MANAGING COMPENSATION RISKS
We consider the following broad categories of risk in designing and enhancing our compensation structure and policies:
Strategic Alignment Risk
This is the risk that our compensation structure does not encourage behaviour consistent with our strategic direction, risk appetite, and long-term objective to be the best full- service bank for business owners in Canada. We mitigate this risk by ensuring that executives’ performance goals and resulting compensation are aligned with CWB’s strategic direction.
Attraction and Retention Risk
This is the risk that our compensation structure will not attract and retain talented, high-performing individuals. We manage this risk by researching and identifying market practices and trends, and refining our compensation structure to be competitive in the market to appeal to employees and prospective candidates.
Reputation and Ethical Risk
This is the risk that our compensation structure will encourage employees to engage in unethical or illegal behaviour. We manage this risk through the Code, Compensation Recoupment Policy, and other policies, as further discussed below.
HOW RISK AFFECTS COMPENSATION
We believe the alignment of compensation governance practices with risk management principles helps generate long-term shareholder value within an effective risk control environment. We enhance our compensation practices periodically to address changing or emerging risks. To align compensation with time horizon risks and motivate employees to create long-term shareholder value, a portion of variable compensation is deferred. Executive equity-based compensation is awarded annually and vests over time, meaning a portion of compensation is always exposed to future changes in CWB’s share price before it ca n be realized. Unvested variable compensation is also subject to forfeiture in the event of termination of employment in certain circumstances, as described under the heading “Compensation Recoupment Policy” below. In addition, both the short-term and long- term incentive grants are subject to discretionary adjustments, described earlier, based on the HR Committee’s risk assessmen t.
KEY RISK MITIGATING POLICIES
Our compensation risk mitigating policies and practices are aimed at ensuring compensation aligns with shareholders’ interests and regulatory guidance, and addresses the compensation risks discussed above.
Compensation Recoupment Policy
• To address situations where employees conduct business activities inappropriately or outside the approved risk limits and tolerances, or situations involving fraud or a misstatement of financial results. • In the event of (i) a financial restatement; or (ii) if the individual engages in job-related gross negligence, severe dereliction of duty, fraudulent conduct, intentional misconduct, or serious or systemic breach or breaches of the Code; or (iii) a serious breach of any of CWB’s risk management policies (particularly including CWB’s Enterprise Risk Management Policy and Enterprise Risk Appetite Policy) or in the HR Committee’s reasonable view, if the individual has otherwise engaged in e xcessive risk taking, the HR Committee may exercise its discretion to: - require reimbursement to CWB of any incentive award (i.e., cash bonuses, STIP awards, RSUs, PSU, stock options, etc.) that was paid to the individual and any gain realized on the exercise of such incentive award; - cancel or amend any unvested incentive award due to the individual; and - offset the recoupment of an incentive award amount against current or future incentive awards or other compensation vehicles that are not incentive awards. • Applies to CWB senior management at the Assistant Vice President level and above.
Share Trading/Hedging/Pledging Restrictions Policy
• To maintain the alignment of employee and shareholder interests, and comply with legal requirements.
• Prohibits CWB directors and officers from directly or indirectly entering into: - short sales or buying or selling a call or a put option in respect of CWB's securities or purchasing financial instruments (including prepaid variable forward contracts, equity swaps, collars or units of exchange funds) designed to hedge or offset a decrease in the market value of CWB equity securities granted as compensation or held, directly or indirectly, by a CWB director or officer; and - non-recourse pledges of CWB securities.
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