Tuesday, January 17, 2006

Cdn Banks to Disclose How Much Profit Goes to Executive Teams

The Globe and Mail, Sinclair Stewart, 17 January 2006

Canada's banks, bowing to pressure from investor advocates, have agreed to begin disclosing how much of their profit is used to fund the paycheques of their senior executive teams, according to people familiar with the matter.

Only Royal Bank of Canada, however, will have the information prepared in time for this year's proxy circular, which is scheduled to be mailed to shareholders at the end of the month.

Industry sources said the other members of the Big Five -- Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Toronto-Dominion Bank -- are working together on a co-ordinated approach to what is described as a cost of management ratio, or COMR.

These banks are expected to inform investors that they are working on a standardized approach, but this won't likely be ready until 2007.

Some of these banks questioned why RBC is using its own model, because it could make it more difficult for investors to compare the compensation practices across the industry.

"The whole point of this is so one bank can compare to another in a meaningful way," said one industry official. "For one bank to go out on its own, it doesn't make any sense."

David Moorcroft, a spokesman for RBC, said the bank decided last spring that it would implement a cost of management chart for investors. RBC is planning to publish two measures, one of which will benchmark pay for its top executives against the bank's profitability.

"We were clearly determined in terms of what we were going to do, and therefore didn't need to meet with the others," he explained. "We tried to provide a bit of leadership on it. We wanted to be pro-active and ahead of the curve."

Sources said the country's largest bank will focus its table on a small group of about seven senior officials, but Mr. Moorcroft declined to confirm details of the plan.

Sun Life Financial Inc. became the first financial company to offer the compensation disclosure in May after it was lobbied by investor activist Robert Verdun. Mr. Verdun asked the insurer to include the cost of compensation for its top 100 officials, but the two sides compromised, and Sun Life agreed to develop a table just for its executive team: a group of nine individuals.

The table enables shareholders to see what percentage of pretax profit has gone to executive compensation over each of the past five years. This will include salaries, bonuses and stock-based awards.

Mr. Verdun mailed similar proposals to the major banks for consideration, before annual meetings this March, but withdrew them recently after the banks agreed to disclose the information.

"I came up with this as a tool that causes downward pressure, or at least moderation, in executive compensation," Mr. Verdun said. "I think that could be very useful to investors."

Bill Mackenzie, president of advocacy group ISS Canada Corp, welcomed the improved disclosure at the banks, where lucrative compensation for executives has been a lightning rod for criticism.

"I think it's a great idea, because all this talk over the years in their proxies is how the [pay] packages are linked to performance," he said. "They don't really talk about how the overall performance tracks with compensation."