Now is the time of year when the Big Six banks disclose their executive compensation. Predictably, the sums will be met with howls of outrage from some quarters, but the good news is that the disclosure itself continues to improve.

All the big banks except TD Bank Financial Group had released their management information circulars as Investment Executive went to press. The juicy details of each CEO’s pay packet is a headline-grabber, but what often gets lost in the hue and cry over the size of executive pay is the growing amount of detail disclosed.

One measure of improvement is that the information circulars are more bloated than ever this year. The biggest so far is Bank of Nova Scotia’s 64-page treatise. Despite the heft, there’s good news for shareholders who have struggled to discern just what the bank is paying its top executives.

The familiar all-in-one compensation table is still a feature of the circulars, but it is now supplemented with a separate table for each named executive that provides a bottom-line figure for his or her total compensation in each of the three previous fiscal years. CIBC led the way with the added disclosure in its 2005 proxy; it appears that the rest of the banks have followed suit.

The all-in-one table is often a confusing mix of dollar amounts, options and other securities units that have been awarded in the past year. Annual compensation amounts can be wildly skewed depending on the timing of an executive cashing in a load of variable compensation awards.

Having a separate table for each executive puts a current value on the various forms of compensation in the year in which they are awarded, and provides a dollar total. Options are priced using the familiar Black-Scholes model. Such disclosure is more useful for shareholders and prospective investors because executive pay is supposed to be tied to performance. A bottom-line number for the total value of a pay package in the year it’s awarded makes that evaluation much easier.

The move toward clearer, more useful disclosure has been underway for several years, partly at the prodding of regulators, but also by shareholders who have been making more noise about the quality and quantity of compensation.

So far, the executive compensation disclosure from Royal Bank of Canada has attracted the most attention. Royal Bank’s Gord Nixon is the highest paid among the bank CEOs to report this year, garnering total direct compensation of $9.5 million in the fiscal year ended Oct. 31, 2005, up from $7.7 million for the prior year (which was notably down from $9.1 million in 2003).

Royal Bank also reports that its new chief operating officer, Barb Stymiest, was the second-highest paid executive at the bank in 2004, although she didn’t join the bank until after the end of fiscal 2004. Nevertheless, Stymiest received $6.55 million in total compensation for the year — no salary, but a $550,000 cash bonus and $6 million in performance deferred shares, stock options and share units. The bank’s proxy indicates that the cash bonus and $4 million in share units were granted to offset the incentive awards that she left on the table by leaving TSX Group Inc. for the bank.

In 2005, Stymiest’s pay is down to $4.2 million, including $700,000 in salary. She did not receive any more share units in the latest fiscal year. That still leaves her as the third-highest paid executive at the bank, behind Nixon and Chuck Winograd, head of the bank’s global capital markets division. He earned $6 million in 2005 ($400,000 of it in salary), down from $6.9 million the previous year.

Of the other banks to report so far, Scotiabank CEO Rick Waugh is running a close second to Nixon, earning slightly more than $9 million in total pay for fiscal 2005, down a little from 2004. Bank of Montreal chief executive Tony Comper is hot on his heels at slightly less than $9 million, down from $9.7 million in 2004 and more than $9.5 million in 2003.

The best bargain among the big banks in 2005 was to be had at CIBC, at which outgoing CEO John Hunkin and his replacement, Gerry McCaughey, split about $7.2 million in compensation for the year. Hunkin picked up slightly more than $4 million for his nine months of service (down from more than $9.3 million in 2004), and McCaughey earned about $3.2 million. McCaughey’s total doesn’t include any restricted share awards or performance share units that he may receive. The proxy notes that under his employment agreement, the variable compensation awards won’t be calculated until December 2006. In the meantime, his only variable compensation is an estimated $2.1 million in stock options.

@page_break@CIBC reported a $32-million loss for the year, thanks largely to a $2.5-billion charge concerning its involvement with Enron Corp.

Nevertheless, CIBC continues to lead the way in improving disclosure of executive pay. Disclosure of the relationship between pay and performance is one element of executive compensation that could still improve at most firms.

Last year, the Canadian Coalition for Good Governance indicated that it would make improved executive compensation disclosure one of its priorities. Among the best practices it calls for is the summary compensation table that has become standard at the big banks.

It also called for better disclosure of executives’ “total take” — the total paid to a CEO over the past four years. It says such disclosure would make it easier to gauge pay for performance. In other words, it would make it easy to measure how much a company’s market cap increased in a given period that executives were paid a specific whack of money.

This year, CIBC’s circular takes a step in that direction by including a graph plotting aggregate executive compensation over the past four years against net income and earnings per share in the same time period. Royal Bank’s circular details total annual executive compensation as a percentage of net income and market cap.

Bill Mackenzie, president of ISS Canada Corp. in Toronto, notes that relative to other Canadian public companies, the banks’ compensation disclosure is very good. He adds, however: “The banks have talked a lot about pay for performance. Now we need them to demonstrate with numbers and charts, how total pay matched up with corporate performance.” Mackenzie notes the early efforts in this direction, but says it will get more attention in the 2007 proxy season.

While there have been improvements, it’s likely there are more to come.

In mid-January, the U.S. Securities and Exchange Commission, which has led the way in setting standards for disclosure, published for comment revisions to its compensation disclosure rules for the first time in 14 years. “Our disclosure rules haven’t kept pace with changes in the marketplace” noted SEC chairman Christopher Cox in introducing the proposals. “In some cases disclosure obfuscates rather than illuminates the true picture of compensation.”

Cox stressed that its initiative is about improving disclosure, not determining the appropriate level of executive pay. “It’s about wage clarity, not wage controls,” he said. “By improving the total mix of information available to the marketplace, we can help shareholders and compensation committees of boards of directors assess the information themselves, and reach their own conclusions.”

It is up to shareholders and boards to determine appropriate levels of pay, he added. The SEC’s job is to make sure they have all the information needed to make that call, and that the information is presented in an understandable format.

The SEC’s proposals would require all firms to report a bottom-line number for total pay, as the Canadian banks are now doing. It would also demand more detail about perks, retirement benefits and golden parachutes. It would also amend disclosure requirements for director compensation, related-party transactions, director independence and other corporate governance matters.

The proposals would refine the current tabular disclosure and combine it with improved narrative disclosure to “elicit clearer and more complete disclosure of compensation of the principal executive officer, principal financial officer, the three other highest-paid executive officers and directors,” the SEC notes. It would also require most of the disclosure be in plain English.

It appears proxy circulars may get fatter still in coming years. IE