Chief of Smallest Bank Gets Biggest Pay: Corporate Canada

National Bank of Canada Chief Executive Officer Louis Vachon runs the smallest of Canada’s six biggest banks, yet he’s tops in pay relative to profit.

Vachon was awarded C$7.48 million ($7.49 million) in total compensation for 2011, excluding pension costs, as the Montreal- based lender posted record net income of C$1.21 billion.

That means the bank earned C$162.27 for every dollar Vachon was awarded in compensation. By comparison, Gordon Nixon, CEO of Royal Bank of Canada (RY), the country’s biggest bank by assets, brought in C$480.40 in profit for every dollar in pay, and Toronto-Dominion Bank (TD) CEO Edmund Clark brought in C$517.45.

“These are scandalous pay packages,” said Yves Michaud of Mouvement D’Education et de Defense Des Actionnaires, a Quebec- based shareholders’ group. “I like Mr. Vachon, but it’s not hard to make money when you’re a bank.”

Michaud’s group and other investors raised questions about Vachon’s compensation yesterday at the bank’s annual meeting of shareholders in Montreal.

“People are concerned about the irrational behavior of banks,” said Michaud, 82. “If people like me don’t do anything, the compensation situation will get even worse.”

Vachon, 49, whose compensation rose 38 percent from the previous year, declined to comment after the annual meeting.

Underpaid

In 2010, when the bank claims he was underpaid relative to peers, Vachon brought in C$190.69 in profit for every dollar he was awarded. Nixon and Clark -- as well as Bank of Nova Scotia (BNS) CEO Richard Waugh, Bank of Montreal (BMO) CEO William Downe and Canadian Imperial Bank of Commerce’s Gerald McCaughey -- all increased earnings relative to their pay in 2011.

Vachon “has enabled the bank to distinguish itself for many years,” spokesman Claude Breton said, pointing to National Bank’s No. 3 ranking among the world’s strongest banks last year by Bloomberg Markets magazine. “The Board recognizes his leadership and believes that the bank’s approach to executive compensation ensures a right balance between loyalty of the best talent, a compensation that is tied to performance and sound risk-taking.”

Breton said more than 95 percent of shareholders voted in favor of the bank’s compensation plan at the annual meeting yesterday.

National Bank’s shares outperformed peers last year, increasing 5.3 percent compared with a decline of less than 1 percent on the 10-member S&P/TSX Banks Index (STCBNK). National is also the best performing bank stock among the country’s six largest lenders over the past five years.

Total Pay

Vachon, who took the top job at Canada’s sixth-largest bank in June 2007, received C$954,473 in salary, C$2.5 million in share-based awards, C$2 million in option-based awards, C$1.8 million in non-equity incentive plan compensation and C$220,813 in “other compensation” such as dividends earned, according to the bank.

National Bank said Vachon’s total compensation had been lower than its peer group over the past few years. The lender said in its management proxy that it targets compensation at “the peer-group median” when its results meet expectations.

According to the bank, Vachon met or exceeded objectives in seven categories, including profit growth, return on equity and improving “employee motivation.”

“The numbers make sense,” said Colette Southam, an assistant professor of finance-economics at the Richard Ivey School of Business at Western University in London, Ontario. “Since he came in in 2007, he’s been able to deliver. The trends are very modest compared to some of the U.S. banks.”

Smaller Than Peers

National Bank is smaller than its five main peers. The lender had C$175.3 billion in assets at the end of January, about a fifth of the C$815 billion in assets at Royal Bank. At C$12.8 billion, the company’s market value is less than half that of CIBC, the No. 5 bank.

Vachon also earns more relative to earnings compared with some CEOs outside of the banking industry. Canadian National Railway Co. (CNR) CEO Claude Mongeau brought in C$798.65 in net income for every dollar he was awarded at the country’s largest railway. Metro Inc. CEO Eric Richer La Fleche brought in C$255.33 for the Montreal-based grocer.

To contact the reporters on this story: Sean B. Pasternak in Toronto at spasternak@bloomberg.net; Ilan Kolet in Ottawa at ikolet@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; David Scheer at dscheer@bloomberg.net

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