* Extends Ed Clark contract to 2013 from 2010
* Forfeits right to millions in severance pay
* Pension frozen beyond current agreement (Adds details, analyst comment, background)
By Jeffrey Hodgson
TORONTO, Feb 27 (Reuters) - Toronto-Dominion Bank (TD.TO) said on Friday it extended the contract of Chief Executive Ed Clark to 2013, but it had cut some benefits including pension cash and the potential for millions in severance pay.
Clark’s new contract with Canada’s second-largest bank comes amid growing public anger about banker pay as economies and markets slump. It also follows a successful push by shareholders of rival Canadian banks for a say on what top executives earn. [ID:nN26269965]
The bank said Clark’s new contract will run until at least TD’s annual meeting in 2013, It was set to expire on Oct. 10, 2010.
But as part of the new deal, Clark waived his right to up to C$10.1 million ($8 million) in severance pay. The bank also said his pension will be frozen in October 2010, meaning he’ll get nothing beyond what was in his original agreement and won’t receive pension payments until he retires from the bank.
Cash payments that would have been paid to Clark have been replaced with an equivalent option grant of C$4.7 million, “replacing earned cash with at-risk equity”, which better aligns his interests with those of shareholders over the long term, the bank said.
TD said it also put a policy in place to recover future equity grants awarded to Clark in the event of “fraudulent misrepresentation of financial results”. The bank noted Clark is also required to hold an equity stake equal to ten times his base salary for at least two years after retirement.
The changes “further tighten the alignment of his interests with those of TD’s stockholders. Underneath his compensation is a comp system at TD that is less asymmetric (heads I win, tails the bank loses) than at other banks,” Desjardins Securities analysts Michael Goldberg said in a note.
Blackmont Capital analyst Brad Smith said the contract extension should be seen as a “pretty positive development” given high investor regard for Clark, who holds a doctorate in economics from Harvard and previously worked for Merrill Lynch.
“Ed’s the principle architect of the bank’s U.S. expansion strategy, which has been slowed down ... it could only be viewed as good news that he’s agreed to stay around longer in order to see that strategy through to fruition,” said Smith.
“If anybody can make that work, he can do it.”
U.S. President Barack Obama took on bailed-out Wall Street firms earlier this month, setting a cap on pay for top executives at companies receiving taxpayer funds and tapping widespread outrage over financial sector excesses.
Such anger is less intense in Canada, where pay packets are smaller and more conservative lending practices have helped the industry avoid the massive writedowns and losses that have driven U.S. and European banks into insolvency.
Still, the heads of Royal Bank of Canada (RY.TO) and Bank of Montreal (BMO.TO) both said recently that they would give up a total of almost C$10 million in mid-term and long-term compensation [ID:nN02468091].
Shareholders of Royal and Canadian Imperial Bank of Commerce (CM.TO) also voted on Thursday in favor of introducing a non-binding vote on executive pay, a decision the chairmen of both banks said they would respect.
National Bank of Canada (NA.TO) announced plans for a similar vote.
$1=$1.27 Canadian Reporting by Jeffrey Hodgson; editing by Rob Wilson