CIBC has crossed the line on executive pay and nobody cares

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It's time we had a talk about executive compensation, because Canadian Imperial Bank of Commerce has crossed the line and no one seems to care.

In March, the country's fifth-largest lender revealed it will pay two senior officer retirement packages that total $25-million over and above existing pensions. Had this scenario played out in politics, taxpayers would be up in arms. But on Bay Street, nobody's said a peep about it publicly.

Under CIBC's "post-employment arrangements," former chief executive officer Gerry McCaughey will be paid an additional $16.7-million by April, 2016, while former chief operating officer Richard Nesbitt will be paid an additional $8.5-million by October, 2015 – even though both men no longer work for the financial institution.

Legally, the two former executives are entitled to this pay because they promised to stay with the bank for lengthy periods. Mr. Nesbitt announced his retirement in March, 2014, but said he would keep working until October, 2015; Mr. McCaughey announced his retirement in April, 2014 and promised to stay for up to two years.

But both men were gone by Sept. 15 because the bank "chose to accelerate" their retirements, which triggered the payouts.

It's hard not to be baffled by this one. Sure, the two men are legally entitled to this. But morally?

The costly executive retirement plan can be traced back two years. Mr. Nesbitt long sought to be the bank's next CEO, but was told by June, 2013, that would never happen, according to multiple sources at the lender. From that day forward, there was a risk that the top two executives could leave.

Close associates of the two men say Mr. McCaughey, a brainy history buff, has an almost symbiotic relationship with Mr. Nesbitt, who is a gruff aggressive leader. In some ways, they thought they couldn't exist at the bank without each other, so they discussed leaving together; that their retirements were announced just a month apart is no coincidence.

However, a major wrinkle emerged when the bank's board of directors re-upped Mr. McCaughey's CEO contract in May, 2013 – just before Mr. Nesbitt was promoted to COO but was told that was his limit. Because the board was caught flat-footed with no solid succession plan, the directors had to sign Mr. McCaughey on for as much as four more years to smooth the transition.

Anyone who followed CIBC closely knew something odd was going on. Mr. McCaughey told others that he wasn't the right man to lead the bank during a growth era. This was the guy who was named CEO after the disastrous $2.4-billion Enron settlement and who was tasked with de-risking the bank.

Paraphrasing Mr. McCaughey's own words, he would describe himself as the guy who could defend a city under attack, but he wasn't the right person to lead a march across the plains. (Did I mention he's a history buff?)

Mr. Nesbitt referred a request for comment to CIBC's communications team. The bank declined to comment on behalf of him and Mr. McCaughey. Brent Belzberg, who leads the board's compensation committee, did not return a request for comment.

Had the two executives negotiated a small retirement package – maybe a million dollars or two – the payouts would hardly be newsworthy. That both will collect at least a year of extra compensation for doing nothing is what's objectionable – especially after Mr. McCaughey already made at least $84-million during his time as CEO and Mr. Nesbitt made at least $48-million since being named an executive officer in 2008.

Other corporate compensation is raising eyebrows. Barrick Gold Corp. just hiked its chairman's pay to $12.9-million (U.S.), even though the stock dropped 20 per cent over the last year.

(The pay hike raised questions from investors, but Barrick says the chairman has taken concrete steps to improve the company's performance.)

However, CIBC has worked hard to put an end to its reputation as the bank most likely to walk into a sharp object, a tag it suffered after a series of misguided business moves. The bank has tried to move on, but rocky succession planning and lavish compensation schemes only bring those bad memories back.

It's a shame. The new CEO, Victor Dodig, is a reasonable man, but there are many people inside the bank who are privately dismayed by all that's transpired over the past year.

Maybe I'm being hyperbolic. Maybe this was the least-bad option, something that prevented two ugly compensation lawsuits. Or maybe, to make things right, the excessive retirement packages should be paid back to the shareholders who have stuck by the bank.