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Report on Business TD extends CEO Bharat Masrani’s pay agreement, gives him hefty compensation boost

Toronto-Dominion Bank chief executive officer Bharat Masrani speaks at their AGM in Toronto on Mar. 29, 2018.

Chris Young/The Canadian Press

Toronto-Dominion Bank has extended the pay agreement for chief executive officer Bharat Masrani, giving him financial incentives to stick around until the end of 2023.

TD revealed in its proxy circular to shareholders that the company’s board asked Mr. Masrani, 62, to be available to serve as CEO past 2020, the year his existing compensation plan assumed he would retire. TD has given him a one-time $1.9-million grant of stock options that he can’t use until December 2023, contingent on his “continuing to be available to serve as CEO,” TD said in the document. The bank has also tweaked his pension to allow him to receive more in retirement.

The value of the one-time stock-option award helped boost his fiscal 2018 pay to $15.3-million, from $12.4-million the year before. TD did not publish in the circular any estimate of the value of the pension changes.

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Mr. Masrani has no set expiration for his employment agreement, so the moves don’t technically represent a formal contract extension, and the board is free change its mind at any time. But they represent a show of faith in a CEO who has kept a relatively low profile while reshaping TD by slashing costs, revamping its strategy for the wealth management and capital markets divisions, and leading a digital revamp of the bank that includes modernizing its vast branch network.

On his watch, TD has boosted the return on equity from its U.S. retail business significantly. It was languishing around 8 per cent in 2014, but reached 12.6 per cent in the most recent fiscal quarter. (ROE is a closely watched measure of profitability for financial institutions.)

When he was named CEO in 2014, Mr. Masrani represented a shift in style from his charismatic predecessor, Ed Clark. He is more cautious and muted in public speeches and personal interactions, with a lower public profile. But he has put TD within striking distance of Royal Bank of Canada for the title of Canada’s largest bank by assets, and is coming off a strong 2018 fiscal year in which profit climbed 8 per cent to $11.3-billion.

Mr. Masrani has also overseen modest-sized deals, such as the US$1.3-billion acquisition of the bank operations of Scottrade Financial Services Inc. in 2017, and a $792-million cash-and-stock deal to buy Regina-based asset manager Greystone Managed Investments Inc.

For some time, he has mused about expanding TD’s presence in the U.S. southeast if the right opportunity comes along. But to date, he hasn’t pulled the trigger on a large U.S. retail banking deal, choosing instead to focus on managing the American assets acquired during Mr. Clark’s time as CEO, buying back stock and maintaining strong capital levels.

A company spokesman declined to comment beyond the circular.

“The Board has been very pleased with Mr. Masrani’s leadership and the performance of the bank during his tenure as Group President and CEO,” wrote Brian Levitt, TD’s chairman, and Karen Maidment, chair of the board’s Human Resources Committee, in a letter to shareholders included in the circular.

“Given his strong performance, and significant medium-term transformation initiatives that are underway, the board has requested, and Mr. Masrani has agreed, to be available to serve as CEO beyond 2020, the year in which his existing compensation arrangements anticipate retirement and when he would cease to accrue additional pension benefits.”

TD said it has removed a cap on the years of credit he can earn in the executive pension plan, so that he can now reach 35 years of service in April, 2022. This is “consistent with other Canadian executives and employees who participate in the bank’s defined benefit pension plans,” the bank said. The bank also increased the cap on the annual amount Mr. Masrani can earn in retirement, lifting it to $1.5-million from $1.35-million.

The salary TD paid Mr. Masrani in the fiscal year increased to $1.33-million from $1.21-million in the year prior, and his cash bonus increased to $2.08-million from $1.92-million. TD gave Mr. Masrani a package of stock awards, including the special options, valued at $10.7-million, up from $7.2-million in fiscal 2017.

The TD board has moved his target for 2019 “total direct compensation” – a figure that leaves out the annual gain in the value of his pension and the special stock award of 2018 – of $11.75-million, up from 2018’s target of $10.8-million.

In explaining Mr. Masrani’s higher compensation, TD cited increases in profits and the dividend, earnings-per-share growth above internal targets, and shareholder returns that topped peers in 2018 and over longer periods. The bank also made reference to awards it had received in outside evaluations of diversity and quality workplaces.

Ten years ago, TD faced a similar matter with Mr. Clark. In February 2009, the bank extended his employment contract, scheduled to expire in October 2010, to the spring of 2013. TD froze Mr. Clark’s pension at 2010 levels and Mr. Clark’s agreed to waive any severance. In exchange, TD gave Mr. Clark a stock option award valued at the time at $4.7 million, which TD said was equivalent to the pension benefits Mr. Clark gave up.

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Bank CEO compensation

The following table shows how CEOs at five of Canada's largest banks were compensated in fiscal 2018. They are ordered by value of company assets, from largest to smallest.

BankCEOTotalSalaryBonusStock awardsOther
RBCDavid McKay$14,489,977$1,500,000$3,175,300$8,868,800$945,877
ScotiaBrian J. Porter$13,250,990$1,200,000$2,500,000$7,500,000$2,050,990
TDBharat Masrani$15,316,065$1,334,988$2,079,000$10,216,057$1,686,020
BMODarryl White$10,124,234$1,000,000$1,980,000$5,665,000$1,479,234
National BankLouis Vachon$8,870,286$1,125,015$1,890,000$5,062,503$792,768

Source: Company securities filings

Notes: CIBC not included as figures not yet released. The vast majority of "other" compensation is the annual gain in the value of the executives' pension, a number the banks typically do not consider "direct" annual compensation. 

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