How $15 Billion in Bonuses Leaves Canada's Bankers Gloomy

There’s silly. There’s absurd. And then there’s this:

The country’s six largest banks are dishing out $15 billion in bonuses this year. But, in the eyes of some, this isn’t enough.

Indeed, Bill Vlaad, president of Vlaad & Co., which monitors bank compensation trends, described the $15 billion payout to bank executives as bleak, while noticing that it could have been worse: “It could very well have been a bloodbath.”

A bloodbath? The word conjures up the sort of savagery associated with Vlad the Impaler (no relation) in the 15th century.

Certainly, the notion of bankers suffering as they gorge on $15 billion in bonuses highlights the cavernous gap between the world enjoyed by those at the top and the one occupied by the struggling masses, including bodies we step over on sidewalks surrounding our bank towers.

It also reveals how misleading media reports can be, particularly about high finance, with insiders allowed to peddle their self-serving agendas unchallenged.

Of course, “bankers are underpaid,” said nobody ever. Last year, Canada’s big six banks accumulated staggering profits totalling $46.6 billion.

Although banking is a tried-and-true method for making tons of money, banks enjoy a protected position at the top of the Canadian economy. With roots stretching back to before Confederation, the big banks represent the very heart of the Canadian establishment. Over the years, they’ve developed deeply entrenched connections to Ottawa’s governing parties, making it difficult for newcomers to break in.

No matter how enterprising or innovative a Canadian citizen might be, she can’t just go out and open a bank. She needs a charter from the federal government, and these aren’t easy to obtain.

Yet, despite their privileged perch, Canada’s big six banks have gotten away with paying extremely low taxes — the lowest in the G7. Partly by using tax havens, our wildly profitable banks have managed to reduce their taxes to a rate that is about one-third of the rate paid by other Canadian businesses, according to a 2017 Toronto Star investigation.

Some Canadians might wonder whether we are well served by our banks. In recent years, they’ve shut down branches across the country, leaving hundreds of rural and remote communities without a local branch. They’ve also declined to offer banking services to many low-income people, obliging almost two million Canadians a year to pay the hair-raising interest rates charged by payday loan operators.

Yet, proposals that Canada Post offer banking services at its 6,200 outlets across the country have been opposed by the big banks, which insist that they serve Canadians well.

Certainly they serve themselves well, with even a “bleak” year leaving bankers divvying up $15 billion in compensation, on top of their base salaries.

We know the bank CEOs get a generous share — led by the TD Bank’s Bharat Masrani at $15.3 million — but it’s not clear how the rest of that multi-billion-dollar pie is divided, or even how many bankers get a slice.

And the $15 billion doesn’t include stock options, which enjoy special tax privileges.

Stock options can be held and cashed in when a bank’s stock is particularly high. The bankers qualify for a tax break that allows them to pay income tax on these gains at just half the rate that ordinary workers — plumbers, nurses, fast-food servers — pay on their employment income.

This special tax treatment is hard to justify, and has long been controversial. The Trudeau government has pledged to limit the loophole for employee stock options to $200,000 a year — still a lot more than the typical worker makes.

With this limit expected to be imposed soon, bankers holding stock options will likely cash them in this year, according to David Macdonald, senior economist with the Canadian Centre for Policy Alternatives in Ottawa.

“The actual pay flowing to executives this year might well hit an all-time high as they rush to cash in all their old options — especially since bank stocks are also at an almost-all-time high,” Macdonald notes.

If so, the bankers will no doubt insist that the low-level employees in the office crank up the heat — and that they do so before they dot another “i” or cross another “t.”