Posted by: Daryl & Wendy Ashby | February 27, 2010

Canadians Lead the Way

Shareholders of Canadian lenders including Canadian Imperial Bank of Commerce will vote starting Thursday on compensation policies, weighing in for the first time on whether executives who avoided the kinds of bailouts needed in the U.S. earned their pay.

CIBC’s annual meeting in Montreal will give investors a non-binding “advisory” vote on compensation, the first of seven “say-on-pay” votes among the nation’s top lenders within the next six weeks. Investors in many of the biggest U.S. banks, where writedowns from the credit crisis were 32 times bigger than in Canada, are starting to get the opportunity to vote only after pressure from regulators and lawmakers.

Canada’s financial system, named the soundest in the world for two consecutive years by the World Economic Forum, didn’t require a government rescue, while U.S. banks received US$433.7-billion in taxpayer money, according to Bloomberg data. U.S. President Barack Obama has said shareholders should receive a greater voice in pay matters to prevent the kind of risk-taking that led to the financial crisis.

“I don’t think there’s much of an appetite” for say-on- pay in the U.S., said Stephen Griggs, executive director of the Canadian Coalition for Good Governance, a group of pension funds and money managers that oversees about $1.3-trillion. “We’re very fortunate in Canada that we have shareholders and boards who are able to discuss the substantive issues.”

In addition to Canadian banks including Toronto-Dominion Bank and Bank of Nova Scotia, say-on-pay has been adopted this year by Canadian insurers Manulife Financial Corp., Sun Life Financial Inc. and wireless carrier Telus Corp.

Wells Fargo & Co. said Tuesday it would allow shareholders to vote in April on pay practices. JPMorgan Chase & Co. said in an e-mail this month it would submit a resolution at its next shareholders meeting giving investors a non-binding vote on executive compensation principles and policies.

Canadian investors successfully lobbied for say-on-pay last year, whereas the change in the U.S. is being driven by politicians.

“The U.S. is a much more Wild West, eat-what-you-kill type of approach to things – and it has worked well for them,” said Alan White, a professor at the Rotman School of Management in Toronto. “I think that’s the real difference; it’s a question of philosophy more than anything else.”

Although there have been larger writedowns in the U.S. than in Canada, compensation levels are disproportionate at the top. The country’s top banker – Royal Bank of Canada Chief Executive Officer Gordon Nixon – was awarded $10.4-million last year; the bonus alone for JPMorgan Chase & Co. CEO Jamie Dimon was US$17-million. CIBC CEO Gerald McCaughey received a $6.24-million pay package for 2009.

“The Canadian bank CEOs have been in charge through the downturn, and did a very good job managing the business,” said John Aiken, a bank analyst at Barclays Capital Inc. in Toronto.

Because the vote isn’t legally binding, some investors said it won’t lead to further reform.

“It’s non-binding; it doesn’t even register,” said Todd Johnson, who helps oversee about $180-million in assets at BCV Asset Management in Winnipeg. “If it is real ‘say on pay’, you want it to be sector-wide.”

Canada’s eight publicly traded banks will begin reporting fiscal first-quarter results tomorrow, with earnings before one-time items probably showing a 4% decline from a year earlier, according to Sumit Malhotra, an analyst at Macquarie Capital Markets in Toronto. Trading fees may drop 30% on a year-over-year basis, the analyst said.

CIBC and National Bank of Canada report results Thursday for the period ended Jan. 31. Bank of Montreal reports March 2, followed by Royal Bank and Laurentian Bank of Canada March 3.

Toronto-Dominion Bank and Canadian Western Bank are scheduled to release earnings March 4, while Bank of Nova Scotia reports March 9.

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