- Variable compensation at big six climbs to C$12.5 billion
- Bank bonuses rise 4.3%, or a third the pace of last year
Canada’s six biggest banks set aside 4.3 percent more for bonuses in 2015 -- a third the rate of last year’s increase -- as investment-banking fees shrank and revenue growth at capital-markets operations slowed.
Bonus pools at the country’s largest banks climbed to C$12.5 billion ($9.3 billion) for the year ended Oct. 31, compared with C$12 billion reserved in fiscal 2014, according to financial disclosures. Bank of Nova Scotia was the only lender to set aside less for performance-based compensation this year, while Toronto-Dominion Bank and Bank of Montreal posted the biggest gains. This year’s increase compares with a 13 percent surge in 2014 and 3.5 percent rise in 2013.
“The chatter is that it’s definitely going to be a down year," said Brent Ludwig, chief executive officer of Ludwig Wessel and Associates, a Calgary-based financial-services recruitment firm. "If your compensation stays flat, you’ve had a winning year."
The slowdown in bonuses reflect a weak year for underwriting of equity and government debt, even as the pace of mergers picked up. Banks collectively reported C$4.37 billion in underwriting and advisory fees this year, down 4.5 percent from the record C$4.58 billion in fiscal 2014, according to disclosures.
“Compensation this year is going to be a grab bag," said Bill Vlaad, president of Vlaad & Co., a Toronto-based recruitment firm that monitors compensation trends. “Some are going to have a good deal of candy in the bag and some are not going to get as much.”
Canadian bank bonuses may outpace those at U.S. firms. Incentive compensation at major U.S. banks is down for 2015, especially for those in fixed income and underwriting, according to Johnson Associates Inc., a New York-based compensation-consulting firm. Citigroup Inc., the third-biggest U.S. bank, plans to leave its bonus pool unchanged from 2014, people familiar with the decision have said, joining JPMorgan in keeping payouts at last year’s levels. Deutsche Bank is among global firms considering reducing bonuses, with the German bank weighing a 30 percent cut.
Royal Bank of Canada, the country’s second-largest lender, set aside the most in variable compensation at C$4.53 billion. That’s 3.3 percent higher than in 2014, when bonuses jumped 13 percent. Royal Bank, which became the first Canadian lender to surpass C$10 billion in earnings last fiscal year, was the only lender to post higher underwriting and advisory fees, with a 4.2 percent increase.
“I think it will be an average year," Chief Financial Officer Janice Fukakusa said in a Dec. 2 phone interview. “We had good earnings growth across the board, so I would construe it as a run-rate year, pretty much average."
Toronto-Dominion Bank, Canada’s largest lender by assets, set aside C$2.06 billion , a 6.7 percent increase. That’s down from last year’s 18 percent increase.
Variable compensation reflects the amount reserved, not paid out, and doesn’t include base salaries or other compensation. Bonuses are typically awarded this month.
A stronger greenback relative to the Canadian dollar helped drive some of this year’s increase at Toronto-Dominion, which gets 32 percent of its earnings from the U.S., CFO Colleen Johnston said Thursday in an interview. She declined to comment on what employees can expect for bonuses, but said wealth management had strong growth and wholesale banking “had a good year."
Scotiabank’s performance-based compensation fell 2.4 percent to C$1.44 billion as revenue from capital markets declined, pulled down by shrinking investment-banking fees and lower fixed-income and commodities trading. That’s a reversal from a year ago, when Scotiabank set aside 6 percent more for bonuses after posting record underwriting and advisory fees.
“We will in the next week or so advise on what the bonus amount is for the year," Scotiabank CFO Sean McGuckin said in a Dec. 1 telephone interview. "The global banking and markets group will likely see proportionally more of a decrease in their bonuses than the rest of the bank, just because of their performance."
Bank of Montreal, the fourth-largest lender, raised bonuses 7.6 percent to C$2.09 billion, topping the 6 percent increase in 2014. “Every individual’s compensation is dependent on performance," CEO William Downe, 63, said in a Dec. 1 interview, adding that payouts “will fairly reflect the performance of the bank in the year."
Canadian Imperial Bank of Commerce, the fifth-biggest lender, lifted its bonus pool 5.7 percent to C$1.57 billion, less than half last year’s 14 percent increase. Kevin Dove, a CIBC spokesman, had no immediate comment.
National Bank of Canada, the No. 6 lender, set aside C$808 million for variable compensation, a 5.4 percent increase from a year earlier. “Variable compensation grew mostly in line with our profit increase,” Claude Breton, a spokesman for the Montreal-based bank, said in a Dec. 2 e-mailed statement. “So a good year for bonuses in the slow growth context of 2015."