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Toronto-Dominion Bank Group President and Chief Executive Ed Clark delivers a speech at the company's annual general meeting in Victoria on March 31, 2011.Ben Nelms/Reuters

The last week of February, 2009, was a painful one for shareholders of Canada's five largest banks. Buffeted by the global recession, every bank's stock price had been cut by half or more from the year before.

Similarly, it was painful for the banks' CEOs. While each man had held millions of dollars worth of stock options only a few months before, the lows of February wiped out nearly all their value. Many years' worth of options were "under water," unable to be used at the current market prices.

But things have turned out all right for shareholders: All five banks' shares have doubled or more from those February, 2009, levels.

And the bank CEOs have recovered nicely as well: The Globe and Mail calculates that the five men have realized more than $135-million in stock-option gains since the February, 2009, lows, excluding taxes. They now hold another $72-million in unrealized option profits, including gains on awards granted in the last three years.

The numbers illustrate how appreciating share prices can have an outsized effect on executive compensation when stock options are a key part of a company's pay plan.

Options give the holder the right to purchase shares for a set amount – the "exercise price" – which typically is the market price on the day they're awarded.

Unlike options that are traded on exchanges and expire in a short amount of time, options that are part of employee-compensation plans have terms of five, seven or even 10 years. They "vest" – or become usable – gradually over time. In some cases, companies add a performance requirement before the options can vest.

That means that many long-serving executives of Canadian public companies hold large amounts of stock options, representing a meaningful amount of wealth.

Rick Waugh, who has been CEO of Bank of Nova Scotia since 2003 and an employee since 1970, is a case in point. When Scotiabank shares rebounded as the financial crisis eased in 2009, he cashed in options, making $10.9-million in pre-tax profits. Mr. Waugh has used another $16.9-million worth of options since, for total gains of nearly $27.8-million. And he holds almost 2.9 million options worth another $25.3-million on May 31.

Scotiabank spokeswoman Ann DeRabbie notes that options are part of a "balanced mix" of compensation programs that include many performance-based plans. Senior executives get a higher proportion of their compensation in stock options than junior employees do "to generally reflect the ability of the most-senior executives to contribute to bank performance over the longer term."

Mr. Waugh, she says, "typically holds his options until very close to the end of the 10-year life." She also notes that at the end of 2011, with the share price at $50.83, options granted in 2006, 2007 and 2010 were under water. "This aligns with shareholders who may have purchased shares at those times, although shareholders have benefitted from the dividend yield in these years, whereas stock options do not accrue dividends."

Toronto-Dominion Bank CEO Ed Clark faced the expiration of 1.6 million stock options over a two-year period from 2010 to 2011. With the recovery in TD's share price, he was able to use most of them: Mr. Clark realized gains of $22.6-million in fiscal 2009 and $31.5-million in 2010.

All told, Mr. Clark has realized $58.9-million in options gains since February, 2009; he holds another $43.6-million in unrealized profits from options as of May 31. On both counts, he is tops among the CEOs of the Big Five banks.

TD spokesman Stephen Knight notes that in early 2009, Mr. Clark voluntarily forfeited a portion of his compensation, including options granted in December, 2008, "in light of the difficult economic circumstances of fiscal 2008." Mr. Knight also noted that TD's stock has outperformed the other four banks since the beginning of fiscal 2009.

Royal Bank of Canada CEO Gordon Nixon gave up all of the stock-based awards given to him in 2008, but has cashed in nearly $26-million in options profits since September of 2009. With RBC shares trading at around $50, few of the 1,168,348 options he holds, all granted since 2006, are profitable.

Spokeswoman Tanis Robinson noted that RBC has twice reduced the weighting of stock awards in its executive-pay packages; In 2010, the weighting fell from 50 per cent to 40 per cent, and it falls this year to 25 per cent of compensation.

Bank of Montreal CEO Bill Downe, who also gave back his 2008 equity awards, and Canadian Imperial Bank of Commerce boss Gerry McCaughey, the two big-bank CEOs with the shortest tenure in the corner office, have also enjoyed the smallest profits from stock options. Since the February, 2009, lows, they've taken in $12.8-million and $10.2-million, respectively, but have few options left that are in the money.