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TD Bank Group president and CEO Bharat Masrani speaks during the bank's annual meeting of shareholders in Toronto, on March 30, 2017.Peter Power/Reuters

Toronto-Dominion Bank TD-T chief executive officer Bharat Masrani took a $1-million cut to his bonus pay in 2023 in response to a terminated takeover deal and the bank’s continuing troubles with U.S. regulators and law enforcement.

Mr. Masrani was one of several bank CEOs to see their compensation fall in 2023, as TD and Canada’s four other largest lenders missed their profit targets. While the whole industry has grappled with the rising risk of loan defaults and climbing expenses weighing on profits, TD also failed to close its takeover of Tennessee-based First Horizon Corp. FHN-N, which would have accelerated the bank’s U.S. expansion – a key part of its growth strategy. On top of that, it faces looming monetary and non-monetary penalties from U.S. authorities after a probe into gaps in its anti-money-laundering procedures.

“The board believes that the CEO demonstrated excellent personal leadership and performance through a challenging year,” the bank said in its proxy circular. “However, in acknowledgement of the termination of the First Horizon transaction and certain U.S. regulatory issues, the CEO recommended, and the board approved, the $1 million reduction in compensation.”

Mr. Masrani’s total compensation fell 11 per cent in the past fiscal year to $13.38-million, marking the second-largest decrease in pay among his peers. Last year, he received the biggest pay bump.

TD earned $15.14-billion in net income after tax, less than its financial performance target of $16.59-billion. After taking the $1-million reduction, Mr. Masrani received a bonus of $1.55-million, down from $2.69-million in 2022. He earned stock and option awards valued at $10.22-million, down slightly from $10.82-million.

The bank and U.S. regulators have yet to disclose the details of the anti-money-laundering compliance gaps and the level of the penalties that may result. Analysts have estimated that the monetary fees could range from US$500-million to US$1-billion.

“Notwithstanding the progress we have made in our U.S. business, it was disappointing that some shortcomings in our anti-money-laundering control environment were identified during the year, which we are working hard to address, and I am confident that in time we will,” Mr. Masrani said in the bank’s annual report.

The CEOs of Canada’s five biggest banks – Royal Bank of Canada RY-T, TD, Bank of Montreal BMO-T, Bank of Nova Scotia BNS-T and Canadian Imperial Bank CM-T of Commerce – earned a combined $62.63-million in total compensation in 2023, down from $70.34-million the year prior, according to the filings.

Last year, Canada’s biggest banks weathered the threat of an economic downturn. They also dealt with higher borrowing costs, which dampened loan demand and ratcheted up the risk that loans would not be repaid. This prompted lenders to set aside more money for potential defaults.

Meanwhile, Canada’s banking regulator increased the capital levels the banks must maintain as a cushion against bad economic times, forcing the lenders to hold on to billions of excess dollars. And climbing expenses resulted in layoffs and cost cutting across the sector.

By comparison, in 2022, banks had only just started to rebuild provisions for credit losses, and consumers and businesses had not yet started showing signs of stress.

Base salary makes up a small portion of a CEO’s compensation. Canada’s banks set targets for CEOs’ annual pay, and that pay includes bonus and stock awards. The banks then tweak the pay based on their results.

Dave McKay, CEO of Canada’s largest lender, Royal Bank of Canada, took home $16.13-million last year, down slightly from $16.36-million in 2022, but higher than his $14-million target.

For the purposes of Mr. McKay’s bonus plan, RBC had set an adjusted net income target of $16.6-billion, but the bank earned slightly less, at $16.26-billion.

Mr. McKay’s stock options and awards were $11.02-million, edging higher from $10.76-million in the previous year. His bonus – which is also based on client happiness and multiple strategic objectives – fell to $2.7-million, from just under $3-million, but was still 20 per cent above target.

The above-target pay reflects Mr. McKay’s “leadership in steering RBC through a turbulent environment and making strategic investments that will strengthen our ability to generate revenue for shareholders over the long term,” the bank said in its proxy circular. The board took into account the CEO’s work on the pending acquisition of HSBC Bank Canada, the largest-ever deal done by a domestic bank.

At Bank of Montreal, CEO Darryl White’s pay fell to $12.54-million, a 12-per-cent drop from the previous year. His share and stock option awards of $7.41-million were down from $8.17-million, and his bonus dropped to $2.71-million from $3.33-million.

For bonus purposes, BMO had set a target of increasing earnings per share 5.2 per cent in 2023, but earnings per share ultimately fell 7.7 per cent.

“In 2023, our goals took into consideration, among other things, macroeconomic uncertainty, including inflationary pressure which dampens economic growth and can adversely impact credit performance,” BMO said in its proxy circular. “Through the year, greater instability in U.S. regional banking and more global economic uncertainty occurred than anticipated and BMO did not achieve its 2023 goals.”

Bank of Nova Scotia chief executive Scott Thomson – who joined the lender as president in December, 2022 – earned $9.38-million, under his target pay of $9.5-million and less than his predecessor, Brian Porter. His share and stock option awards were $5.09-million and his bonus was $1.7-million.

The bank had set a target for net income attributable to common shareholders of $8.37-billion in 2023, but ultimately earned less, at $7.9-billion.

“The bank’s results this year were below expectations, but demonstrated resilience in the face of economic headwinds, rising interest rates and prices, and regulatory changes,” Scotiabank said in its proxy.

Former CEO Brian Porter received $4.9-million in the 2023 fiscal year. He served three months as CEO, then three more as a strategic adviser to Mr. Thomson. His pay package included stock awards valued at nearly $2-million, a $653,125 bonus, and a $1.5-million cash award for his advisory role.

In December, after the bank’s fiscal year-end on Oct. 31, Mr. Thomson unveiled his strategic overhaul plan, aimed at growing the bank’s deposit base and shifting more money to its North American businesses from its Latin American division.

“While earnings were below plan for the year, Mr. Thomson made key strategic decisions to establish the foundation needed to prepare the bank for its next phase of profitable, sustainable growth,” Scotiabank said.

Canadian Imperial Bank of Commerce’s Victor Dodig was the only CEO to receive a pay bump, recovering from a 13.6-per-cent drop in 2022. His total compensation in 2023 was $11.21-million, up a slim 1.7 per cent from the prior year.

His stock and option awards increased to $7.76-million from $7.49-million, and his bonus rose to $1.94-million from $1.87-million.

The bank missed its 2023 target of $7.29 in adjusted earnings per share. Instead, it posted $6.72 for the year.

“In fiscal 2023, CIBC delivered solid financial results, demonstrating strength and resiliency amid a challenging economic backdrop,” the bank said in its proxy circular. The bank booked record revenue, and determined that Mr. Dodig had “met his key deliverables despite a more challenging operating environment.”

Laurentian Bank of Canada LB-T, the country’s ninth-largest bank, has not yet settled severance negotiations with ousted CEO Rania Llewellyn. It terminated her in October after a multiday system outage left customers without access to their online portals.

“As of the date of the circular, the amount of the termination payment remains unresolved since,” Laurentian Bank said in its proxy.

With a report from David Milstead

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