BUSINESS

THEY EARN WHAT?!?

Top bankers—already among Canada’s best paid—are getting richer

COLIN CAMPBELL June 11 2007
BUSINESS

THEY EARN WHAT?!?

Top bankers—already among Canada’s best paid—are getting richer

COLIN CAMPBELL June 11 2007

THEY EARN WHAT?!?

BUSINESS

Top bankers—already among Canada’s best paid—are getting richer

COLIN CAMPBELL

William Downe’s first few months on the job as the CEO of the Bank of Montreal have hardly been gentle ones. Sure, he’s top dog at one of the country’s most routinely profitable companies, but Downe is now in the unenviable position of explaining how the bank lost $680 million on questionable natural gas trades in the United States. He may also soon find himself answering why his predecessor and former boss, Tony Comper (Canada’s third-highestpaid banker last year), was able to walk away before the situation came to light with a retirement package worth $105 million.

At least Downe has a gigantic pay package to ease the pain. Though his details won’t be known until BMO’s next proxy circular, Canada’s top bankers are among the best-paid executives in the country, and getting richer. After a decline in 2005, pay for top bank executives was on the rise again last year, fuelled by whopping stock options and bonuses that have CEOs making far beyond the pay of those just one rung down the corporate ladder. As surely as banks turn big profits (as BMO did in its second quarter), their top executives, despite any management blunders (like CIBC’s bet on Enron, or the Royal Bank of Canada’s

troubles in the U.S. mortgage business), will always be handsomely rewarded.

No banker in Canada is paid better than the Royal’s Gordon Nixon, who took home $12,842,922 in total compensation last year, according to the bank’s management proxy. As with other bank heads, Nixon’s base pay was relatively small, at $1.4 million. The bulk of his earnings came as incentives, including a headturning $5-million bonus (a 92 per cent increase from the year before), and perks, like $77,963

for car leases. Nixon was the only banker whose pay jumped significantly in both of the past two years (25 per cent last year alone).

Nixon was closely followed by TorontoDominion Bank’s Ed Clark, who made $11,997,088 in 2006 (a decline from his 2004 pay, but a slight increase from 2005). BMO’s Tony Comper made $9,620,171, and the Bank of Nova Scotia’s Richard Waugh $9,453,000. At the bottom of the list is CIBC’s Gerald McCaughey, who earned $5,968,667 in 2005 (the most recent data available). This was a dramatic shift from his predecessor, John Hunkin, who left the bank in 2005 as not only the fourth-highest-paid executive in the country, but with a retirement package worth $52 million at a time the bank was reporting heavy

losses stemming from its Enron dealings.

Banks say executive pay levels are carefully based on company performance. Indeed, the Royal has seen healthy profits under Nixon. In response to shareholder concerns, banks have also been disclosing more about how pay is determined. But shareholder activists say the pay packages are still too generous. “These people are just managers. They didn’t mortgage their houses to start the bank. They just rolled up through a bureaucracy,” says Robert Verdun, a shareholder activist and ardent critic of the bank’s compensation practices. (Ed Clark, who joined TD in 2000, is an exception, adds Verdun.) There is also no clear connection between pay and performance, says shareholder activist Stephen Jarislowsky. “I can assure you that a fat cat doesn’t work as hard as a lean one,” he says.

Concerns about executive largesse have not reached the levels seen in the United States, where in one case former Home Depot CEO Robert Nardelli was given a US$210million severance package. Even among bank shareholders, criticism has been muted and isn’t likely to grow, says Debra Sisti, director of research for Institutional Shareholder Services Canada. Canada’s banks are insulated from shareholder revolt thanks to their ongoing profitability, adds Sisti. Most investors just assume that the highly profitable banks will always pay executives hefty salaries. “People are so used to thinking that these guys are glorified baseball players,” says Jarislowsky.

‘I CAN ASSURE YOU THAT A FAT CAT DOESN’T WORK AS HARD AS A LEAN ONE/ SAYS ONE CRITIC

Where there is a growing concern is with executive pension plans, which like stock options and bonuses are becoming a big part of pay packages. When the Royal’s Nixon retires, he’ll be paid about $1.5 million a year (and $12.8 million in severance should he be forced from the job). These plans leave investors with huge liabilities—for Clark’s pension at TD, for example, it’s over $27 million. Top executives’ pay seems especially hard to justify when compared to other executives at the company, including likely successors. Nixon was paid about $8 million more than chief operating officer Barbara Stymiest, who made $4-9 million last year, and $10 million more than the bank’s chief financial officer, Janice Fukakusa, who made $2.7 million. BMO’s Comper made $3.5 million more than former COO (and now CEO) Downe, who made $6.1 million last year.

Banks note that they gauge compensation in part on what other bankers in Canada and the U.S. get paid—a reasonablesounding approach, maybe, but also one guaranteeing that when one executive’s pay begins to rise, as Nixon’s has, the others will surely follow. M