When we talk about paycheques, well, it's never a bad time to be a CEO. The numbers are often in the millions, and if anyone in Canada's going to get a raise, it's the men (and occasional woman) at the top of the org chart.
But there's one area of CEO pay where things aren't not quite as good as they used to be: If you've recently been tapped to head up one of the big Canadian banks, and you're counting up the dollars in your executive pension.
Each of the four big banks that have appointed new CEOs in the past couple of years have capped their chiefs' annual pensions at levels well below their predecessors' retirement payouts. The differences become even starker when you consider the newly retired CEOs are collecting their pensions now, in 2015 dollars, while the lower annual payments for today's CEOs may not begin until 2020, or later. (A dollar today is worth more than a dollar 10 years from now, you know.)
Here's the rundown.
At Bank of Nova Scotia, Richard Waugh retired in late 2013 with a maximum $2-million annual pension. His successor, Brian Porter, can earn no more than $1.5-million. Mr. Porter's pension from his 32 years at the bank prior to becoming CEO is capped at $281,000, and to hit his maximum payout, he must serve 10 years as CEO.
At Royal Bank of Canada, Gordon Nixon departed last July at the age of 57 with an annual pension of $1.75-million, less than the $2-million he would have received if he'd stayed in the CEO job until he was 60. RBC's new CEO, David McKay, will get an annual pension of $700,000 if he retires at 55 in November, 2018; he can only make his maximum of $1.25-million if he stays to age 60. The bank says the reduced pension is part of its desire to shift toward "performance-based pay."
Toronto-Dominion Bank's Ed Clark retired in October with an annual pension of just under $2.5-million. His successor, Bharat Masrani, had his pre-CEO pension frozen and will accrue $110,000 toward his CEO pension each year he serves, up to a maximum of $1.35-million.
At Canadian Imperial Bank of Commerce, Gerry McCaughey, who left the CEO job in September, will continue to accrue service time in the pension through April, 2016, as part of a "post-employment arrangement." CIBC estimates Mr. McCaughey will get an annual pension of just over $1.6-million a year starting next year. New CEO Victor Dodig's pension, however, is capped at $1-million.
(Not to be left out, Bank of Montreal CEO Bill Downe has reached his pension cap of $1-million [U.S.])
First, a reality check: In an age when many companies are shifting the risks of retirement to their workers by pushing them out of defined-benefit pension plans, any set of guaranteed post-work payments is a nice benefit. And these CEO pensions are gold-plated, so we're not suggesting that any tears should be shed for the new generation of bank leaders.
It's that environment of widespread pension cutbacks, perhaps, that's prompting the banks to show a little restraint. Certainly, I think, we'll see fewer of the generous arrangements of the past.
Over Mr. McCaughey's nearly 10-year tenure as CEO, CIBC gave him 21.9 years of extra service credit in the pension plan in recognition of the fact he'd worked a number of years at CIBC predecessor investment-banking companies, where there was no defined-benefit plan . Mr. Dodig, who joined CIBC from an outside firm a decade ago, has received no similar extra credit. (CIBC spokesman Kevin Dove said Tuesday the company's approach to executive pay is reflected in the report from the board's compensation committee.)
At TD, Mr. Clark was entitled to a full pension at age 62, so when he agreed to stay on as CEO past that age, TD gave him a stock-option award valued at $4.7-million (Canadian) in exchange for an agreement to cap his pension. (In response to a question as to whether Mr. Masrani received any such consideration for his pension cap, a TD spokesman said no, in an e-mail March 26, as "the circumstances for Mr. Clark were quite different than for Mr. Masrani," and "CEO pension arrangements are created based on a variety of factors including individual circumstances and market comparative considerations. As a result, over time, this means that CEO pensions differ in structure and value, in accordance with the current circumstances.")
Current circumstances likely dictate that today's CEOs shouldn't rack up the same lush annual pension payments as their predecessors when so many Canadians see guaranteed retirement income as only a dream. Give the banks credit for recognizing that.