Performing Loan Provision for Credit Losses
CWB uses the expected credit loss framework under IFRS 9 which requires the recognition of expected credit losses on performing loans, i.e., those loans that are not impaired. Estimated expected credit losses under IFRS 9 requires significant management judgment, and is a more volatile measure compared to accounting methods used prior to the adoption of IFRS 9 by CWB, particularly during periods of economic uncertainty. Starting in fiscal 2021, the performing loan provision for credit losses was excluded from all relevant compensation metrics used in STIP and LTIP (including all outstanding PSUs), regardless of whether the impact was positive or negative to financial results, removing any potential incentive for management to apply judgment in estimating the performing loan provision in a manner that could affect STIP and LTIP results.
INDEPENDENT ANALYSIS FROM EXTERNAL COMPENSATION CONSULTANT
The HR Committee benefits from the advice of an external independent compensation consultant with executive compensation expertise. The HR Committee has retained Meridian since 2015 for support on executive compensation matters. Meridian has advised the HR Committee that it has no connections to HR Committee members or management that could compromise its independence, and it maintains policies and procedures designed to prevent conflicts of interest.
In 2022, Meridian performed the following services for the HR Committee:
• Reported periodically on compensation trends, incorporating data from our peer group as well as from other Canadian financial services companies, and legislative and regulatory changes and included a recap of proxy advisor findings on our compensation program; • Reviewed and provided observations on performance measures, goals, adjustments, and ranges in the STIP program; • Provided observations on CWB’s compensation recoupment policy; • Provided benchmark compensation market data, and observations on compensation arrangements, for senior executives; • Provided observations on the HR Committee’s mandate; • Indep endently verified management’s PSU payout calculations for the fiscal 2019 grants that vested on December 15, 2021; and • Reviewed the fiscal 2021 Circular. The Chair of the HR Committee oversees any services provided by Meridian to the HR Committee, and is consulted about any services proposed to be provided by Meridian to CWB management prior to their engagement. This allows the HR Committee to consider whether Meridian’s ability to act as an independent compensation consultant to the HR Committee may be compromised. In 2022 and 2021, Meridian did not provide any services to CWB management.
The aggregate fees billed by Meridian over the past two years follow:
Year Ended October 31, 2022 (1) ($)
Year Ended October 31, 2021 (1) ($)
Executive and director compensation related fees
105,417
84,711
All other fees
-
-
Total
105,417
84,711
(1) Fees include all applicable taxes.
COMPENSATION DECISION-MAKING PROCESS
Compensation decisions are guided by our compensation philosophy and principles as described on page 35, and Meridian’s analysis, as described above and on page 41. The following illustration sets out the HR Committee’s compensation decision -making process:
1. ESTABLISH TARGET COMPENSATION
The CEO recommends to the HR Committee the level and form of compensation targets for the executive officers, other than the CEO. The HR Committee has full discretion to adopt or alter the CEO’s recommendations, and engages its external compensation consultant to assist in evaluating the recommendations. The target compensation mix and aggregate compensation package for each NEO is positioned near the median range of the comparator market compensation data, unless the HR Committee determines that a variance from the median range is warranted based on factors such as individual performance, relevant experience, tenure, internal equity considerations, and retention needs.
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