Nice pay for banker’s hours

David Kassie had a very good year in 2000, but not, one suspects, a very good day yesterday. CIBC revealed it paid him almost $14-million last year to run CIBC World Markets Inc., its corporate and investment banking arm. Add in the theoretical value of options, and his total compensation was closer to $20-million.

Financial Post
February 2, 2001

Nice pay for banker’s hours
Derek DeCloet

David Kassie had a very good year in 2000, but not, one suspects, a very good day yesterday. CIBC revealed it paid him almost $14-million last year to run CIBC World Markets Inc., its corporate and investment banking arm. Add in the theoretical value of options, and his total compensation was closer to $20-million.

Mr. Kassie is a private man, and it clearly pained him to have the size of his paycheque laid bare before the public. "I wish nobody was writing about this," he said yesterday. "It's kind of a personal issue.

"Be kind," he added. "Remember, my kids have to read this."

I think his kids will be just fine, thank you. Their father is pretty talented.

Mr. Kassie was given the job of building CIBC's presence on Wall Street, and he has done it well. CIBC World Markets earned a return on equity of 25.6% last year — well above the bank's overall return of 20.5%.

So, at least he delivered the goods for his $14-million. But what explains the paycheque given to David Wilson, Mr. Kassie's counterpart at Scotia Capital? The corporate and investment banking arm of Bank of Nova Scotia had a decent year in 2000, but not a fantastic one. Its earnings dropped to $650-million (from $745-million in '99), primarily due to problem loans in the United States. Yet Mr. Wilson's salary and bonus rose to $7.08-million from $5.52-million the year before.

To recap: Scotia Capital's earnings fall 13%; the boss gets a 28% pay increase. (Scotiabank does not publish return-on-equity figures for individual parts of the bank.) True, Mr. Wilson had to manage a reorganization of Scotia Capital to include corporate lending. But a raise of that size seems to contradict the bank's bonus policy, which claims to "focus on achieving superior results."

Now, there's nothing wrong with top-level bank executives making a lot of money. Doubtless Mr. Kassie's paycheque will bring the usual left-wing crackpots out of the woodwork, making irrelevant comparisons between his salary and that of a bank teller; save yourself some Tylenol, and ignore them. Banks have created tremendous wealth for their shareholders, and the people who run them should be rewarded.

The problem is that some bankers, particularly investment bankers, are paid far more than colleagues who deliver better returns to investors.

Take Bank of Montreal as an example. BMO was a strong performer in 2000. Its profits increased $475-million, and its return on equity was a solid 18%. The only thing dragging it down was the investment banking group, BMO Nesbitt Burns. Its earnings declined slightly, and its return on equity was a meagre 12.4%.

Given the facts, it's worth asking how Jeffrey Orr, Nesbitt's chief executive and chairman, was awarded a salary and bonus worth $4.8-million — a 71% increase. It's true that Mr. Orr's pay in 1999 was lower because he started the job partway through the year. But the same is true of his boss, Tony Comper, who earned $2.3-million in salary and bonus.

Is Mr. Orr, who runs one (underperforming) division of the bank, really more valuable than Mr. Comper, who is responsible for the whole bank? I doubt it. If anything, it's the other way around.

It's not just a matter of fairness to bank employees; it's a question of shareholder value. Money moves talent from one place to another. To the extent that the higher pay of investment banking draws good people away from more profitable banking activities, it hurts earnings — and investors.

So enjoy the money and spotlight now, Mr. Kassie, because you never know if your cheque will be this big again. World Markets could be hit with slowing earnings if there's a North American recession, and pay for performance works both ways. At least, it should.

moc.tsoplanoitan|teolcedd#moc.tsoplanoitan|teolcedd


Brought to you by WikidFranchise.org

Risks: Greed, Towers of gold, feet of clay, Banks, Canada, 20010202 Nice pay

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License