Canada’s biggest banks set aside 3.9 per cent more for bonuses, a relatively small increase in a year when record revenue from trading and dealmaking helped firms weather the COVID-19 pandemic.
The country’s six largest lenders set aside $16.2 billion (US$12.6 billion) for performance-based compensation in the 2020 fiscal year. The increase improved upon the previous year’s 2.5 per cent gain — the smallest in nine years — though it fell short of the 6.3 per cent average for the past decade.
“This year is going to be very challenging when it comes to bonuses,” said Bill Vlaad, president of Vlaad & Co., a Toronto-based recruitment firm that monitors compensation trends. “The rest of Canada has had a really challenging year, so the banks can’t then go out and pay investment bankers crazy bonuses. They just can’t do that optically.”
Toronto-Dominion Bank and Royal Bank of Canada, the two largest lenders, had the biggest increases to their bonus pools, while Bank of Nova Scotia — which sold businesses and operations through the year — was the only company to shrink its reserves for performance-based pay.
Banks saw a 22 per cent surge in annual revenue from their capital-markets operations, to about $31.1 billion collectively for the year ended Oct. 31. Underwriting and advisory fees rose 23 per cent to a new peak of $5.66 billion, and trading revenue soared 41 per cent to a record $16.5 billion.
Overall, the Big Six banks had $41.2 billion in annual net income, down 12 per cent from the previous year’s record.
Canada’s bonus reserves may hint what’s ahead for U.S. and European banks. Wall Street traders are poised for handsome bonuses in their best year in a decade, though their investment-banking peers may be less fortunate. Traders at JPMorgan Chase & Co. may see a 20 per cent bonus boost.
In Europe, Deutsche Bank AG signaled in October that it’s planning bonus increases for top-performing investment bankers. UBS Group AG plans to raise fixed salaries for some employees by as much as 20 per cent, allowing the company to lower its bonus pool.
The Canadian banks pay bonuses based on performance, with most of the variable compensation going to capital-markets employees such as investment bankers, research analysts and those in sales and trading. Variable compensation reflects the amount reserved, not paid out, and doesn’t include base salaries. Bonuses are typically distributed in December.
“There aren’t a lot of bonuses to go out when you divide it by the number of people that are still on at the firms,” Vlaad said. “The banks have an unnatural, invisible hand that is coming in and has restricted them from having any material layoffs, so they haven’t been able to be as efficient as they’d like to be because of their promises to the Canadian public.”
The six banks’ workforce totals about 378,400, down 3 per cent from last year, with Scotiabank shrinking the most after selling operations in the Caribbean and winding down other businesses. Bank of Montreal’s and Canadian Imperial Bank of Commerce’s ranks also shrunk after the two companies announced cost-reduction measures before the pandemic. Job cuts across the industry could have been higher if not for COVID-19, with chief executive officers vowing that employees wouldn’t lose their jobs due to the pandemic.
Here’s a bonus breakdown by bank:
Toronto-Dominion
Canada’s largest lender by assets set aside $2.89 billion for incentive compensation, with its 6.2 per cent increase the highest since 2017. The pool reflects employees’ ability to keep the bank serving customers and running efficiently throughout the pandemic, Chief Financial Officer Riaz Ahmed said in an interview.“Bonuses are linked to performance, and overall some of our businesses have done very well,” he said. “We’ve also made sure we’ve continued to look after all of our people through the pandemic.”
Royal Bank
Royal Bank, which has the biggest capital-markets division among Canadian lenders, set aside $6.04 billion for variable compensation, a 5.9 per cent increase and the highest total for the Big Six.
“We take a very balanced approach to compensation with consideration of the external environment in the long-term interest of both our employees and our shareholders,” CFO Rod Bolger said in an interview. Market-driven businesses such as wealth management and capital markets will see rates “according to what the market pays, and both of those businesses had strong performance this year.”
Still, overall earnings at Canada’s second-largest lender were down, “so a lot of our employees will see lower variable compensation this year,” Bolger said.
Scotiabank
Scotiabank’s performance-based compensation pool fell 1.3 per cent to $1.74 billion, its first decline since 2015, even as Canada’s third-largest lender posted record revenue from its capital-markets operations as trading reached an all-time high.
“It’s not all about ‘eat what you kill’ because we want them to be good corporate citizens,” CFO Raj Viswanathan said in an interview. “We want to compensate them appropriately when they have a good year,” but employees won’t necessarily receive a specific percentage of the business they generate.
Scotiabank’s compensation calculations take into account the company’s performance relative to its projections, and that’s weighing on compensation this year because of how the pandemic hurt business, he said.
“The overall variable compensation of the bank is down because the bank’s performance has been lower” in the second and third quarters, Viswanathan said.
BMO
Bank of Montreal raised its set-asides for variable compensation 0.8 per cent to $2.63 billion, its smallest increase in at least eight years.
“We’re committed to the principles of paying for performance and providing market-competitive compensation for our employees,” CFO Tom Flynn said in an emailed statement. “This year, we are comfortable with how well we have adhered to those principles, for both bonuses and total compensation.”
CIBC
The fifth-largest Canadian lender allocated 4 per cent more for performance-based pay, reserving $1.95 billion, a reversal from the previous year’s 4.7 per cent contraction.
“We believe in paying competitively and paying for performance, and that philosophy is applied,” CFO Hratch Panossian said in an interview. “This year, the level of compensation we’ve landed on we believe reflects the performance of the bank both from a financial perspective as well as doing the right thing for our clients and supporting clients through a very tough environment.”
National Bank
National Bank of Canada set aside 4 per cent more for bonuses, with the Montreal-based lender allocating $990 million for variable compensation, rebounding from a 1.3 per cent contraction in fiscal 2019.
“We’re trying to balance a good year with the fact also that our loan losses did go up during the year and that has to be reflected,” CEO Louis Vachon said in an interview. “In the context of a pandemic, I think our approach to compensation does need to remain relatively sober. So that’s how we’re balancing things out.”
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
