Canadian HR Reporter

www.hrreporter.com 19 Both in Toronto, Lynne Lacoursière is co-chair of the Executive Compensation practice and a partner in the Employment & Labour group and Kelly O'Ferrall is counsel in the Employment & Labour group at Osler, Hoskin & Harcourt. For more information, visit www.osler.com. the fallout of trying to honour unrealistic compensation programs. In the longer term, it's difficult to know how targets will be set moving forward. Like bonus programs, equity arrange- ments will also need to be re-examined. For some companies, equity grants may have lost all value in the short term, but there may be huge — and possibly unintended — upside results and potential windfalls for some employers and industries. Despite the pandemic-reinforced success of a few companies — think Shopify, whose stock had increased by 165 per cent by Aug. 10 — equity has become worth much less for many organizations. As a result, many stock options are underwater — that is, the exercise price is greater than the fair market value of the shares underlying the option — and it may become necessary to consider restructuring the stock option program using a strategy such as repricing. One way that option repricing can be effected is by reducing the exercise price of existing options to the current market price of the underlying shares, either by amending the grant agreement or by allowing option holders to surrender their underwater options for cancellation in exchange for new options. It should be noted that, for public companies, such changes may require shareholder approval. Even if approval is not legally required, companies may be leery of proceeding without such approval given investor antipathy to these programs and the adverse publicity they can generate. In Canada, proxy advisory firms such as Institutional Shareholder Services (ISS) generally recommend voting against proposals to reprice outstanding options. Of course, prior to making changes to any compensation arrangements, the terms of the plans must be carefully reviewed and considered to ensure that the company has the right, either express or implied, to make such changes and to determine what steps must be taken in order to implement changes (such as shareholder or stock exchange approval). As with salary reductions, the benefits of making changes must be weighed against the risk of employment-related claims and the impacts that such changes may have on motivating and retaining employees. Looking ahead Although a greater deal of uncertainty remains, we are beginning to see the ramifications of the e xec utive compensation decisions companies have made over the past months. Many entities have had to balance competing interests such as saving money and motivating and retaining talent, while also considering the public's perception of generous paycheques when a large number of Canadians are losing their jobs or agreeing to reduced wages. In short, it may still be too soon to make any permanent decisions on executive compensation. Although we have certainly seen market volatility and financial crises before, there is no precedent for the current circumstances and no blueprint for the way forward. As a result, it may make the most sense to put target setting on hold for the time being. Looking ahead, companies should focus on ensuring they retain — or gain — the ability to modify compensation programs, including equity-based arrangements, keeping in mind the influential role played by proxy advisory firms and the possible requirement for approval by shareholders, stock exchanges or both. Being able to make changes to employees' terms and conditions of employment — without triggering constructive dismissal claims — will also become increasingly important. CHRR

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