Bay Street's bonus bonanza

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That glug glug glug you hear on the Street is the sound of the bonus pool filling up, with Canadian banks on track to boost performance-based pay this year by an average of 10 per cent.

On the back of strong performance across virtually all departments, the country's six big banks are on pace to outdo the stellar pay cheques they handed out in 2009, when RBC's top investment bankers outdid peers at Goldman Sachs by earning more than $12-million each.

A survey of results from the six big banks over the past six months - Bank of Nova Scotia was last to report on Tuesday - shows $4.47-billion was set aside for performance compensation through the first six months of 2010. (In almost all cases, an employee's bonus isn't set and paid out until the end of the year.) That's up $400-million from the same period in 2009. And last year was a terrific year to be working at a bank, with many divisions reporting record profits.

For all the public outcry (or envy) on banker pay, the amount of money doled out to financial professionals in Canada continues to rise.

The way bankers get paid has changed: there's less up-front cash and far more stock-based comp. At investment dealer arms of the banks, where bonus payments make up the bulk of take home pay, awards are now deferred over several years, rather than paid out the year they are earned.

Employees at four of the six big banks can look forward to sharing in a much larger compensation pie: Only CIBC saw slices get smaller through the first six months of the year, while National Bank is essentially flat from a strong 2009.

If current trends hold for the rest of the year - and that is a big if - then 2010 will be a very good year to be working at a bank, and a fantastic year to be at Bank of Montreal, where the bonus pool is up by 24 per cent. Royal Bank accounts for the bulk of the bonus pool - $1.87-billion, up 10 per cent, year-over-year, and more than twice its closest rival - by being the largest financial institution in the land and home of the greatest number of investment bankers.

Do the bankers deserve these big bonus cheques?

Canada's banks deserve all sorts of credit for avoiding bad credits, as loan loss provisions consistently came in well under expectations in the past quarter. They've been praised to the rafters for avoiding the worst excesses of the U.S. and European financial crisis.

And let's be clear. Professionals doing innovative work that turns a significant profit deserve to be rewarded for their labours.

But let's take a step back, and look at what underlies these trends. Canada's banks enjoy privileged, oligopoly status. They are franchises generations in the making. Employees in trading roles get to use the house's capital: if they turn a profit, they take a bonus, if they lose money, they don't have dip into their savings to pay it back.

Take it a step further, and consider some of the top paying jobs in this space. A number of lucky sods in Canadian banking sit in a golden chair. With basic skills, anyone who occupies a select number of seats can look forward to making buckets of money. These jobs get easier when a once-in-a-lifetime financial meltdown strips away foreign competitors.

Do individuals who inherited their positions in dominant institutions, and have none of their own capital at risk, really deserve steady increases in pay, year after year? Or should some brave soul - a director, for example - start looking at the absolute level of compensation being handed out to bankers, and say 'enough.'

Here's how performance-based compensation breaks down at the six large banks, half way through their financial years, compared to 2009.

Royal Bank of Canada: $1,866-million versus $1,699-million, up 10%

Toronto-Dominion Bank: $757-million vs. $705-million, up 7%

Bank of Montreal: $747-million vs. $601-million, up 24%

Bank of Nova Scotia: $560-million vs. $501-million, up 12%

CIBC: $280-million vs. $301-million, down 7%

National Bank: $263-million vs. $268-million, down 2%