Jumping aboard the compensation reform train, Royal Bank of Canada told capital markets employees it will incorporate risk measures in bonus calculations, will defer a larger share of compensation, and is finalizing a bonus clawback policy.
The changes outlined in a memo to RBC employees are similar to those adopted by Bank of Nova Scotia, the Globe and Mail reports Tuesday. However, Scotiabank later scaled back "a small number" of its changes based on its employees' reaction, the newspaper says.
In its internal announcement, RBC cited enhanced risk management and adhering to emerging regulatory principles as resons for changing how traders and bankers are compensated. Its plans align with policy recommendations issued over the past 18 months by international committees of regulators and bank executives, including Rick Waugh, chief executive of Scotiabank. How to reward financial market professionals for performance without encouraging excessive risk-taking is a key question facing world leaders meeting this week at the G-20 summit in Pittsburgh.
In adopting a policy for reclaiming or "clawing back" prior years' bonus amounts under certain conditions, RBC is following a handful of other big global banks, including Morgan Stanley, UBS and Credit Suisse. Such provisions typically come into force if a loss or restatement results from policy violations or other misconduct by a trader or executive.
According to the Globe and Mail, the portion of an RBC employee's compensation that is deferred will depend on the size of that person's bonus. Twenty-five percent of each employee's deferred compensation will vest after one year, 25 percent in two years and the remainder in year three. Other Canadian banks also have three-year vesting, although the schedules differ from bank to bank.
Last week it was reported that RBC set aside $2.74 billion in incentive pay for its 80,000 employees over the first nine months of this year.