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Options backdating a canadian perspective

Canadian tax rules are not the same as those in the United States, which permit deferred taxation of restricted stock; so in Canada, RSUs have generally been squeezed into a three-year bonus exception to salary-deferred rules under ITA.

SARs are generally tax advantageous to both the holder and the company.A proper compensation plan provides awards that create balanced incentives to achieve annual, mid-term and long-term corporate goals.In response to shareholder pressure, companies have reduced the role of leveraged compensation such as options and share appreciation rights, and have increased focus on whole share compensation such as restricted share units and performance share units.Leveraged compensation rewards executives for an increase in value of the companys shares and is perceived as being "upside only" that is, the executive does not exercise options if the share value decreases.Whole share compensation increases and decreases in value in direct relationship with changes in share value.On redeeming RSUs, the participant is taxed on the entire value of the benefit received, on a regular employment-income basis.A performance share unit (PSU) plan is a form of restricted share unit that requires the achievement of performance targets for the award to be redeemed.Shareholders have criticized the use of options because they may motivate volatile increases in the share prices rather than consistent growth in value, and because they lose any incentive value when significantly underwater.Moreover, executives may not place as high a value on options as the companys financial statements reflect.Whole share compensation, unlike options, continues to provide an incentive even when share value decreases since the grant date.Understanding the changes in share-based incentive compensation requires an understanding of the essential elements of these awards.


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