In this article, we summarize our initial insights from the recently disclosed pay decisions of Canada’s largest companies based on the more than two-thirds of companies in the S&P/TSX 60 that have released their 2025 proxies.
Performance share units (PSUs) remain the most common LTI vehicle with 93% prevalence (88% in 2023) and they account for the highest average weighting at 60% within LTI plans (58% in 2023). Restricted share units (RSUs) follow, with 57% prevalence and an average weight of 22%. These increased weightings on PSUs and RSUs are a function of the trend to reduce or remove stock options from LTI portfolios.
The weighting on stock options decreased from 22% in 2023 to 18% in 2024. Despite this decline, stock options continue to be provided by 57% of the 42 S&P/TSX 60 companies we have analyzed. Although stock options have lost much of their tax advantage, they continue to offer substantial upside opportunity in periods of strong share price growth (Figure 1).
From a trend perspective, we expect:
Overall, STIP outcomes in respect to 2024 performance (paid in 2025) are tracking toward higher corporate scores compared to the prior year. The median corporate performance score (excluding individual components) was 111% of target compared to 101% last year. Outcomes were also higher at the 25th and 75th percentiles indicating improved year-over-year performance for most large Canadian companies (Figure 2).
We observe that these results broadly align to a strong year for S&P/TSX 60 companies as the index returned 17% in 2024 versus 8% in 2023. Looking forward, STIP payouts in respect to 2025 performance may lag 2024 outcomes should financial results weaken due to ongoing market turbulence.
PSU grants that were awarded in 2022 vested at the end of 2024 and were paid in early 2025. The median performance multiplier of 104% of target declined from 115% of target for grants made in 2021. This decrease is primarily a function of relative TSR metrics (used by more than half of large Canadian companies) paying at 76% of target at median versus 100% of target for 2021 PSU grants (Figure 3).
The prevalent use of two to three PSU performance metrics allows a more holistic assessment of longer-term company performance and helps diversify PSU outcomes. This is an important consideration for what is typically the largest single element of executive pay. We anticipate that many companies will be revisiting PSU plan design amidst ongoing economic and political volatility.
Environmental, social and governance (ESG) metrics are widely used in the annual incentive plans of S&P/TSX 60 companies, with roughly 80% prevalence. Also, they often focus on employee health and safety.
For this article, we focused on the emerging practice of incorporating ESG metrics within PSUs, which progressively increased from 2020, when only 2% of the S&P/TSX 60 included a long-term ESG metric, to 17% in 2024 (Figure 4). Year-to-date prevalence has decreased to 15% after one company removed their ESG metric tied to diversity, equity and inclusion. The majority of Canadian ESG metrics in PSU plans are based on emissions reductions, reflecting the number of companies in emissions-intensive industries.
ESG has become a highly polarized topic, leading to its plateaued use in PSU plans. We recommend that companies prioritize performance metrics that are tailored to the strategic priorities of the business and promote long-term value creation.
