And a good year to work for one

Bonus pool swells

TORONTO • It’s a very good year to be a Canadian banker.

The country’s six biggest lenders set aside $14.3 billion for variable compensation — up 11 per cent from 2016 — as a record year in trading and investment banking swelled bonus pools. That’s the biggest jump since 2014 and stands in contrast to last year, when a 3.4-per-cent increase was the lowest since 2010.

“The banks have done well,” said Bill Vlaad, president of Vlaad & Co., a Bay Street recruitment firm that monitors compensation trends. “But just because they had one good year doesn’t mean they’re going to give it all away.”

National Bank of Canada and Royal Bank of Canada had the biggest increase in performance-based pay from the year earlier, while Bank of Nova Scotia had the smallest, according to disclosures.

Variable compensation reflects the amount reserved, not paid out, and doesn’t include base salaries or other compensation.

The lenders pay bonuses based on performance, with a lion’s share going to capital-markets employees including investment bankers, traders and analysts. Bonuses are typically distributed this month.

Canada’s banks set new benchmarks in their securities operations in the fiscal year ended Oct. 31, helping the group reach a record $25.2-billion in revenue from capital markets. The six lenders collectively had $5.12 billion in investment-banking fees, up 9.9 per cent from last year. Revenue from trading also soared to a new peak of $11.1 billion, a 1.8-per-cent increase.

Bankers worked hard at strengthening their domestic and cross-border businesses in the last year, and it’s paying off, Vlaad said. Still, banks are being conservative in payouts this year to “keep the powder dry” for what they anticipate may be a challenging 2018, he said.

Traders will probably see downward pressure on compensation this year and that trend should extend into 2018, Vlaad said. Those in fixed income, who had “a really good run” in the last couple of years, will get smaller bonuses than before, and that may continue next year. Analysts also face pressure on pay and a tougher year ahead as compliance costs and regulatory changes erode research revenues. Investment bankers fared better in 2017, though they shouldn’t anticipate huge increases.

“It has been a good year generally for investment bankers,” Vlaad said. “The last couple (of) years has been challenging so it’s nice to get a reprieve, a little bit of a breather.”

Royal Bank, which has the biggest capital-markets operations among Canadian lenders, set aside $5.2 billion for variable compensation, up 14 per cent from a year ago. Bonuses rose 1.1 per cent in 2016.

“We definitely had a strong performance across all of our businesses,” Royal chief financial officer Rod Bolger said. “We would expect compensation to be higher for most individuals, linked to their individual contributions as well as their team performance.”

Toronto-Dominion Bank, the country’s largest, earmarked $2.45 billion for incentive compensation, up 13 per cent and more than double the percentage increase in 2016.

The lender also added more employees, particularly in the U.S., which is reflected in the increase, Ahmed said. TD, which has the biggest workforce of the Canadian banks, had a 2.3-per-cent increase in its ranks to 83,160 employees from last year.

Scotiabank, the thirdlargest lender, said performance-based compensation rose 4 per cent to $1.6 billion. That compares with a 7-per-cent increase in 2016.

Canadian Imperial Bank of Commerce lifted its performance-based pay 10 per cent to $1.75 billion. The firm raised it 0.8 per cent in 2016.

Bank of Montreal lifted its bonus pool 4.7 per cent to $2.39 billion for 2017. Last year, the lender had the biggest jump among Canadian banks at 8.4 per cent.

National Bank, whose annual profit increase topped all Canadian lenders in 2017, reserved $915 million for variable compensation, a 17-per-cent increase. That reversed a 3.3-per-cent decline in 2016.