Canaccord Genuity Group Inc. has changed course on a controversial bonus payment plan that had irked some of its top bankers.
Last month, The Globe and Mail reported that Canada's largest independent brokerage had informed some of its senior capital markets employees they'd have to commit to staying for the next year as a requisite for receiving their fiscal year-end cash bonuses. Those who left within 12 months would be required to pay back the money. At boutiques, a bonus typically accounts for the bulk of a banker's compensation. According to sources, Canaccord is now offering an alternative that would see senior capital markets employees paid a smaller cash bonus, with the balance paid in stock that will vest over a number of years. Crucially, the requirement to stay with the firm for a fixed period was dropped.
Sources said there is relief among bankers that Canaccord has softened its approach, and a number have elected to take the alternative option. The reversal also means affected bankers are in a position to move to a competing firm after their bonuses are paid, and not risk a huge financial penalty. Bonuses for fiscal 2016 are due to be paid out in the next few days.
Dan Daviau, Canaccord's chief executive officer, declined comment.
Despite it now being easier to jump ship, there will still be a significant financial incentive for Canaccord's bankers to stay put. The amount paid out in stock is expected to exceed 30 per cent for some; to receive the entire amount, bankers need to stick around for three years. Historically, Canaccord has rarely paid out more than 20 per cent of compensation in shares.
Canaccord, like any other investment bank, is keen to attract talent and keep its top performers. Over the past 18 months, the firm has lost some of its big producers.
The amount Canaccord is paying some of its producers in restricted share units (RSUs) is high for a boutique, but lower than at bank-owned dealers. RSUs as a percentage of compensation at a bank in the range of 50 per cent is common for top performers. This deferred method of compensation was introduced in the early 2000s in Canada as a way to retain talent. The incidence of bankers quitting the day after getting paid their cash bonus has been reduced as a result.
A competitor sometimes will elect to pay out the stock package to attract a good banker, but it's not something that all investment banks are in a position to do, particularly independents.
"Say you're trying to hire somebody, and they're great and they want to come and they're a great fit," said Chris Shaw, managing director of investment banking at Cormark Securities Inc., in an interview.
"But then they're like, 'Hey, look I've got a million dollars in stock that's not vested, that I'm walking away from, if I come tomorrow.' … We're not going to pay that. We can't pay it. That's crazy."
Canaccord is due to report its fiscal fourth-quarter results after the bell Wednesday. Analysts surveyed by Thomson Reuters are expecting a loss of 19 cents a share. The firm is expected to take a $14-million charge related to a restructuring announced in February that saw 7 per cent of its staff cut.
In its previous quarter, Canaccord lost $346-million, its biggest loss ever as a publicly traded company – much of that due to a writedown in the value of its capital markets business.
Canaccord shares have lost 16 per cent of their value year-to-date and 67 per cent in the past two years.