BUSINESS

THE WEALTHY BANKERS' STRIFE

Questions about salaries and performance enliven the TD Bank annual meeting

BRENDA DALGLISH February 7 1994
BUSINESS

THE WEALTHY BANKERS' STRIFE

Questions about salaries and performance enliven the TD Bank annual meeting

BRENDA DALGLISH February 7 1994

THE WEALTHY BANKERS' STRIFE

BUSINESS

Questions about salaries and performance enliven the TD Bank annual meeting

Any notion that the Toronto-Dominion Bank’s annual meeting would be a routine gathering of complacent shareholders disappeared within minutes. TD chairman Richard Thomson, presiding over the Jan. 26 event in the grand ballroom of Toronto’s Royal York Hotel, had just proposed nominations to the board of directors—when a shareholder rose to oppose the traditional procedure. Thomson rejected the request, but it was a clear sign of the testy mood among the 1,400 shareholders present. By the time the meeting ended more than two hours later, pointed questions had revealed shareholders’ displeasure on several fronts: how executive salaries were set, why TD did not report executive bonuses along with salaries as most other banks did in December, and how the bank’s performance was unsatisfactory. The usually cool Thomson ended the meeting abruptly after 90 minutes of questioning when he snapped at one persistent interrogator, Bob Verdun of Elmira, Ont.: “You’ve made your point Mr. Verdun. You’re finished. The meeting is over.”

Usually shareholders turn on senior executives only when a company is on the brink of financial disaster. In TD’s case, performance has been mediocre for the past four years, but the bank is certainly not in jeopardy. Recently its share price, which had been down slightly from 1989 levels, began to edge upward. Still, the bank has underperformed its competitors. A $100 investment in TD shares five years ago is now worth $139, while the same investment in the best performing bank, the Bank of Montreal, is worth $255. But what made the sparks fly last week was that the meeting was TD’s first since the banks were forced in December to reveal how much they pay their top executives—and some shareholders were not amused about the 1993 salaries of the two top executives: Thomson’s $925,000 and president Robin Korthals’ $700,000. What also annoyed them was that the bank would not disclose the level of 1993 bonuses. Emotional complaints about poor service also added fuel to the fire. The tone of the meeting may also have sent a message to

the bank’s directors, who are supposed to represent the interests of shareholders. “I hope the board of directors was listening,” concluded one bank analyst, who commented on the condition that he would not be identified.

Executive salaries became a big issue in December when the banks had to comply with new securities rules in Ontario that re-

“Are you saying that you are going to reveal your bonus now?”

—TD shareholder Bob Verdun

quire all publicly traded companies to report the compensation packages of their five top executives for the last three years. Among the chairmen of the six chartered banks, Thomson’s salary was one of the highest, although TD ranked fifth in profitability in 1993. And although all five major banks have held their general meetings in the past two weeks, salaries emerged as a sore point only at TD’s. Senior executives of the Canadian Imperial Bank of Commerce and the Royal Bank faced no questions at all at their shareholders meeting. Bank of Montreal chairman Barrett faced one shareholder who wanted to know why his compensation had increased almost 35 per cent in the past two years when dividends had gone up by only 5.7 per cent. Barrett offered a lengthy defence, including a detailed explanation of how compensation levels are determined. But later he told reporters: ‘What one is worth in any job in life is what the market is willing to pay for it and does pay.”

One reason for the focus on TD’s salaries may have been the fact that it was the only bank to meet this year § in Toronto, Canada’s main I business hub. The Bank of z Nova Scotia always has its I meeting in Halifax, where it I has strong historical ties, æ The Bank of Montreal tra; ditionally alternates its ¡t meeting between Montreal v and Toronto. CIBC and the I Royal have been holding g some of their meetings out§ side Toronto in recent £ years, saying that they want

to give shareholders from other parts of the country an opportunity to attend. In the midst of his grilling,

Thomson remarked wistfully: “I think we’re going to hold our meeting in Montreal next year.”

But the Toronto-Dominion has less reason than any other bank to move its meeting. Its business is more heavily concentrated in Ontario than that of any of its competitors. That is also one of the main reasons that TD has fallen from its position as the star bank of the 1980s to underperforming its competitors in the 1990s. Ontario’s economic boom in the final half of the last decade turned into a prolonged recession and the bank’s performance has reflected the environment in which it is based.

At the meeting, however, some shareholders seemed more interested in why Thomson’s and Korthal’s compensation has risen while the bank’s performance has slipped. One shareholder, inquiring about the committee of board members that sets executive compensation rates, suggested that shareholders should be allowed either to vote on the matter or to directly elect an independent committee to set the compensation levels. But Thomson dismissed both ideas, saying that the bank’s compensation committee is made up of senior board members who are independent. “The market is the main gauge” of compensation levels, said Thomson. “It’s a very competitive market out there.” In fact, he added salaries in the financial industry are generally high, and young people should consider a banking career for that reason.

Still, TD’s decision not to disclose the bonuses paid to the bank’s top five executives last year prompted questions from the floor. Thomson told the meeting that the bank had run into a problem of timing. The OSC rules changes were announced after the bank had scheduled the board meeting to determine executive bonuses for Dec. 16. The bank decided not to advance that meeting, meaning that the bonuses still had not been determined when shareholders’ information documents were sent out on Dec. 9. Technically, that let TD off the hook to disclose those bonuses until the next mailing at the end of this year, although it is free to report them at any time.

Following Thomson’s explanation, Verdun, publisher of the weekly Elmira Independent

“No, we are going to comply with the letter of the law.”

—TD chairman Richard Thomson

and Flora Sentinel-Fergus Thistle based in the southwestern Ontario town of Elmira, approached the microphone. “Are you saying that you are going to reveal your bonus now?” he asked. “No,” replied Thomson, “we are going to comply with the letter of the law.” That leaves TD and the Commerce as the only two banks using the technicality of timing to avoid disclosing their bonuses until December. However, Thomson did say that, from now on, executive bonuses will be reported at the same time as salaries.

But the executives also took heat over the sensitive issue of pressures that banks have been putting on some of their customers in a recessionary economy. His voice trembling, Joe Schulz, who owns a machine shop and tool-and-die business in St. Catharines, Ont., said a new manager at his bank branch had sharply reduced his line of credit three years ago. Schulz said that his company, which has annual sales of $1.2 million, had reported seven straight years of profits before the bank created havoc with its financing. “This is really bothering me a lot, because it’s ruining my life,” said Schulz. He claimed that his business was in good shape until the manager suddenly tightened up on his line of credit.

The subsequent reduction in cash flow, he said, made it difficult to pay his bills. “You took a prosperous business and ruined it,” he charged. “You’ve made my life pure hell for the last three years.”

Thomson promised to look into the case, which is reminiscent of other reports of banks tightening credit lines. Bank of Canada statistics show that, since 1989, the total number of loans to small business has fallen by about $3 billion to $16.5 billion. But since the individual banks do not release information about the value of their loans to small business, it is impossible to know which banks have been the most aggressive. Catherine Swift, senior vice-president of the Canadian Federation of Independent Business, says that complaints to her organization suggest that TD may have been one of the toughest on small businesses. Swift says that her association has been told, but cannot confirm, that some new branch managers are given a grace period of several months before they are held accountable for troubled loans in their area. That creates an incentive for them to move quickly to get rid of doubtful loans, she says, even though they may be relatively unfamiliar with the individual businesses. TD spokesman Beverley MacLean says that the TD does not have such a policy.

Hugh Brown, a bank analyst with Burns Fry Ltd. in Toronto, says that the Schulz case, like any other, would have to be carefully reviewed to determine whether the bank made a mistake. Said Brown: “It is possible, though not probable.” More likely, however, he said, the bank’s profit-driven nature means that taking a big risk for a small return on a loan to an uncertain business enterprise does not make sense. Said Brown: “Banks are not institutions of social policy.”

But the bankers’ grilling did not end with Schulz. Shareholder Verdun returned to the microphone to complain about TD’s performance and suggest that, unlike other banks, it had been neglecting the small business market. He also said that it was time that Thomson and Korthals, both 60, who have held their positions for 15 years and 12 years respectively—the longest tenure of any of the executives at the country’s six largest banks—start planning to hand over their jobs to younger executives. “Where is the leadership in this bank?” said Verdun. “Show me the new ideas.” But some analysts say that criticism is unwarranted. Brown says a new level of younger managers is being prepared to take over in time. Added Brown: “And the existing management is a lot more active than you might expect.” In the last year, Thomson and Korthals completed takeovers of a trust company and a discount brokerage that may help the bank improve its future performance. Whatever they do the rest of the year, for at least two hours on Wednesday Thomson and Korthals undeniably worked for their pay.

BRENDA DALGLISH