% 3% 93% 40% 9% 6% 7% 8% 5% 14% 14% 2% 2% Governance includes combined Governance and Nominating Committees. The Nominating column refers to stand-alone Nominating Committees, or Nominating Committees combined with a committee other than Governance Corporate Board Governance and director compensation Report 63

66 Committee Membership In 2015, 95% of independent directors had at least one committee membership. Of the independent directors that had no committee memberships, 41% were board chairs and 35% had been on the board for a year or less. Independent directors averaged two committees Non-Independent outside directors averaged one committee Overall, directors in 2015 averaged two committee memberships. Independent directors averaged two committees each. Non-independent directors averaged one committee each if they were outside directors or zero committees each if they were inside directors. In 2015, 48% of independent directors sat on two committees. Since 2005, between 44% and 49% of independent directors have held two committee memberships. Directors with only one committee membership were most likely to be on the Audit Committee, with 37% of directors with a single committee on Audit. Another 27% of those with only a single committee membership sat on the Governance Committee and 26% on the Compensation Committee. 64 KORN FERRY Canada

67 Percentage of Directors with Committee Memberships Number of Committee Memberships Percentage of Percentage of Non- Percentage of Non- Independent Directors Independent (Inside) Directors Independent (Outside) Directors % 6% 80% 79% 46% 46% 1 29% 28% 17% 17% 34% 32% 2 48% 48% 2% 3% 12% 16% 3 14% 14% <1% 0 3% 2% 4 2% 3% <1% <1% 2% 3% 5 1% 1% 0 0 2% Corporate Board Governance and director compensation Report 65

68 Director Compensation 66 KORN FERRY Canada

69 KEY FINDINGS In 2015, 41% of companies chose a retainer-only method of paying their directors, compared to 38% in This category has been growing steadily, with more boards paying directors solely with a retainer every year since Companies that recently moved to this method include Bank of Nova Scotia, Canadian National Railway Company and West Fraser Timber Co. Ltd. Thirty percent of companies that pay solely a board retainer paid a retainer valued at over $175,000 in 2015, compared to 25% in 2014 and 9% in In 2015, the average retainer that included shares or share equivalents was twice the value of the average retainer that was cash-only or had a voluntary portion in shares or share equivalents. This compares to a differential of 130% for the previous two years and 120% in Despite an overall increase in director compensation, many companies announced or implemented reductions. These were mostly in the energy sector and often accompanied by an explanation that the decrease was due to difficult market conditions. The median retainer at companies that do not pay a meeting fee was $129,871, and the median retainer at companies that do pay a meeting fee was $96,000. Introduction In order to thoroughly account for the compensation paid to directors, we combine the cash amounts with values of shares, trust units or share/trust unit equivalents such as deferred share units. We refer collectively to all compensation in the form of shares, trust units or share/trust unit equivalents as shares or share compensation Corporate Board Governance and director compensation Report 67

70 Where a board has not given a cash value of share equivalents, we have calculated based on the number of shares awarded and the fiscal year-end closing price. We have not estimated the value of stock options. However, we do report on the number of boards that grant stock options to directors in the Stock-Based Compensation section, which begins on page % 38 % Retainer-only option of paying their directors. How are Directors Compensated? In 2015, 41% of companies chose a retainer-only option of paying their directors, compared to 38% in The practice of paying directors with a retainer only (no meeting fees) has been growing steadily, with more boards paying directors solely with a retainer every year since Some of the companies that changed to retainer-only compensation in 2015 or announced it for 2016 include: * Bank of Nova Scotia * Canadian National Railway Company * CGI Group Inc. * EnCana Corporation * First Capital Realty Inc. * Intact Financial Corporation * Just Energy Group Inc. * Martinrea International Inc. * Stantec Inc. * Tourmaline Oil Corp. * West Fraser Timber Co. Ltd. In the United States, 99% of the Top 200 companies pay a cash retainer, 97% provide directors with full value shares and 18% pay meeting fees. 4 The average retainer for Canadian boards increased by 13% at companies that paid only a retainer, compared to 2% at those that also paid a meeting fee. The average meeting fee at these companies also grew by 2% over last year Director Compensation Report, published by the NACD with data from the 2015 Director Compensation Survey by Pearl Meyer. 68 KORN FERRY Canada

71 In 2015, the average retainer that included shares or share equivalents was 101% higher in value than the average retainer that was cash-only or had a voluntary portion in shares or share equivalents. This compares to a differential of 130% for the previous two years and 120% in While we did see increases in board retainers overall in 2015, many companies, particularly in the Energy sector, reduced director compensation or announced a change for 2016 due to difficult market conditions. Reductions ranged from 10% to 40%. 120 % % 130 % % 2015 Forms of Compensation Percent of Boards Average Retainer Average Meeting Fee Retainer Only % $147, % $130,510 Meeting Fee Only 2015 <1% $2, <1% $7,500 Retainer and Meeting Fee % $103,026 $1, % $101,384 $1,575 Stock Options Only % % Average and Median Board Retainers, Including Cash and Shares Mandatory Shares in Retainer No Mandatory Shares in Retainer Average Median Average Median Micro 2015 $109,432 $110,500 $55,936 $46,000 <1.5 B 2014 $115,615 $106,793 $47,517 $42, $96,954 $92,025 $41,127 $36,000 Small 2015 $125,283 $120,000 $69,601 $75, B to 3.5B 2014 $121,759 $120,000 $63,514 $60, $108,387 $105,000 $52,643 $45,000 Medium 2015 $152,243 $139,991 $77,074 $75, B to 10B 2014 $134,914 $130,506 $63,139 $52, $104,155 $100,000 $88,094 $99,000 Large 2015 $183,658 $180,000 $128,700 $110,000 >10B 2014 $181,960 $165,000 $100,000 $100, $154,438 $150,000 $91,273 $99,000 ALL 2015 $144,368 $130,500 $71,685 $60, $141,629 $130,000 $61,705 $54, $119,317 $110,000 $54,272 $40, Corporate Board Governance and director compensation Report 69

72 25 % >$175, % Annual Retainers Thirty percent of companies that pay solely a board retainer paid a retainer valued at over $175,000 in 2015, compared to 25% in 2014 and 9% in % Companies that pay solely a board retainer paid a retainer valued at over $175,000 The median 2015 retainer at boards that do not pay meeting fees grew by 12% over 2014, compared to a 9% increase from 2013 to The median retainer at boards that also pay meeting fees grew by 7% at boards that pay both retainers and meeting fees, compared to a 6% increase from 2013 to In the United States, total median director compensation (including retainers, meeting fees, stock awards and stock options) at the top 200 companies rose by 3% from 2014 to Annual Board Retainer at Companies that Do Not Pay a Board Meeting Fee Average $147,333 $130,510 $92,730 Median $129,871 $115,720 $75,000 Range $17,200 to $576,000 $9,600 to $618,132 $9,000 to $333, Director Compensation Report, published by the NACD with data from the 2015 Director Compensation Survey by Pearl Meyer. 70 KORN FERRY Canada

73 Annual Board Retainer at Companies that Also Pay a Board Meeting Fee Average $103,026 $101,384 $85,509 Median $96,000 $90,000 $75,000 Range $10,000 to $320,000 $10,000 to $290,307 $12,000 to $320,900 Average Annual Board Retainer at Companies that Do Not Pay a Board Meeting Fee Micro Small Medium Large <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL 2015 $101,805 $124,010 $155,793 $197,098 $147, $96,692 $103,443 $125,405 $207,392 $130, $65,282 $77,476 $113,246 $151,545 $92,730 Average Annual Board Retainer at Companies that Also Pay a Board Meeting Fee Micro Small Medium Large <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL 2015 $80,592 $89,824 $109,612 $153,659 $103, $76,055 $87,881 $105,699 $142,193 $101, $53,008 $82,860 $92,531 $135,751 $85, Corporate Board Governance and director compensation Report 71

74 Retainer Distribution Companies that Pay a Board Retainer Companies that Pay Both a Board Only, No Board Meeting Fee Retainer and Board Meeting Fee $25,000 or less % 7% % 8% $25,001 to $75, % 30% % 31% $75,001 to $125, % 32% % 30% $125,001 to $175, % 20% % 22% over $175, % 11% % 9% Largest Board Retainers at Companies that Do Not Pay a Board Meeting Fee Total Cash Portion Share Based Portion* Valeant Pharmaceuticals International Inc. $576,000¹ $96,000¹ $480,000¹ Concordia Healthcare Corp. $533,222¹ $76,800¹ $456,422¹ Open Text Corporation $356,748¹ $64,000¹ $292,748¹ Onex Corporation $307,200¹ $64,000¹ $243,200¹ Canadian National Railway Company $296,975 $44,755 $252,220 Tahoe Resources Inc. $258,033¹ $124,685¹ $133,348¹ Barrick Gold Corporation $256,000¹ $64,000¹ $192,000¹ Potash Corporation of Saskatchewan Inc. $256,000¹ $256,000¹ Thomson Reuters Corporation $256,000¹ $192,000¹ $64,000¹ Canadian Pacific Railway Limited $235,000 $235,000 Enbridge Inc. $235,000 $176,250 $58,750 Cott Corporation $230,400¹ $103,680¹ $126,720¹ * Where share values have not been provided, the value of shares has been calculated based on the number of shares awarded in fiscal 2015 and the fiscal year end closing share price. ¹ Reported in U.S. dollars. The average exchange rate for 2015 was $ KORN FERRY Canada

75 Largest Board Retainers at Companies that Also Pay a Board Meeting Fee Total Cash Portion Share Based Portion* Goldcorp Inc. $320,000¹ $128,000¹ $192,000¹ Crescent Point Energy Corp. $269,975 $30,000 $239,975 Agrium Inc. $268,800¹ $121,600¹ $147,200¹ Suncor Energy Inc. $261,714 $50,000 $211,714 Celestica Inc. $236,800¹ $83,200¹ $153,600¹ Saputo Inc. $231,560 $65,000 $166,560 Torex Gold Resources Inc. $225,000 $75,000 $150,000 Yamana Gold Inc. $224,000¹ $112,000¹ $112,000¹ * Where share values have not been provided, the value of shares has been calculated based on the number of shares awarded in fiscal 2015 and the fiscal year end closing share price. ¹ Reported in U.S. dollars. The average exchange rate for 2015 was $1.28. Board Meeting Fees The average board meeting fee in 2015 was $1,616, a slight increase from $1,607 in There has been little change in meeting fees over recent years, with the annual averages fluctuating between $1,417 and $1,648 since $1,616 The average board meeting fee in 2015 Average Board Meeting Fee Micro Small Medium Large <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL 2015 $1,576 $1,578 $1,589 $1,761 $1, $1,459 $1,681 $1,604 $1,690 $1, $1,463 $1,560 $1,813 $1,704 $1, Corporate Board Governance and director compensation Report 73

76 Board Chair Compensation 74 KORN FERRY Canada

77 KEY FINDINGS The 2015 average Non-Executive Chair retainer of $261,424 was 2% higher than in 2014, following a 5% increase last year and a 3% increase the previous year. The median Non-Executive Chair retainer of $244,528 in 2015 was a 4% increase over the 2014 median of $235,000. Average Non-Executive Chair retainers dropped over the previous year by 5% at both Micro and Small companies. They rose by 6% at Medium and Large companies. Non-Executive Chair retainers are larger when there is a mandatory portion in shares or share equivalents. The average Non-Executive Chair retainer that included shares or share equivalents in 2015 was 54% higher in value than one that was cash-only or had only a voluntary portion in shares or share equivalents. This compares to a differential of 36% last year and 44% the year prior. There is a slow, but steady, increase in companies paying Non-Executive Chairs retainers valued at more than $350,000. In 2015, 22% fell into this category, compared to 20%, 16%, and 15% respectively in the previous three years Corporate Board Governance and director compensation Report 75

78 Introduction All compensation in this section represents Non-Executive Board Chairs. Executive Chair compensation is not included due to the low number of Executive Chairs included in our sample and the high variability in compensation for Executive Chairs. Non-Executive Chairs The 2015 average Non-Executive Chair retainer of $261,424 was 2% higher than in 2014, following a 5% increase last year and a 3% increase the previous year. The median Non- Executive Chair retainer of $244,528 in 2015 was a 4% increase over the 2014 median of $235,000. Average Non-Executive Chair retainers dropped over the previous year by 5% at Micro and Small companies. They rose by 6% at Medium and Large companies. 97% 93% Fifty-eight percent of the Non-Executive Chairs that did not receive a retainer were non-independent chairs. Ninety-seven percent of companies with an Independent Chair paid a premium retainer to their Board Chair, compared to 93% of the Top 200 companies in the United States with an Independent Chair. 6 Canada USA Director Compensation Report, published by the NACD with data from the 2015 Director Compensation Survey by Pearl Meyer. 76 KORN FERRY Canada

79 As with director retainers, Non-Executive Chair retainers are bigger when there is a mandatory portion in shares or share equivalents. The average Non-Executive Chair retainer that included shares or share equivalents in 2015 was 54% higher in value than one that was cash-only or had only a voluntary portion in shares or share equivalents. This compares to a differential of 36% last year and 44% the year prior. There is a slow but steady, increase in companies paying Non-Executive Chairs retainers valued at more than $350,000. In 2015, 22% fell into this category, compared to 20%, 16%, and 15% respectively in the previous three years. Non-Executive Chair Retainer Average $261,424 $255,420 $229,063 Median $244,528 $235,000 $200,000 Range $25,000 to $1,192,000 $25,000 to $1,163,340 $15,000 to $1,086,352 Average Annual Non-Executive Chair Retainer Micro Small Medium Large <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL 2015 $182,659 $195,661 $274,801 $415,198 $261, $193,016 $205,467 $258,711 $393,244 $255, $138,880 $196,835 $259,379 $370,399 $229, Corporate Board Governance and director compensation Report 77

80 Average and Median Non-Executive Chair Retainers, Including Cash and Shares Mandatory Shares in Retainer No Mandatory Shares in Retainer Average Median Average Median 2015 $293,257 $263,000 $190,683 $137, $280,822 $255,380 $205,704 $137, $274,610 $245,000 $171,442 $125,000 Largest Non-Executive Board Chair Retainers Total Cash Portion Share Based Portion* Goldcorp Inc. $1,192,000 $1,000,000 $192,000¹ Thomson Reuters Corporation $768,000¹ $768,000¹ Canadian National Railway Company $696,686 $223,773 $472,913 Open Text Corporation $678,574¹ $256,000¹ $422,574¹ Teck Resources Limited $659,992 $360,000 $299,992 Magna International Inc. $640,000¹ $256,000¹ $384,000¹ Brookfield Asset Management Inc. $640,000¹ $480,000¹ $160,000¹ Agrium Inc. $563,200¹ $256,000¹ $307,200¹ Suncor Energy Inc. $522,813 $250,000 $272,813 Potash Corporation of Saskatchewan Inc. $512,000¹ $512,000¹ Manulife Financial Corporation $512,000¹ $512,000¹ Saputo Inc. $500,000 $500,000 Element Financial Corporation $500,000 $250,000 $250,000 DREAM Unlimited Corp. $500,000 $500,000 * Where share values have not been provided, the value of shares has been calculated based on the number of shares awarded in fiscal 2015 and the fiscal year end closing share price. ¹ Reported in U.S. dollars. The average exchange rate for 2015 was $ KORN FERRY Canada

81 Non-Executive Board Chair Retainer Distribution* Micro Small Medium Large <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL $50,000 or less % 0 2% 0 3% % 2% 0 0 1% $50,001 to $150, % 38% 18% 2% 22% % 33% 24% 4% 27% $150,001 to $250, % 27% 24% 17% 29% % 27% 27% 15% 26% $250,001 to $350, % 27% 26% 14% 19% % 27% 25% 17% 20% over $350, % 2% 26% 64% 22% % 2% 22% 61% 20% No Retainer % 6% 4% 2% 6% % 9% 2% 2% 6% * Percentages are of boards with a non-executive chair Non-Executive Board Chair Retainer Distribution* $50,000 or less over $350, % 22 % 3% 6 % % No Retainer $50,001 to $150,000 $250,001 to $350, % $150,001 to $250, Corporate Board Governance and director compensation Report 79

82 Lead Director Compensation 80 KORN FERRY Canada

83 KEY FINDINGS 72% of boards paid additional compensation to Lead Directors. In 2015, there was a 6% increase in the average Lead Director retainer, following a 1% decrease the previous year. 100% of Large companies with a Lead Director paid a premium to their lead directors. For the past two years, 72% of boards with a Lead Director paid additional compensation to the Lead Director. In the United States, 77% 7 of boards at the Top 200 companies with an independent lead or presiding director or an independent vice chair pay premium compensation for this role median lead director retainer $25,000 In 2015, 100% of Large companies with a Lead Director paid a premium to their Lead Directors versus 71% of Medium companies, 68% of Small companies and 59% of Micro companies. For the past two years, the median Lead Director additional retainer has been $25,000. Lead Director Additional Retainer*, Including Cash and Shares Average $38,312 $36,266 $35,111 Median $25,000 $25,000 $27,350 Range $3,000 to $192,000 $3,000 to $165,000 $2,500 to $101,534 * Additional to Director Retainer Average Annual Lead Director Additional Retainer* Including Cash and Shares Micro Small Medium Large <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL 2015 $31,068 $27,873 $34,025 $60,418 $38, $22,536 $28,868 $25,346 $59,688 $36, $24,132 $35,569 $30,098 $53,140 $35,111 * Additional to director retainer Director Compensation Report, published by the NACD with data from the 2015 Director Compensation Survey by Pearl Meyer Corporate Board Governance and director compensation Report 81

84 Committee Chair Compensation 82 KORN FERRY Canada

85 KEY FINDINGS 92% of companies paid a committee chair retainer that was higher than the committee member retainer. This compares to 91% in 2014 and 90% in In 2015, 51% of Large companies had committee chair retainers higher than $25,000, compared to 42% in % of companies paid a higher retainer to audit committee chairs than other committee chairs. However, the gap between compensation paid to audit committee chairs and chairs of other committees is getting smaller. In 2015, the average premium audit committee chair retainer was 46% higher than the non-audit chair retainer. The differential was 51% last year and 56% in Committee Chair Retainer In 2015, 92% of companies paid a committee chair retainer that was higher than the committee member retainer. This compares to 91% in 2014 and 90% in In the United States, 76% 8 of the Top 200 companies pay a committee chair retainer for Audit, Compensation, and Nominating/ Governance Committees. In 2015, the average committee chair retainer was $16,970, compared to $15,967 in The median has been $15,000 for the past two years. In 2015, the average committee chair retainer was 6% higher than the previous year. This compares to a 4% increase in 2014 and a 1% increase in the prior year. The average committee chair retainer of $23,725 at Large companies is 97% higher than the average committee chair retainer of $12,033 at Micro companies. In 2015, 51% of Large companies had committee chair retainers higher than $25,000, compared to 42% in In 2015, 76% of companies that do not pay a committee chair retainer paid directors with a flat retainer for their board service, compared to 66% in average committee chair retainer $16,970 $15, Director Compensation Report, published by the NACD with data from the 2015 Director Compensation Survey by Pearl Meyer Corporate Board Governance and director compensation Report 83

86 Committee Chair Retainer Average $16,970 $15,967 $14,621 Median $15,000 $15,000 $12,000 Range $2,500 to $95,903 $2,500 to $75,000 $2,000 to $250,000 Average Annual Committee Chair Retainer Micro Small Medium Large <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL 2015 $12,033 $15,161 $16,647 $23,725 $16, $12,294 $14,073 $16,676 $20,496 $15, $11,384 $13,419 $14,084 $20,708 $14,621 Committee Chair Retainer Distribution* Micro Small Medium Large <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL $5,000 or less % 13% 12% 6% 15% % 17% 14% 6% 16% $5,001 to $10, % 54% 56% 39% 51% % 67% 62% 45% 60% $10,001 to $15, % 53% 42% 43% 48% % 56% 48% 49% 54% $15,001 to $20, % 38% 39% 43% 36% % 41% 42% 40% 37% $20,001 to $25, % 4% 17% 23% 12% % 6% 17% 30% 14% Over $25, % 10% 18% 51% 19% % 8% 16% 42% 16% No Committee % 8% 8% 1% 8% Chair Retainer % 10% 4% 3% 9% * Percentage of companies in each asset category that have a committee chair retainer in each dollar value category. Totals are more than 100% because many boards have several different levels of committee chair retainers that span different dollar value categories 84 KORN FERRY Canada

87 Differential Committee Chair Retainers Many boards pay different levels of retainers for different types of committees: * For the past two years, 79% of companies paid a higher retainer to audit committee chairs than other committee chairs. This compares to 82% in * The gap between compensation paid to audit committee chairs and chairs of other committees is decreasing. In 2015, the average premium audit committee chair retainer was 46% higher than the non-audit chair retainer. The differential was 51% last year and 56% in * In 2015, 29% of boards with a compensation committee paid a higher retainer to that committee chair than some other committees, compared to 27% in 2014 and 21% in In 2015, there was a 5% increase in the average premium audit committee chair retainer over 2014 and this follows increases over the previous years of 3% and 1% consecutively Corporate Board Governance and director compensation Report 85

88 Average Premium Audit Committee and Non-Audit* Committee Chair Retainer Percentage that Pay a Average Audit Committee Premium Audit Committee Chair Retainer at Companies Average Non-Audit Chair Retainer that Pay a Premium Chair Retainer % $21,036 $14, % $20,070 $13, % $18,500 $11,858 * Non-Audit includes audit committees at those companies that do not pay a premium for audit committee membership. Average Premium Audit Committee and Non-Audit* Committee Chair Retainer, By Board Size Percentage of Asset Group Average Audit that Pay a Premium Committee Chair Average Non-Audit Audit Committee Retainer at Companies Committee Chair Chair Retainer that Pay a Premium Retainer Micro <1.5B 76% $15,219 $9,715 Small 1.5B 3.5B 80% $19,735 $11,959 Medium 3.5B 10B 85% $22,170 $12,876 Large >10B 75% $29,270 $21,239 ALL 79% $21,036 $14,42 * Non-Audit includes audit committees at those companies that do not pay a premium for audit committee membership. 86 KORN FERRY Canada

89 Premium Audit Committee Chair Retainer vs. Non-Audit* Committee Chair Retainer Audit Committee Non-Audit Committee Average 2015 $21,036 $14, $20,070 $13, $18,500 $11,858 Median 2015 $20,000 $10, $17,500 $10, $15,000 $10,000 Range 2015 $5,000 to $95,903 $2,500 to $95, $5,000 to $75,000 $2,500 to $55, $3,660 to $70,000 $2,000 to $250,000 * Non-Audit includes audit committees at those companies that do not pay a premium for audit committee membership. Committee Chair Meeting Fee For the past three years, only 2% of companies paid a higher meeting fee to committee chairs than to committee members. This is a decrease from 4% over the previous three years and 5% over the four years prior. We expect this decrease to continue or remain low as companies put a stronger focus on paying directors with retainers than meeting fees. The average committee chair meeting fee in 2015 was $2,299 compared to $2,200 in $2, $2,299 Average committee chair meeting fee 2016 Corporate Board Governance and director compensation Report 87

90 Committee Member Compensation 88 KORN FERRY Canada

91 KEY FINDINGS As methods of director compensation change, it is getting more and more difficult to draw comparisons for averages of a single type of compensation, such as a committee retainer when some companies pay a single committee retainer for all committee work and others pay a committee retainer for each committee. For example, Canadian National Railway Company paid an all-inclusive committee retainer of $70,328 (US$55,000) in 2015, and in 2014 it paid a committee retainer of $3,850 (US$3,500) per committee in addition to committee meeting fees. In 2015, the average committee member retainer of $7,506 was 9% higher than the previous year. However, the median has been at $5,000 since The average audit committee retainer was 30% higher than the average committee member retainer for other committees or at companies that did not pay a premium for audit committee membership. In 2015, 76% of companies paid some form of committee member compensation to their directors % 2014 Committee Member Retainer As methods of director compensation change, it is getting more and more difficult to draw comparisons for averages of a single type of compensation, such as a committee retainer when some companies pay a single committee retainer for all committee work and others pay a committee retainer for each committee. For example, Canadian National Railway Company paid an all-inclusive committee retainer of $70,328 (US$55,000) in 2015, and in 2014 it paid a committee retainer of $3,850 (US$3,500) per committee in addition to committee meeting fees. $7,506 In 2015, the average committee member retainer of $7,506 was 9% higher than This compares to a 3% increase last year and a 2% increase in the previous year. However, the median has remained at $5,000 since Corporate Board Governance and director compensation Report 89

92 Of the companies that paid committee member compensation, 34% paid both a retainer and meeting fee. The percentage of companies paying both a retainer and meeting fee has been relatively stable at between 34% and 36% over the past twelve years. Committee Member Retainer Average $7,506 $6,892 $6,253 Median $5,000 $5,000 $5,000 Range $640 to $70,328 $1,082 to $37,500 $1,050 to $25,000 Average Committee Member Retainer Micro Small Medium Large <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL 2015 $5,190 $7,129 $7,466 $9,370 $7, $5,508 $6,113 $7,626 $7,680 $6, $5,720 $5,465 $6,025 $7,445 $6,253 Committee Member Meeting Fee In 2015, the average committee meeting fee increased by 2% over the 2014 average. Over the previous nine years, the annual increase in committee meeting fees ranged between less than 1% and 4%. For the past two years, of the companies that paid committee member compensation, 38% paid a meeting fee only. This compares to 40% in the prior year. In 2015, 8% of companies that paid committee meeting fees paid a higher meeting fee to audit committee members compared with 9% last year and 11% in Committee Member Meeting Fees Average $1,656 $1,619 $1,569 Median $1,500 $1,500 $1,500 Range $500 to $3,500 $500 to $3,000 $750 to $3, KORN FERRY Canada

93 Average Committee Member Meeting Fee Micro Small Medium Large <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL 2015 $1,522 $1,646 $1,678 $1,845 $1, $1,452 $1,619 $1,651 $1,763 $1, $1,399 $1,556 $1,717 $1,731 $1,569 Audit Committee Member Retainer In 2015, 24% of companies paid a higher committee retainer for audit committee members than for other committees, compared to 25% last year. The average audit committee retainer was 30% higher than the average committee member retainer for other committees or at companies that did not pay a premium for audit committee membership. This compares to 35% in 2014 and 47% in Committee Member Retainer: Audit Committee Premium Compared With Non-Audit* Committee Audit Committee Non-Audit Committee Average 2015 $8,882 $6, $8,316 $6, $7,883 $5,346 Median 2015 $7,000 $5, $6,000 $5, $6,000 $4,950 Range 2015 $2,000 to $37,500 $640 to $70, $2,000 to $37,500 $1,082 to $27, $2,000 to $25,000 $1,050 to $24,750 * Non-Audit includes audit committees at those companies that do not pay a premium for audit committee membership Corporate Board Governance and director compensation Report 91

94 How Are Committee Members Compensated? % Committee member compensation tends to be quite varied, with some boards providing different amounts for different types of committees, or paying a board retainer intended to include compensation for committee service, but no specific amounts for committee service. In 2015, 76% of companies paid some form of committee member compensation to their directors. For the past two years, of the boards that did not pay any compensation to committee members, 22% paid a board retainer only, with no further compensation for committee chairs or members. This means that 5% of all boards surveyed pay a single flat fee compensation structure. These companies are: * Advantage Oil and Gas Ltd. * Alaris Royalty Corp. * Amaya Inc. * BMTC Group Inc. * Bonterra Energy Corp. * Cara Operations Limited * Chemtrade Logistics Income Fund * China Gold International Resources Corp. Ltd. * Concordia Healthcare Corp. * FCF Capital Inc. * Granite Oil Corp. * Mainstreet Equity Corp. * Nevsun Resources Ltd. * OceanaGold Corporation * Tourmaline Oil Corp. * Whitecap Resources Inc. 92 KORN FERRY Canada

95 Five percent of companies provided compensation for some, but not all committees. Of these companies: * 80% paid a meeting fee for all committees, but a retainer only to the audit committee; * 20% paid only a retainer, and only to audit committee members. Breakdown of Compensation Method for Committee Members Meeting Fee only 29% Retainer and Meeting Fee 26% Retainer Only 15% Stock Options only 1% Compensation for some, but not all, Committee Types 5% No Specific Committee Member Compensation 24% 2016 Corporate Board Governance and director compensation Report 93

96 Stock-Based Compensation 94 KORN FERRY Canada

97 KEY FINDINGS Use of share equivalents has reached an all-time high with 77% of companies using them for director compensation in 2015, up from 74% in 2014 and 62% in The bigger the company, the less likely it is to compensate directors with stock options or trust unit rights. The biggest usage was at Micro companies, with 25% awarding them to directors, compared to Small companies at 8%, Medium companies at 6% and Large companies at 1%. The most common method of providing share compensation to directors is to make a portion of compensation taken in shares or share equivalents mandatory, and to allow an option to take a further portion in the same manner. In 2015, 46% of boards chose this method, compared to 35% in Introduction We consider a company to have stock-based compensation when, during the year in question, directors receive at least one of stock or trust unit options, shares or trust units, or share equivalents (typically a form of deferred share or trust units). We consider a company to have stock option compensation for directors in 2015 when options were actually granted to directors during the fiscal year. Forms of Stock-Based Compensation In 2015, 87% of companies used some form of stock-based compensation for directors, compared to 85% in 2014 and 86% in Ninety-seven percent of Large companies used some form of stock based compensation compared to 78% of Small companies. 87 % 85 % 86 % 2016 Corporate Board Governance and director compensation Report 95

98 % 74 % 62 % Use of share equivalents has reached an all-time high with 77% of companies using them for director compensation in 2015, up from 74% in 2014 and 62% in Bigger companies are more likely to compensate directors with share equivalents; 91% of Large companies used them, compared to 82% of Medium, 73% of Small and 67% of Micro companies. In 2015, only 12% of companies issued stock options for directors, which is the lowest percentage we have seen in this category. This category has been declining steadily from a high of 76% when we first started reporting this data in In the United States, use of stock options also declined, with 12% 9 of the Top 200 companies providing them to directors, compared to 15% the previous year. The bigger the company, the less likely it is to compensate directors with stock options or trust unit rights. The biggest usage was at Micro companies, with 25% awarding them to directors, compared to Small companies at 8%, Medium companies at 6% and Large companies at 1%. Forty-two percent of the companies that do not provide any form of mandatory stock-based compensation to directors still have a share ownership requirement for directors. Percentage of Companies with a Stock Component in Director Compensation Micro Small Medium Large <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL % 78% 91% 97% 87% % 75% 92% 96% 85% % 85% 90% 95% 86% Percentage of Companies with Various Types of Stock-Based Director Compensation Shares/Trust Stock Options/ Share Units Trust Unit Rights Equivalents None % 12% 77% 13% % 13% 74% 15% % 25% 62% 14% Totals are more than 100% because some companies provide more than one form of stock-based compensation Director Compensation Report, published by the NACD with data from the 2015 Director Compensation Survey by Pearl Meyer. 96 KORN FERRY Canada

99 Use of Stock Components in Director Compensation, by Company Size Micro Small Medium Large <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL Shares/Trust Units % 7% 11% 35% 13% % 7% 10% 28% 12% Stock Options/ % 8% 6% 1% 12% Trust Unit Rights % 12% 9% 1% 13% Share Equivalents % 73% 82% 91% 77% % 63% 82% 93% 74% None % 21% 9% 3% 13% % 25% 7% 4% 15% Mandatory vs. Voluntary Compensation in Shares or Share Equivalents The most common way of providing share compensation to directors is to make a portion of compensation in shares or share equivalents mandatory, and to allow an option to take a further portion in the same manner. In 2015, 46% of boards chose this method, compared to 43% in 2014 and 35% in The bigger the company, the more likely it is to have both mandatory and optional share compensation for directors. In 2015, 74% of Large companies used this method, compared to 28% at Micro companies. Seventy percent of companies that compensate directors with only a retainer require directors to take all or part of the retainer in shares or share equivalents, compared to 67% of boards that also pay a meeting fee. Percentage of Companies with Compensation in Shares or Share Equivalents Option to take all or part of compensation in shares or share equivalents 14% 15% 16% Must take all or part of compensation in shares or share equivalents, no option of taking a further portion in the same manner 21% 19% 16% At least a portion of compensation must be in share or share equivalents 46% 43% 35% Percentage of Companies with Compensation in Share or Share Equivalents, by Asset Size Micro Small Medium Large <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL Option to take all or part of 12% 16% 17% 12% 14% compensation in shares or share equivalents Must take all or part of compensation 28% 16% 26% 12% 21% in shares or share equivalents, no option of taking a further portion in the same manner At least a portion of compensation 28% 44% 45% 74% 46% must be in share or share equivalents 2016 Corporate Board Governance and director compensation Report 97

100 Compensation Summary 98 KORN FERRY Canada

101 KEY FINDINGS In 2015, the average retainer grew by 13% at companies that paid only a retainer, compared to 2% at those that also paid a meeting fee. Non-executive chair retainers increased by 2% over last year. The average committee chair retainer was 6% higher than in Average Compensation Micro Small Medium Large <1.5B 1.5B to 3.5B 3.5B to 10B >10B ALL Director Retainer, 2015 $101,805 $124,010 $155,793 $197,098 $147,333 No Meeting Fee 2014 $96,692 $103,443 $125,405 $207,392 $130, $65,282 $77,476 $113,246 $151,545 $92,730 Director Retainer, 2015 $80,592 $89,824 $109,612 $153,659 $103,026 With Meeting Fee 2014 $76,055 $87,881 $105,699 $142,193 $101, $53,008 $82,860 $92,531 $135,751 $85,509 Board Meeting 2015 $1,576 $1,578 $1,589 $1,761 $1, $1,459 $1,681 $1,604 $1,690 $1, $1,463 $1,560 $1,813 $1,704 $1,602 Non-Exec Chair 2015 $182,659 $195,661 $274,801 $415,198 $261,424 Retainer 2014 $193,016 $205,467 $258,711 $393,244 $255, $138,880 $196,835 $259,379 $370,399 $229,063 Committee Chair 2015 $12,033 $15,161 $16,647 $23,725 $16,970 Retainer 2014 $12,294 $14,073 $16,676 $20,496 $15, $11,384 $13,419 $14,084 $20,708 $14,621 Committee Member 2015 $5,190 $7,129 $7,466 $9,370 $7,506 Retainer 2014 $5,508 $6,113 $7,626 $7,680 $6, $5,720 $5,465 $6,025 $7,445 $6,253 Committee Member 2015 $1,522 $1,646 $1,678 $1,845 $1,656 Meeting 2014 $1,452 $1,619 $1,651 $1,763 $1, $1,399 $1,556 $1,717 $1,731 $1,569 Telephone Meeting* 2015 $720 $940 $932 $854 $ $714 $896 $1,018 $898 $ $810 $875 $929 $799 $853 * 6% of boards stated that their in-person and telephone meeting fees were the same in Corporate Board Governance and director compensation Report 99

102 Director Share Ownership 100 KORN FERRY Canada