A review of 2015 vs. 2025 proxy disclosures
The six largest banks in Canada (collectively referred to here as “the big six”) prominently influence the Canadian economy as well as incentive design trends.
Being among the largest publicly traded companies in Canada, their policies and programs — including those related to executive compensation — are subject to much public and investor scrutiny. Since the 2008 financial crisis, bank compensation programs also have been the subject of increased government regulations to manage potential risks associated with those programs.
Here, based on a review of 2015 vs. 2025 proxy disclosures, we examine how the short-term incentives (STIs) and long-term incentives (LTIs) of the big six have evolved in the past 10 years in the face of governance and regulatory pressures.
The most fundamental incentive design shift has been to incentive funding and a move to a total variable compensation (TVC) pool rather than separate STI and LTI pools. This structure involves a common business scorecard determining the TVC pool. This pool is then allocated between the STI payouts and LTI grants, based on a predetermined ratio.
In 2015, only CIBC and TD Bank disclosed using the TVC approach (although BMO used STI results to determine 50% of the LTI funding). In 2025, five of the big six disclosed using a TVC approach for both STI and LTI funding (the exception was RBC).
The TVC approach takes a more holistic view of variable pay linked to performance. This is consistent with financial regulators’ view of LTI as deferred variable compensation (vs. STI, which is current variable compensation). The TVC approach also provides performance-driven LTI grants that are viewed favorably by investors and proxy advisers like ISS and Glass Lewis.
The banks have made more changes to their STI plan designs in the past 10 years than to LTI plan designs: All six adjusted their STI plans, while only three of six changed their LTI plan designs.
Among STI design changes, the most common were changes to performance measures and the leverage in the plan.
All of the big six changed their STI performance metrics in the past 10 years. For banks with a TVC funding model, we included the TVC scorecard metrics in this comparison.
The most notable metric change involved adding more explicit customer or customer/environmental, social and governance (ESG) metrics in the STI scorecard (CIBC, National Bank and Scotiabank) rather than including them in a broader, non-financial metric category. Return on equity (ROE) also featured in metric changes with TD Bank adding it to their STI scorecard, while RBC and Scotiabank discontinued ROE.
In general, the banks’ STI scorecards include both financial and non-financial metrics combined in an additive formula with some also including +/- modifiers. The most common metrics are clients (among five banks) and net income/earnings per share (EPS) (also among five banks). Two banks, National Bank and RBC, reduced the leverage on their STI plans by lowering the maximum payout opportunity to be more consistent with the other big six banks.
LTI design changes are related to the performance share unit (PSU) plan, either adjusting the measures and/or payout range. Only National Bank changed its PSU metrics, adding ROE to the existing relative total shareholder return (TSR).
Overall, banks use:
Three banks changed the width of the PSU payout range, with two making minor changes. Scotiabank reduced the maximum by five percentage points, and TD Bank extended the minimum and maximum by five percentage points each.
National Bank made a more substantial design change by eliminating the guaranteed portion. In their plan, 75% of the grant value was paid out even for below-threshold performance and the maximum payout was capped at 125% of grant value. The design change made is in favor of a more typical PSU design, with 0% payout for threshold or lower performance and a 200% maximum payout. BMO, CIBC and TD Bank still use this guaranteed-payout PSU design.
The move to more explicit customer/ESG metrics occurred when ESG-type metrics were received favorably by investors like BlackRock. Since then, there has been rising resistance to ESG from certain investors who are questioning whether a focus on ESG helps create shareholder value. There also has been pushback from some U.S. politicians on ESG and, in particular, diversity, equity and inclusion (DEI) policies. It will be interesting to monitor how these types of market and political forces will influence the use of ESG-related metrics among the big six going forward.
Beyond the big six banks, we have not seen broad adoption of the TVC model among Canadian financial institutions. These companies have tended to stick with separate STI and LTI funding pools for several reasons, including no desire to make major incentive funding changes as well as a preference to continue tying LTI grant sizes to market-competitive levels rather than company performance.
The author would like to acknowledge the contributions of Toshko Kirov, a WTW intern, to the insights provided in this article.
