The 2021 Budget extended the Canada Emergency Wage Subsidy (“CEWS”) to September 25, 2021 (with the possibility of a further extension to November 20, 2021). It also introduced a repayment requirement, if 2021 aggregate executive pay is higher than it was in 2019.
Bill C-30, which implemented these measures, was approved June 29, 2021.
Public companies (including controlled affiliates) will be required to repay CEWS received after June 5, 2021, if the aggregate compensation paid to Named Executive Officers (NEOs) during calendar 2021 exceeds the aggregate compensation paid to NEOs during calendar 2019. The amount required to be repaid is described below.
The rules respond to concerns that corporations are using CEWS to fund executive compensation. The Budget confirms that CEWS is designed to support employers whose revenue declined during the COVID- 19 pandemic, to allow them to keep their employees on the payroll. The Budget goes further to suggest that increases to executive pay during this period demonstrate that a company has adequate financial resources to support employees, without CEWS.
If a company triggers the CEWS repayment requirement, the amount required to be repaid is the lesser of:
▪ The total of all CEWS amounts received after June 5, 2021; and
▪ The amount by which the corporation’s aggregate NEO compensation for 2021 exceeds the aggregate NEO compensation for 2019.¹
If the corporation has a non-calendar fiscal year, the aggregate compensation for a calendar year will be prorated based on the number of days of the fiscal period in the calendar year.
Aside from normal course pay increases or stronger bonus payouts, there are a number of ways the repayment requirement could be inadvertently triggered, which are not dealt with in the legislation:
▪ Senior executive turnover replacing 2019 senior executives with more experienced and higher paid executives, or with one-time hiring, promotion or termination payments;
▪ Increases to the number of reported NEOs (e.g., more than 5 to be reported in 2021 due to executive transitions);
▪ Retention awards made to selected NEOs during 2021;
▪ Changes in pension values, which reflect actuarial and interest rate changes, rather than increased compensation; and
▪ Corporations involved in transactional M&A activity resulting in significant changes to the NEOs or their compensation.
¹NEOs’ compensation is the total amount reported in the Statement of Executive Compensation pursuant to NI 51-102. If the corporation is not required to make disclosure under NI 51-102, the amount is based on similar disclosure under the laws of another jurisdiction (but limited to the top 5 highest paid), or the amount that would be required to be reported using the methodology in the Statement of Executive Compensation, as applicable.
This Client Update is prepared by Meridian Compensation Partners. Questions regarding this Client Update or executive compensation technical issues may be directed to:
Christina Medland at (416) 646-0195, or firstname.lastname@example.org
Andrew McElheran at (416) 646-5307, or email@example.com
Andrew Stancel at (647) 478-3052, or firstname.lastname@example.org
Andrew Conradi at (416) 646-5308, or email@example.com
Matt Seto at (647) 472-0795, or firstname.lastname@example.org
Rachael Lee at (647) 975-8887, or email@example.com
Kaylie Folias at (416) 891-8951, or firstname.lastname@example.org
This report is a publication of Meridian Compensation Partners Inc. It provides general information for reference purposes only and should not be construed as legal or accounting advice or a legal or accounting opinion on any specific fact or circumstances. The information provided herein should be reviewed with appropriate advisors concerning your own situation and issues.