The chief executive officers of Canada's Big Six banks were paid a collective $55-million in 2015. Are they worth it?
There was a time when this oligopoly of banks could coast on steady economic activity, strong loan growth, fat interest margins and little outside competition.
Now, the banks face a new era, forcing CEOs to adapt. They are cutting costs to meet slowing revenue growth, shifting resources from traditional branch banking to mobile banking, hiring tech-savvy executives to meet the threat from tech-savvy competitors – all while keeping an eye on rising loan losses tied to the struggling energy sector.
So, they're certainly busy. But here's a look at how they stack up, based on information contained in recently released proxy circulars.
Based on salary, cash bonus and stock options, Royal Bank of Canada's Dave McKay received total compensation of nearly $10.9-million, beating second-place Bank of Montreal's Bill Downe by about $700,000. The takeaway here: big bank, big profit, big pay.
Biggest pay increase
This one is difficult because some CEOs were new to their positions in 2014, giving them raises in 2015 because, well, they were CEOs for the full year. Canadian Imperial Bank of Commerce's Victor Dodig received a 72-per-cent bump in pay from 2014, RBC's Mr. McKay received a 44-per-cent increase and Toronto-Dominion Bank's Bharat Masrani got a 10-per-cent rise. Among veteran CEOs, the increases were more modest: Brian Porter of Bank of Nova Scotia received a 5-per-cent increase and Bill Downe of Bank of Montreal received just 2.1 per cent more.
What? Pay can go down?
National Bank of Canada's Louis Vachon is alone here, taking a 5-per-cent cut to his total compensation, largely because of a smaller annual bonus in 2015 compared with 2014 (a better year for profit growth).
Biggest executive compensation
If you think the CEO is the top earner at all the banks, think again. Douglas McGregor, RBC's group head of capital markets, received total compensation of more than $11.2-million in 2015, or $300,000 more than his boss.
BMO's Mr. Downe, a bank CEO since 2007, wins this category with a salary of $1.5-million (U.S.). But note that he's paid in greenbacks, which were worth so much more than loonies in 2015. After converting to Canadian dollars, Mr. Downe's salary bloomed to nearly $1.9-million (Canadian) – a currency tailwind also enjoyed by the roster of the Toronto Blue Jays.
Best target-beating compensation
The banks set target compensation levels, which are guidelines that can be exceeded or missed based on CEO performance. RBC's Mr. McKay was paid 8.8 per cent more than his target compensation, which is the best among his peers. At the other end of the spectrum, BMO's Mr. Downe was paid 3.2 per cent less than his target (BMO missed goals related to adjusted earnings per share, adjusted return on capital and adjusted efficiency ratio).
Lowest and highest cost of management
This is a ratio used by the banks to compare the combined compensation of their top five executive officers with the banks' annual profit. Size has its advantages here: RBC's ratio is the lowest of the Big Six, at 0.37 per cent, meaning that executive pay is low relative to profit. National Bank of Canada's ratio is the highest, at 1.4 per cent.
Bank CEOs get most of their compensation in the form of stock options and deferred share units, long-term incentives that are supposed to align executive interests with those of shareholders. Over time, these executives become major shareholders themselves. Mr. Masrani, who has a 29-year history at TD, tops his peers with TD shares and share units valued at $58.1-million.
Best use of stock options
CIBC's Mr. Dodig exercised 13,689 options valued at $980,000 – and said he was giving it all to the United Way charity. If other CEOs are being similarly generous with their options, they're keeping it to themselves.
Perspective is everything
If these big numbers have you contemplating the lint in your pockets, consider U.S. compensation. James Dimon, CEO of JPMorgan Chase & Co., received total compensation of $27-million (U.S.) in 2015 – or $36-million (Canadian) – up 35 per cent from 2014.