Sustainable pay incentives are a growing trend in corporate Canada – The Globe and Mail

Dov Begun

Jul 7, 2022

While there is a trend towards companies linking compensation incentives to environmental, social and governance (ESG) performance, the challenge becomes fitting the long-term nature of climate goals and ESG metrics within the short-term timeframe of Canada’s tax regime, Osler’s Dov Begun, partner, Tax, told The Globe and Mail in an interview.

Canada’s deferred compensation rules allow companies to defer bonus payments for a maximum of three years. “The existing policies we have in Canada are impeding the effectiveness of ESG objectives and compensation arrangements, because of the different time horizons,” he says. “ESG objectives really need to be measured over a longer period because, in many instances, hiring reform or whatever it might be, three years is really not enough time to measure how successful you’ve been and what changes you may have introduced.”

Dov believes there are a couple of options. For one, the government could simply clarify that arrangements to defer employment income linked to ESG objectives are not considered to have tax deferral as the main purpose and adopt a broader approach than the three-year rule in those cases. Or it could go as far as introducing a new statutory regime that includes deferral longer than three years for compensation linked directly to ESG goals.

“It really needs to come from the government, because the CRA doesn’t make policy,” says Dov. “The CRA is administering the legislation and the legislation, as it currently stands, says I can’t defer longer than three years.”

While not ESG-specific, the United Kingdom has allowed a five-year deferment. “There clearly is a move in some jurisdictions to longer-term deferrals that could align with longer-term objectives and ESG-related policies,” says Dov.

Read the full article by author Dene Moore posted on July 7, 2022