‘This can raise outrage’: CIBC’s CEO retirement pay surprises many

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The outsized compensation packages Canadian Imperial Bank of Commerce promised to pay two retired executives has corporate governance specialists scratching their heads – and has even rankled some Bay Street professionals.

Tucked into the bank's proxy circular is the disclosure that CIBC will continue to pay Gerry McCaughey, its former chief executive officer, and Richard Nesbitt, its former chief operating officer, handsomely after their retirement dates – $25-million between the two men.

Both executives retired on Sept. 15, but they will continue to earn their base salary as well as perks, such as bonuses, for many months. Mr. McCaughey will be paid an additional $16.7-million by April, 2016 and Mr. Nesbitt will be paid $8.5-million by October, 2015.

Corporate governance adviser Richard Leblanc, who is a professor at York University and also consults boards of directors, has seen scores of succession plans over the course of his career, but the terms of CIBC's agreement still surprises him. "This is very different. This can raise outrage," he said. "It sends the wrong signal to the rank and file."

"It's highly anomalous [for] a sophisticated company like CIBC," he added. The bank's board of directors include: John Manley, who runs the Canadian Council of Chief Executives; Patrick Daniel, the former CEO of Enbridge Inc.; and private equity heavyweight Brent Belzberg.

"What we see quite often is that when there's some transition. … the CEO will get a consulting contract," said Michel Magnan, the chair in corporate governance at Concordia University. But Mr. McCaughey and Mr. Nesbitt have left the bank completely, which means this arrangement is a "novel concept."

"It raises more questions than answers," Mr. Magnan said, adding, "When you pay someone that many millions of dollars, you expect them to perform."

Although she wasn't involved in negotiating CIBC's "post-employment arrangements," employment lawyer Jane Milburn, who specializes in Bay Street clients, said the payments are likely required by Canadian law.

"The law states that where an employer wishes to exit the employee earlier [than the given retirement date] … it has the same effect as a termination without cause," Ms. Millburn explained.

In March, 2014, Mr. Nesbitt announced plans to retire in October, 2015, and in April, 2014 Mr. McCaughey announced his own retirement by April ,2016.

CIBC declined to comment and referred to its proxy circular. The document supports Ms. Millburn's thesis, stating that the bank "chose to accelerate" both men's retirement. In Mr. McCaughey's case, a new CEO was found rather quickly, and the circular said Mr. McCaughey was no longer needed because Victor Dodig, an internal appointment, had "deep knowledge of CIBC and the board's confidence in his leadership."

For companies that worry they may be forced into such a situation, Ms. Milburn stressed there are many ways around it. "Employers should not read about this and think there's nothing that can be done," she said. Chiefly, adhering to pre-arranged contracts can prevent such large payouts. "There's nothing that prevents a bank from having a contract or policies regarding resignations."

In CIBC's case, however, the board was caught without an heir apparent for the CEO role, and both Mr. McCaughey and Mr. Nesbitt, who are close personally and ran the bank together, negotiated to stick around if need be – at a cost.

Board consultant Paul Gryglewicz at Global Governance Advisors said there is at least a silver lining. Deals like this deliver "the kind of shock factor that ends up driving the policies of good governance," he said.