Royal Bank of Canada Chief’s Pay Tops Dimon at JPMorgan

Royal Bank of Canada Chief Executive Officer Gordon Nixon was paid more than his counterparts at JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. as record earnings last year helped most Canadian bank CEOs narrow the pay gap with the U.S.

Nixon was awarded C$12.6 million ($12.3 million) in salary, stock and bonuses for fiscal 2012, his biggest pay raise since 2006, making him the highest-paid bank CEO in Canada. Bank of America CEO Brian T. Moynihan, 53, was awarded $12 million, while Jamie Dimon, 57, at JPMorgan saw his pay halved to $11.5 million. Citigroup paid its new CEO, 52-year-old Michael Corbat, $11.5 million.

“It’s probably one of the first examples ever of a Canadian bank CEO being abreast of a mighty U.S. bank,” said Michael Smedley, who helps manage C$1 billion at Morgan Meighen & Associates in Toronto. “There seems to be some justification for seeing a parallel.”

Canadian bank CEO pay is moving closer to U.S. rivals -- and in some cases surpassing them -- after the world’s soundest banks withstood the global financial crisis and several posted record earnings in 2012.

“Royal Bank, in particular, has done an extremely good job at aligning the movement of CEO pay with the movement of shareholder performance over the past eight years,” said Matt Fullbrook, research manager at the Clarkson Centre for Business Ethics and Board Effectiveness, part of the Rotman School of Management at the University of Toronto.

Aligning Pay

Banks have been better than most Canadian companies at aligning CEO pay to shareholder returns, said Fullbrook, who published a report in January examining CEO pay and performance for 52 companies between 2004 and 2011.

Royal Bank was the top performing stock among Canada’s largest lenders last year, surging 15 percent to lead the eight-company Standard & Poor’s/TSX Commercial Banks Industry Index. The banks index rose 11 percent in 2012, outpacing the 4 percent return of Canada’s benchmark S&P/TSX Composite Index. Royal Bank reached a record high of C$64.49 on Feb. 20, before declining to C$60.74 at 4 p.m. in Toronto. During the past five years, Royal Bank has returned 60 percent, including dividends, compared with a 17 percent gain for JPMorgan and a 68 percent drop at Bank of America. Citigroup fell 79 percent over the period.

Canadian Laggards

Still, Royal Bank and other Canadian lenders are laggards compared with large U.S. banks in the past year. The 24-company KBW Bank Index rose 30 percent last year. Royal Bank’s 1.4 percent stock rise since January has trailed Citigroup’s 14 percent gain, JPMorgan’s 10 percent advance and the 8.3 percent increase of Bank of America.

Nixon, 56, was given a 25 percent increase in total compensation from a year earlier, according to a filing to Canadian securities regulators last month. The figures exclude costs to service his pension.

The country’s largest bank posted record net income of C$7.54 billion in the year ended Oct. 31 and reached internal targets after selling its unprofitable U.S. retail lender RBC Bank to PNC Financial Services Group Inc.

Bank of Nova Scotia, Canada’s third-largest bank, awarded CEO Richard Waugh C$11.1 million, a 4.6 percent increase. The top executives at Toronto-Dominion Bank, Bank of Montreal and Canadian Imperial Bank of Commerce weren’t far behind even after having their pay cut. Combined, the five bank heads were awarded about C$53 million.

‘Massive Profits’

“In the context of the size of the operations and the massive profits the banks make, it would not seem to be overpayment,” Morgan Meighen’s Smedley said. “In terms of what human beings should actually be paid, whatever they do, it probably is.”

While Nixon’s pay exceeded domestic peers, it still lags behind some larger U.S. banks. Wells Fargo & Co. awarded 59-year-old CEO John Stumpf $19.3 million for 2012, a 7.8 percent increase from the previous year. Goldman Sachs Group Inc. awarded $21 million to CEO Lloyd Blankfein, 58, a person with knowledge of the matter said in January.

At JPMorgan, Dimon’s pay was cut 50 percent as a penalty for his role in the so-called London Whale episode that led to a trading loss of more than $6.2 billion at his New York-based company.

‘Excessive’ Pay

Canadian bank CEO compensation is “excessive” and should be limited to no more than 30 times the median pay of non-management employees, said Mouvement d’education et de defense des actionnaires, a shareholder advocacy group.

“The comparison of a CEO salary with American or England or other bankers in the world is not correct,” Daniel Thouin, a board member of the Montreal-based organization, said in an interview. “There’s no real obligation to give this kind of salary in Canada.”

Royal Bank met or exceeded its financial targets for 2012, including diluted earnings per-share growth of at least 7 percent and a return on equity of more than 18 percent. The bank said it also took steps to “de-risk” its balance sheet and extended its leadership position in Canada.

“Through consistent execution of our diversified business strategy, and a balanced focus on the interests of all stakeholders including shareholders, clients, employees and communities, Mr. Nixon has continued to position RBC to deliver our long-term strategy and generate sustainable value,” the bank wrote in its management proxy circular.

Nixon has led the bank since 2001. While his compensation has increased since then, the bank cut his pay for 2004 after annual profit that year declined for the first time in five years. After profit fell again in 2008, Nixon chose to forfeit a C$4.95 million bonus.

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