TD Leads 13% Surge in Canadian Bank Bonus Pools

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Canada’s six biggest banks earmarked C$12.2 billion ($10.7 billion) for annual bonuses, 13 percent more than last year, as North American stock markets rose and investment-banking fees soared to a record.

Bonuses may be directed more toward those in wealth management this year and to dealmakers within capital markets, executives said. While total trading revenue at the biggest lenders climbed about 1.5 percent this year, employees in underperforming businesses like fixed-income and commodities trading may see less of an increase.

“People are going to feel good about their bonuses this year,” said Paul Gryglewicz, managing partner of Toronto-based Global Governance Advisors, which conducted a financial-services compensation survey the past four years. “Investment banking is going to be up. Sales and trading are going to be a mixed bag, depending on what specialty you might be involved in.”

The total amount the six lenders set aside surpasses the C$10.8 billion of incentive compensation reserved in fiscal 2013, according to financial disclosures. Toronto-Dominion Bank, Canada’s largest lender, had the biggest increase for the year ended Oct. 31, reserving 18 percent more.

“What we’re telling employees is we’ve had a good year this year,” Chief Financial Officer Colleen Johnston said in a Dec. 4 interview. “Amounts will be in line with or slightly above where we were in 2013.”

Fixed Income

Bankers in underperforming businesses, such as fixed-income trading, may avoid a poor year for payouts because of the way Canadian banks pool bonuses and allocate across capital-markets divisions, Gryglewicz said.

“If you’ve had a bad year in your division it doesn’t necessarily translate 100 percent having a horrible year in bonus income,” Gryglewicz said.

This year’s gain in variable compensation is the highest in at least four years, outpacing the 5.2 percent increase in 2013 and the 7.5 percent climb in 2012. In 2011, the banks allocated 7.8 percent more, while in 2010 bonuses inched up 1.1 percent.

Variable compensation reflects the amount reserved, not paid out, and doesn’t include base salaries or other compensation. Bonuses are typically awarded this month.

Takeovers Climb

Canada’s banks earned record revenue from advising on takeovers and arranging stock sales this year as mergers and acquisitions rebounded and equity financings increased. The firms earned a total of C$4.58 billion in underwriting and advisory fees, up about a fifth from a year earlier, according to bank disclosures.

Announced deals involving Canadian companies totaled about $203.2 billion in the year ended Oct. 31, up 22 percent from a year earlier, while Canadian stock sales rose 13 percent to about $37.5 billion, according to data compiled by Bloomberg.

“M&A has been good, but it’s had to offset other areas that haven’t done as well,” said Bill Vlaad, president of Vlaad & Co., a Toronto-based recruitment firm that monitors compensation trends.

Royal Bank of Canada, the country’s second-largest lender, reserved the most in incentive pay among the group. Variable compensation increased almost 12 percent to C$4.39 billion for the fiscal year, compared with 7.9 percent increase in 2013.

Wealth Advisers

“The variable comp will reflect the fact that we have record earnings, but it’s not dollar-for-dollar what the earnings growth would be across the board in all platforms,” CFO Janice Fukakusa said in a Dec. 3 interview. “It’s a good year, not a great year.”

Wealth advisers will see an increase, mostly due to higher commissions from rising markets, Fukakusa said. Those in RBC Capital Markets will also see a gain in bonuses, though not as much as the unit’s 21 percent jump in earnings. RBC Capital Markets pays out 37.7 percent of its revenue in compensation, a ratio that remains the same from prior years. Those in retail banking may see payouts boost their pay by 5 percent to 10 percent, she said.

Toronto-Dominion set aside C$1.93 billion, according to company disclosures, following “a very strong year” in wealth management and its TD Securities capital-markets business, Johnston said.

‘Directly Linked’

“There’s certain compensation that’s directly linked to top-line performance in those businesses, and that was a source of growth in incentive compensation,” she said, adding that the rest of the bank employees may see similar payouts this year as last.

Bank of Montreal lifted performance-based compensation by 15 percent to C$1.94 billion, compared with a 2.5 percent increase in 2013. The Toronto-based bank isn’t making any changes to the way it pays bonuses, Chief Executive Officer William Downe said in a Dec. 2 interview.

“We did some fairly significant hiring during the year,” Downe, 62, said. “The compensation will be consistent with performance.”

Bank of Nova Scotia, Canada’s third-largest lender, raised performance-based compensation by 7.1 percent to C$1.67 billion, outpacing the 5.5 percent increase in 2013. Canadian Imperial Bank of Commerce, the fifth-biggest bank, increased its bonus pay 14 percent to C$1.48 billion, compared with a 5.1 percent lift in last year’s allocation.

Kevin Dove, a spokesman for Toronto-based CIBC, declined to comment on incentive pay.

Scotiabank Payouts

Scotiabank’s payouts will be skewed toward wealth management, CFO Sean McGuckin said in a telephone interview.

“‘We had a very strong year in wealth management and included in the performance-based are the sales commissions,’’ he said. ‘‘Investment banking was good for Scotiabank, but the overall bonus pool for our capital markets group will grow generally in line with earnings.’’

National Bank of Canada, the country’s sixth-largest lender, raised its variable compensation 13 percent to C$767 million after paring the allocation by 2 percent last year.

National Bank’s growth in variable compensation is ‘‘driven mostly by wealth management and financial-markets revenue growth, but also other bank sectors as annual targets were surpassed,” Claude Breton, a spokesman for the Montreal-based lender, said in an e-mail.

The bonus projections for Canadian bank employees may outpace those in the U.S. Wall Street bankers will see little change in year-end bonuses from last year though investment bankers may fare well, according to Johnson Associates Inc., a New York-based compensation-consulting firm.

Advisory investment bankers in the U.S. can expect a jump of 10 percent to 15 percent from last year while investment banking underwriters’ awards may rise 5 percent to 15 percent, Johnson Associates said in a Nov. 10 report. Those in asset management will see a 5 percent to 10 percent increase. Traders in fixed income and equities can expect payouts to be unchanged or decline as much as 10 percent.