Canada’s six biggest banks set aside 2 per cent more for bonuses this year than last, the smallest increase since 2010, as Royal Bank of Canada and National Bank of Canada pared performance-based pay even as the industry had one of its best years for deal-making.

The banks earmarked about $12.8 billion for variable compensation in the fiscal year ended Oct. 31, compared with $12.5 billion in 2015, according to financial disclosures. That’s the smallest bump in six years, when payouts rose 1.1 per cent. The banks boosted bonus pools 11.5 per cent in 2014 and 4.4 per cent in 2015. The compensation is typically awarded this month.

“The Grinch won’t steal Christmas, but the holiday feast is going to be smaller than usual,” said Bill Vlaad, president of Vlaad & Co., which monitors compensation trends.

Bank of Montreal and Bank of Nova Scotia had the biggest jump in performance-based pay, while Royal Bank and National Bank set aside less, according to disclosures. Variable compensation reflects the amount reserved, not paid out, and doesn’t include base salaries or other compensation.

Capital markets

The slowdown in payouts comes despite Canada having one of its best years for deal-making, fueled by energy acquisitions and stock sales. Announced takeovers involving a Canadian company rose 13 per cent to $314.8 billion for fiscal 2016, the highest amount in nine years, while domestic equity financing increased 17 per cent to $46.9 billion, the most since 2009, according to data compiled by Bloomberg. Bond trading surged across the banks this year, countering a slowdown in stocks trading.

The country’s six biggest banks collectively reported a record $4.66 billion in underwriting and advisory fees, up 6.5 per cent from fiscal 2015, according to disclosures.

“Those in M&A and fixed income are going to have good years,” Vlaad said. “Equity and resource bankers are going to be facing the biggest pinch.”

Royal Bank, Canada’s largest lender by assets, set aside $4.4 billion for variable compensation, or 2.8 per cent less than a year ago. Bonuses at the lender rose 3.3 per cent in 2015.

RBC, TD

“The variable compensation decline is indicative of the fact that the pools are slightly down,” Royal Bank chief administrative officer Janice Fukakusa said in an interview. “If you look at areas like in capital markets, while we had solid performance year over year the earnings were actually flat to down.”

Royal Bank also adopted new accounting methods for deferred compensation to align itself with industry standards, which affected bonuses. The Toronto-based firm paid out 34.9 per cent of its capital markets revenue to salaries, benefits and variable compensation, down from 37.2 per cent last year, Fukakusa said in a Nov. 30 earnings call.

“We are focused on improving productivity relative to compensation,” Fukakusa said. “The impact of what’s happening on compensation isn’t probably singularly RBC, it’s part of the industry.”

Toronto-Dominion Bank, the second-largest lender, set aside $2.17 billion, a 5.5-per-cent increase. That compares with a 6.7-per-cent increase in 2015.

“That is all subject to how the bank performs from year to year,” CFO Riaz Ahmed said in a phone interview. “If you look at our earnings performance, you’d see that it was very good this year.”

Scotiabank, BMO

Bank of Nova Scotia, the third-largest lender, said performance-based compensation rose 7 per cent to $1.54 billion from 2015, reversing last year’s 2.4-per-cent cut. It’s the biggest increase in at least three years.

“Scotiabank’s incentive compensation programs are based on the premise of ‘pay for performance,’ ” Rick Roth, a company spokesman, said in an e-mailed statement. “Our business performance in 2016 was generally stronger relative to the various financial and non-financial targets upon which our incentive pools are based.”

Bank of Montreal, the fourth-largest lender, lifted its performance-based compensation 8.4 per cent to $2.28 billion, marking the biggest increase among big banks for the year. The jump compared with an 8 per cent increase in 2015.

Canadian Imperial Bank of Commerce, the fifth-largest lender, reserved $1.58 billion for bonuses, up 0.8 per cent from 2015. Last year’s increase was 5.7 per cent.

U.S. bonuses

“This is actually a very good year,” CFO Kevin Glass said in a phone interview, adding that performance was strong even with a lower headcount. “Our employees will be well compensated this year.”

National Bank said its variable compensation for the year was $781 million, down 3.3 per cent from last year. The Montreal-based bank has been undergoing restructuring initiatives across the company in the past year, cutting jobs and streamlining operations.

“Fiscal 2016 was a transition year for the bank,” spokesman Claude Breton said in an e-mailed statement. “This will lead to a lower bonus pool overall, but it may vary between sectors.”

Incentive compensation at major U.S. banks will probably be down this year, extending the weakness seen in 2015, according to Johnson Associates Inc., a New York-based compensation-consulting firm.

Those in fixed income will see bonuses unchanged to down 10 per cent, though with some improving trends, while equities employees could see a 5 per cent to 15 per cent decline, the firm said in a November report. Bankers advising on deals may get 5 per cent to 10 per cent less and those in underwriting may see declines of 10 per cent to 20 per cent or more.