Business

Are the bankers paid too much?

Critics say compensation should be tied much more closely to performance

Katherine Macklem March 19 2001
Business

Are the bankers paid too much?

Critics say compensation should be tied much more closely to performance

Katherine Macklem March 19 2001

Are the bankers paid too much?

Business

Critics say compensation should be tied much more closely to performance

Katherine Macklem

Five million of the old Canadian dollar bills laid flat, side by side, would carpet seven football fields, end zones included. It’s enough to buy 15 comfortable homes in Toronto or 39 in Winnipeg— all mortgage free. It could support 14,368 children for a year through Foster Parents Plan. But it is not enough to cover last year’s compensation package

for John Hunkin of CIBC who, at $7.4 million, was the country’s highest-paid bank CEO.

Hunkin’s peers at Canada’s four other large banks raked in between $3.15 million and $4.87 million each for their year’s work. Ironically, all the CEOs were eclipsed by people who report to them: the heads of the bank-owned brokerages whose business it is to raise and invest money. There the top package was

WHO MAKES WHAT

Total compensation in millions, including salary, bonuses and deferred shares, in 2000 (excluding options)

AT THE BANKS:

John Hunkin

Chairman and CEO, CIBC

$7.4

Charles Baillie

Chairman and CEO, Toronto Dominion Bank

$4.87

Peter Godsoe

Chairman and CEO, Bank of Nova Scotia

$4.27

John Cleghorn

Chairman and CEO, Royal Bank of Canada

$4.08

Tony Comper

Chairman and CEO, Bank of Montreal

$3.15

David Kassie

AT THE BANK-OWNED BROKERAGES:

CEO, CIBC World Markets

$13.95

Donald Wright

Chairman and CEO, TD Securities

$10.5

Gordon Nixon

CEO, RBC Dominion Securities

$10.46

Tony Fell

Chairman, RBC Dominion Securities

$8.96

David Wilson

Co-chairman and Co-CEO, Scotia Capital

$7.08

Jeffrey Orr

Chairman and CEO, BMO Nesbitt Burns

$5.27

again at CIBC, where David Kassie, head of CIBC World Markets, made $13.95 million.

There has always been a fascination with the hefty sums paid to the people who manage our money. The scrutiny is intensifying. Shareholders dislike the stock options part of the package, as it dilutes shareholder value. And some powerful institutional investors want the compensation packages rejigged. One idea, backed by the activist Ontario Teachers Pension Plan Board, would reward a banker only when his institution performs better than its peers.

Two factors drive pay levels—how much the others make and how well the bank and its shareholders have done, says Ken Hugessen, who advises compensation committees of bank boards of directors. Canadians look south, says Hugessen, a consultant with Toronto-based William M. Mercer Ltd., because the pool in Canada is so small. One example: Henry Paulsen, the CEO of Goldman Sachs Group Inc., saw his compensation fall between 1999 and 2000, but at $22.5 million (U.S.) he still took home a far fatter package than any Canadian banker.

“You cannot compete in the world today if your people are not compensated at a level that allows an organization to attract the best and brightest,” says Gordon Nixon, the Royal Bank of Canada’s top investment banker. Nixon, who as CEO of RBC Dominion Securities Inc. took in nearly $ 10.5 million last year, will replace John Cleghorn as CEO of the bank this summer—and may see his pay drop (Cleghorn was paid $4.08 million last year). Nixon says a direct correlation exists between what’s paid to bank executives and the returns provided to shareholders.

The critics disagree. Bank stocks have been on an upswing over recent years, they say, but not as a result of their chiefs’ leadership qualities. Instead, falling interest rates and financial industry deregulation have come into play, the critics say. The Teachers Board does not object to the amount paid to the bankers as long as it’s tied to performance, says spokeswoman Lee Fullerton. Still, at an average per CEO of close to $5 million, it’s a lot of football fields.

Source: company reports

With D’Arcy Jenish in Toronto