Section $3$: Case Study

Read the following case and answer the questions below

Bank Executive Pay Gone Crazy

The salaries paid to the executives of Canada's largest banks have been excessive, according to many shareholders. The salary of Barbara G$.$ Stymiest when she joined the Royal Bank of Canada as chief operating officer triggered shareholder outrage.

Stymiest joined the Royal Bank on November $1,2004.$ She had been CEO of the TSX Group, which operates the Toronto Stock Exchange and the TSX Venture Exchange. Prior to her time at TSX$,$ she had been executive vice president and chief financial official of the Bank of Montreal's investment banking division.

What outraged shareholders was the fact that Stymiest was paid almost $$6\mathrm{.}6$ million in compensation in the fiscal year ending October $31,2004$ even though she did not start work until fiscal year $2005.$ The $2004$ compensation was made up of $$4$ million in share units, $$550,000$ cash bonus, $$1$ million in stock options, and $$1$ million in deferred shares. According to the banks' Management Proxy Circular, the $2004$ payment was $"$to compensate for forfeited long$-$term awards from her prior employer".

Shareholders interviewd by The Globe and Mail expressed the following views about the compensation:

It was scandalous

It failed to align compensation with performance

The signing bonus approach was wrong

There must be other managers available who would not require the advance compensation.

Amazement that the bank's board would agree to such an advance

Executive compensation in the banking industry has gone crazy.

Q$12.$ What are the corporate governance issues involved and who are the stakeholders?

Q$13.$ How do bank customers feel about this type and level of compensation?

Q$14.$ What should be done about the high compensation being received by bank executives when fees and charges for services are increasing?