Bay Street over Wall Street: Safer – and better pay

Tara Perkins

The co-heads of Royal Bank of Canada's capital markets business each earned larger 2009 bonuses than the chief executive officer of Goldman Sachs Group Inc., a reversal of fortunes that illustrates the sweet spot in which Canadian bankers find themselves.

Mark Standish and Doug McGregor, the joint leaders of RBC's investment bank, earned bonuses of about $13.8-million and $12.75-million respectively for last year (Mr. Standish makes more because he works in New York and is paid in U.S. dollars).

In contrast, Goldman CEO Lloyd Blankfein, who only two years ago took home an eye-popping $68.5-million (U.S.), saw his bonus slashed to $9-million for 2009, even though the bank earned record profits.

Because it wasn't a major recipient of U.S. government aid, Goldman isn't subject to the oversight of the Obama administration's pay czar, Kenneth Feinberg.

But, in a country whose President is adopting an increasingly harsh tone toward “fat cat bankers,” and where Wall Street is taking the heat for the suffering of Americans who find themselves unemployed or without a home, no financial institution is immune to pressure.

Bay Street and Ottawa have had their differences, and continue to disagree on a number of fronts. But government leaders here, by and large, give Canadian banks kudos for the stability they demonstrated throughout the crisis, and have shied away from criticizing bankers' pay.

While Goldman brought in profits of $13.4-billion in 2009, up from $2.3-billion the year before, RBC, Canada's biggest bank, earned $3.89-million (Canadian), down from $4.56-million. But Gordon Nixon, RBC's chief executive, was paid $10.4-million in direct compensation last year, up from $8.75-million the previous year.

Canadian banks have not been completely immune to pressure regarding their pay packages. Last year, Mr. Nixon voluntarily chose to forgo $4.95-million, giving up more than half of his compensation, in recognition of the tough environment. RBC came through the financial crisis relatively unscathed, but Mr. Nixon felt it would be the appropriate thing to do given the recession that was then looming and the tough spot that banks were in. The majority of his peers at the major Canadian banks similarly chose to hand back some of their pay this time last year.

Those moves might have headed off some of the controversy over pay on this side of the border. And, in the past year Canadian banks have developed a unique reputation globally for safety and prudence.

RBC has risen through the ranks of the world's top financial institutions during the course of the market upheaval, garnering a spot among the top 15 by market value. This year it changed the peer group against which it benchmarks itself when deciding how to pay its top executives. It still looks at the other big Canadian banks and a smattering of U.S. banks, but, to determine 2009 bonuses, it also added in a list of top-ranking global competitors such as Barclays PLC, Credit Suisse Group and Deutsche Bank, signalling RBC's increasing stature and ambition on the international stage.

In evaluating Mr. Nixon's performance, the RBC board of directors noted, among other things, that the bank's overall profits would have risen from 2008 were it not for a $1-billion goodwill impairment that stems from the declining value of the bank's U.S. business, and its five-year total shareholder return of 16 per cent puts it in the first quartile of its peer group.

As for Mr. McGregor and Mr. Standish, it pointed out that profits from the capital markets business grew 51 per cent over the year, primarily due to strong trading revenue.

Not every Canadian bank is paying its top people more this year. The only other bank to disclose its compensation packages so far is Canadian Imperial Bank of Commerce, which paid CEO Gerald McCaughey $6.24-million in 2009, down 24 per cent from $8.16-million in 2008.

The exact reason for the decrease is not entirely clear, suggesting that the board might have decided that bank executives should be paid less in this environment.

In a letter to shareholders, Brent Belzberg, the head of CIBC's compensation committee, and Charles Sirois, the chairman of the board, said Mr. McCaughey's pay reflects the bank's new pay framework and the view that CIBC's 2009 performance was strong in some core areas but disappointing in others, particularly the bank's continued exposure to structured credit.

But CIBC earned $1.2-billion in 2009, compared with a loss of $2.1-billion in 2008 when it had been hammered by writedowns stemming from its structured credit exposure.