Canadian HR Reporter

18 www.hrreporter.com F E A T U R E S ALTHOUGH we have been living with the ever-evolving COVID- related restrictions since the middle of March, there's no definitive end in sight — and no idea of what the "new normal" really looks like. One thing that is clear, however, is the effect that the pandemic has had on jobs and compensation across the country. From the warehouse to the C-suite, employees are facing uncertainty and apprehension. The pandemic was declared in North America at a time that made it challenging to make — or revisit — compensation decisions. Many organizations had already committed to incentive plan targets and salaries for 2020 when the entire economic landscape shifted drastically. In addition, as companies' share prices took a hit, thanks to declining sales and the unpredictability of the markets, equity awards for many employees — and executives, in particular — lost value. Cuts, freezes and deferrals In the short term, for many companies, the impact on employees has been drastic. Faced with so much uncertainty, many companies were forced to resort to severe measures — including temporary layoffs and mass terminations, as well as reductions in hours. In some cases, salary freezes and reductions for executive and non-executive employees were also implemented, and such measures continue to be used as cost-reduction strategies. CEOs and senior executive teams at many Canadian companies saw their pay reduced — some voluntarily, others involuntarily — by anywhere from 10 to compensate employees for accepting salary reductions. Again, these types of changes should be approached with caution as there may be unintended tax consequences under both Canadian and U.S. tax laws (applicable to any participants who are also U.S. taxpayers). In addition, employers must approach material, detrimental changes to employees' terms and conditions of employment with caution or risk facing employee relations issues and constructive dismissal claims where there is no express or implied right to make such changes. However, there are strategies for reducing these risks or their related costs, such as obtaining consent and providing sufficient notice of a change in compensation. Rethinking bonuses and long-term incentives Of course, base salary is only one part of most executives' compensation package. The vast majority also have annual bonuses, equity-based awards or other forms of incentive compensation based, at least in part, on the company's performance. In addition to salary cuts, bonuses have been reduced or deferred or both while temporary measures have been implemented to redefine the targets and adjust metrics used to calculate bonus amounts to account for the impact of the pandemic. In many cases, these changes were necessary because the factors underlying 2020 compensation programs have changed so drastically that they are no longer realistic. As a result, employers could either revise bonus plans that executives had already agreed to or face CANADIAN CEO SACRIFICES AMID PANDEMIC to 100 per cent, according to Hugessen Consulting. Notably, the CEOs of Air Canada, Bombardier, Telus and Canada Goose agreed to forego 100 per cent of their salaries for varying periods of time. Board compensation at several organizations was also cut. Other companies — including Sleep Country Canada — saw their executives agreeing to defer a portion of their salaries until a future date when, the hope is, sales and cash flows return to more normal levels. Temporary salary deferrals can provide some relief to cash-strapped organizations; however, caution must be exercised to ensure that the deferrals do not have adverse tax consequences as a result of the salary deferral arrangement rules set out in the Income Tax Act (ITA). If an arrangement is characterized as a salary deferral arrangement under the ITA, an employee could be taxed on the full amount before it is actually received. However, there are exceptions; and if the deferral fits into one of these exceptions, there should be no adverse tax consequences. In some instances, (mostly private) companies have offered employees stock options — or made changes to outstanding stock options — as a means In taking a look at how employers are approaching executive compensation during the pandemic, there is no precedent and no blueprint for the way forward, say Lynne Lacoursière and Kelly O'Ferrall of Osler, Hoskin & Harcourt DESPERATE TIMES, DESPERATE MEASURES Bonuses have been reduced or deferred while temporary measures have been applied to redefine targets and adjust metrics used to calculate bonus amounts. Cut in pay for CEOs at Air Canada, Bombardier, TELUS, Canada Goose Cut in pay for CEOs at Gildan Activewear, Martinrea International, CAE Cut in pay for CEOs at Maple Leaf Sports & Entertainment, Postmedia Network Cut in pay for executive team at Cineplex (two weeks), CGI, Bombardier Cut in pay for executive team at WestJet, Sleep Country Canada, Chorus Aviation Cut in pay for executive team at SNC-Lavalin, First Quantum Minerals Sources: Hugessen Consulting F O C U S O N : C O M P E N S AT I O N 100% 100% 50% 50% 30% 20%

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