Thursday, March 08, 2007

Investment Bank Heads Get Bigger Raises Than Bank CEOs

Bloomberg, Sean B. Pasternak and Doug Alexander, 8 March 2007

Canada's top investment bankers, including Charles Winograd at RBC Capital Markets and Brian Shaw of CIBC World Markets, had their average pay increased by more than a third last year after mergers soared to a record.

The heads of five of the six biggest securities firms were paid an average C$7.65 million ($6.48 million), up from C$5.67 million a year earlier. The 35 percent increase was seven times higher than the average pay bump for their bosses: the chief executive officers of Canada's largest banks.

``Investment bankers get paid a lot more because they're probably creating more value at this point,'' said Ravi Dharwadkar, an associate professor at the Martin J. Whitman School of Management at Syracuse University in Syracuse, New York.

Canada's six largest banks posted record profits for the fiscal year that ended Oct. 31, fueled by a 19 percent surge in the benchmark S&P/TSX Composite Index. Bankers advised on more than 2,300 takeovers involving Canadian companies in 2006, worth a combined $290.6 billion, according to data compiled by Bloomberg.

``It's been a very accommodating market for all of the capital markets businesses, whether it's trading or fee income,'' National Bank Financial analyst Robert Wessel said.

The pay calculations, based on filings to securities regulators, excludes Bank of Nova Scotia because Canada's third- largest lender didn't disclose compensation for the co-chief executives of its Scotia Capital unit.

Winograd, who heads Royal Bank of Canada's investment bank, received C$10.4 million in salary, bonus and stock options, a 73 percent increase from the year-earlier period. Toronto-based RBC Capital was the top arranger for stock and bond sales in Canada last year, and ranked seventh for mergers by dollar value, based on Bloomberg data.

Winograd, 59, ranked behind only his boss, Royal Bank CEO Gordon Nixon, and Toronto-Dominion Bank CEO Edmund Clark for total compensation among 30 bank executives whose pay packages have been disclosed in filings. Winograd declined to comment.

Robert Dorrance, 53, the CEO of Toronto-Dominion's TD Securities unit, received C$7.5 million last year, a 25 percent increase from a year earlier. Shaw, 53, chairman and CEO at Canadian Imperial Bank of Commerce's CIBC World Markets, received C$7.3 million, a 55 percent increase. Shaw didn't return a call seeking comment.

Yvan Bourdeau, 58, CEO of Bank of Montreal's BMO Capital Markets, received C$6.5 million in 2006, an 18 percent increase from the year-ago period. Louis Vachon, 44, who was CEO of National Bank of Canada's National Bank Financial arm until July, was paid C$6.54 million, up 6.5 percent.

The average pay increase for the investment bankers was 10 times higher than raises granted across the industry, and 22 times above the annual inflation rate. The average weekly earnings for workers in the finance or insurance industry rose 3.6 percent in December from the year-earlier period, according to Statistics Canada data released Feb. 26.

And the investment bankers got better increases than their bosses. The average pay for five of Canada's bank CEOs rose 5.2 percent to C$9.36 million. CIBC hasn't disclosed 2006 compensation for CEO Gerald McCaughey.

According to Dharwadkar, who studies executive compensation, Canadian investment bankers pale in comparison to their U.S. counterparts, who he says received 20 percent to 25 percent increases in bonuses alone last year.

Goldman Sachs Group Inc., the most profitable securities firm in history, paid $53 million each to its co-presidents last year, while Lehman Brothers Holdings Inc. gave CEO Richard Fuld a 17 percent raise to $40.5 million.