Big Six banks boosted year-end bonus payments across the board

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Half of Canada’s six biggest banks reported higher profits for their 2023 fiscal year and half saw profits sink, but year-end bonus payments were consistent: They were boosted across the board.

While the increase in performance-based compensation varied widely from as low as 0.2 per cent at National Bank of Canada NA-T to a whopping 23 per cent at Toronto-Dominion Bank TD-T, all six institutions collectively set aside $21.2-billion for bonus pay in the fiscal year ended Oct. 31. That total represents a 9-per-cent increase from 2022.

Last year, the country’s largest lenders raised bonuses by a narrow 1.9 per cent amid a tight labour market that sparked competition for talent. Compensation experts had been expecting draconian cuts to Bay Street bonuses this year amid weak deal-making activity and plans for widespread job cuts of between 2 per cent and 5 per cent of each bank’s global work force.

Despite the dramatic increase the banks delivered instead, many bankers are still likely to receive smaller payouts.

“Depending on what room you sit in and at what bank, your bonus conversation is likely to be very different this year,” Travis O’Rourke, president of recruitment agency Hays Canada, said in an interview. “M&A activity has been very slow. IPOs have been very slow, so it is likely that bonuses will be low if you’re in one of those sections. Your A players are still your A players, but those who are on a list somewhere as maybe more expendable, they are the ones who are feeling the brunt of this. C players know they are C players.”

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Bill Vlaad, chief executive of Toronto-based executive search firm Vlaad and Co., said one reason why banks have been able to set aside more money for performance-based pay in the face of a challenging market is because bonuses were increased much more modestly in 2022.

“The numbers were bad this year, but they could have been worse,” Mr. Vlaad said. “I think a few firms last year took a little bit off the top in preparation for” a more challenging 2023.

Bonuses are based on performance, and the bulk of that compensation is paid to capital markets employees, which include traders, analysts and investment bankers, whose pay is traditionally more variable depending on performance and market conditions.

Bank of Nova Scotia BNS-T set aside $2.08-billion in performance-based pay, a 4-per-cent increase year-over-year compared, with a 4-per-cent drop in 2022. The lender’s capital markets profit fell 7 per cent to $1.8-billion on softer trading revenue and higher loan loss provisions.

The bank said in October that it plans to cut 3 per cent of its global work force in an attempt to reign in costs. Its employee base fell 1.7 per cent in the fourth quarter, with the most significant culling in its capital markets division. That unit’s staff numbers fell 4.6 per cent from the previous quarter.

The reductions come as Scotiabank prepares to launch its turnaround plan in December to focus its operations on areas where it believes it can bolster its growth and revive its beleaguered share price.

“Loan growth has moderated considerably in recent quarters as our [global banking and markets] team continues to take a more targeted approach to client selection with a focus on industries and geographies where we can deliver higher returns and more multiproduct value-add to our clients,” chief executive Scott Thomson said during a conference call with analysts on Tuesday.

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Royal Bank of Canada RY-T earmarked $7.6-billion for variable compensation, a 6.7-per-cent increase year-over-year compared with a 0.25-per-cent drop in 2022. Capital markets profit surged 23 per cent from last year to $4.1-billion on a boost in revenue from corporate and investment banking, and global markets as the bank launched new products and expanded its advisory services.

TD allocated $4.1-billion in incentive pay, a 23-per-cent jump from last year when the bonus pool was increased by 7 per cent. Profit in its capital markets unit fell 42 per cent to $770-million from last year, weighed down by higher expenses and costs related to its takeover of New York-based investment bank Cowen Inc.

The boom in bonuses is coming from several factors, including the bank’s larger employee base, its acquisition of New York-based investment bank Cowen Inc. and impact from foreign exchange owing to a stronger U.S. dollar, TD chief financial officer Kelvin Tran said in an interview. Incentive pay was partly offset by lower financial performance, he added.

“We are delivering compensation that is market competitive and performance-based, and also with practices in place to promote fair and consistent outcomes and alignment between executives and our employees,” Mr. Tran said.

Bank of Montreal BMO-T set aside $3.6-billion in performance-based pay, a 12-per-cent increase year-over-year as the lender brought on bankers from its takeover of California-based Bank of the West. This year’s boom in bonuses compared with a 1-per-cent drop in 2022. The bank’s profits edge higher by 5 per cent to $1.7-billion as a boost in revenue in corporate and investment banking offset a drop in underwriting and advisory activity

Canadian Imperial Bank of Commerce CM-T increased its bonuses by 2.2 per cent to $2.5-billion, a drop from last year’s 5.6-per-cent increase. Capital market net income edged higher by 4 per cent to $2-billion.

National Bank of Canada raised bonuses by the slimmest margin, increasing variable compensation by 0.2 per cent to $1.3-billion. Last year, the lender increased bonuses by 5 per cent.

Data from recruitment firm Robert Half suggest the vast majority of finance and accounting professionals in Canada will receive at least as much performance-based compensation this year as they did in 2022.

Based on a survey conducted in early November of 171 finance and accounting managers across Canada – 32 of which worked for companies with 1,000 or more employees – 52 per cent said they expected bonus payments to be about the same as last year, 27 per cent expected to pay more in 2023 than they did last year and only 11 per cent said bonuses were down compared with 2022 levels. The remaining 10 per cent said their company would not be awarding year-end bonuses this year.