The Great Canadian
Banking sector has been in the news rather regularly over the past few weeks
with stories about outsourcing jobs to overseas nations, over-selling products
to customers and record-breaking profit levels. In light of the news
coverage, I wanted to look at a rarely reported banking sector statistic, the
high level of CEO compensation. To source this data, I have looked at the
2017 editions of the Proxy Circulars for each of the banks and summarized the
data in a table for your perusal.
Each of the Big Five
Canadian banks has its own method of calculating compensation for their top
floor, corner office dwellers. In all cases, the annual Chief Executive
Officer's compensation is determined by a compensation committee which consists
of members of the Board of Directors. When you read though the Proxy Circulars,
you will note that there is a rather lengthy explanation regarding the
calculation of executive compensation which, in all cases, consists of a base
salary, a short-term incentive (paid in cash) and a medium- and long-term
incentive which consists of some form of performance units and stock options.
The size of each component varies with the bank's performance as measured
against rather randomly selected benchmarks. These CEO compensation
packages are always justified with the same pattern:
1.) to attract and retain
the best quality talent.
2.) to reflect the bank's
performance
3.) to encourage
increased long-term shareholder returns by linking executive compensation to
equities.
Here is an example which
explains the concept of total direct compensation from the Bank of Montreal:
Compensation at each bank
is also linked to the compensation paid by the banking industry's peers as
shown on this graphic, again, from the Bank of Montreal:
With that background,
let's look at the summary table showing the breakdown of compensation paid to
the Big Five CEOs in 2016 and a comparison showing how much they were paid in
2015:
To help you keep these
numbers into perspective, according to Statistics Canada, the median household
income in 2014 was $76,550. In other words, a median Canadian family would have to
work for just under 20 years to earn a banking sector's CEO base salary of $1.5
million.
In case you were curious,
here are the summary CEO compensation tables from each of the Big Five banks:
1.) Royal Bank of Canada:
2.) The Toronto-Dominion
Bank:
3.) Scotiabank:
4.) Canadian Imperial
Bank of Commerce:
5.) Bank of Montreal:
When you look at numbers
like these, it is no wonder that Canada's banking sector executives are
constantly looking for ways to foist higher fees on Canadians. A
significant portion of their compensation is directly tied to a never-ending
cycle of earnings growth, growth that can most easily be accomplished by prying
open their customers' wallets ever wider.
If you wish to look up
the information that I have provided on each banks' website, here are the links
to the 2017 Annual Reports and Proxy Circulars, noting that it is the Proxy
Circulars that contain the Named Executive Officers' compensation details:
1.) Royal Bank of Canada
- click here
2.) Toronto-Dominon Bank
- click here
3.) Scotiabank - click here
4.) Canadian Imperial
Bank of Commerce - click here
5.) Bank of Montreal - click here
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