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TD Bank CEO Pay Set Amid AML Fallout, U.S. Retail Head Sees Compensation Cut

Toronto-Dominion Bank, widely known as TD Bank, is navigating a turbulent period marked by significant anti-money laundering (AML) challenges within its U.S. retail banking operations. This turmoil has directly impacted executive compensation, as revealed in recent regulatory filings. The bank has set the 2024 salary for its recently appointed Chief Executive Officer, Raymond Chun, at C$11.4 million (approximately $7.88 million USD). Simultaneously, the head of TD’s U.S. retail banking division, Leo Salom, is experiencing a reduction in his overall pay package, reflecting the gravity of the ongoing remediation efforts.

The changes in executive compensation underscore the seriousness with which TD Bank is addressing the AML failures that have plagued its U.S. operations. Earlier this year, the bank accelerated Chun’s ascension to the CEO role, a move designed to inject fresh leadership and accelerate the implementation of necessary changes. This expedited appointment coincided with a substantial decrease in the annual salary of the outgoing CEO, Bharat Masrani, whose compensation was reduced by a staggering 89% to C$1.5 million. Masrani will remain with TD as an advisor until the end of July and is receiving C$500,000 per month and benefits for his counsel.

The decision to reduce Leo Salom’s compensation for 2024 by 23% to $3.51 million USD is a direct consequence of the AML issues. However, in a move intended to incentivize remediation efforts, Salom is also in line to receive a $2 million bonus in 2025, contingent upon the achievement of specific AML remediation conditions and milestones. This structure suggests that the bank is holding its leadership accountable for addressing the shortcomings while simultaneously providing a financial incentive for achieving tangible improvements in AML compliance.

The root of the trouble lies in significant anti-money laundering lapses within TD’s U.S. retail business. The bank has already pleaded guilty in relation to these failures, acknowledging that its systems allowed drug traffickers to launder millions of dollars derived from the illicit sale of fentanyl. The consequences of these lapses have been severe, including a hefty fine of $3 billion USD.

The bank’s response has been multifaceted. In addition to the significant financial penalty, TD is currently undertaking a comprehensive remediation program aimed at strengthening its AML controls and preventing future occurrences. This program encompasses a wide range of measures, including a strategic review of its U.S. retail operations, substantial investments in technology and personnel, and the implementation of enhanced training programs for employees.

To bolster its risk and compliance capabilities, TD has made significant investments in personnel, appointing over 40 new executives and hiring more than 700 AML professionals. This influx of talent is intended to provide the expertise and resources necessary to effectively address the challenges and enhance the bank’s overall compliance posture.

According to Alan MacGibbon, the board chairman of TD Bank, 2024 has been a particularly challenging year. He explicitly acknowledged the "gravity" of the U.S. anti-money laundering failures, highlighting the associated costs and the limitations imposed on the U.S. retail business. He stated the situation has had and will continue to have a significant impact on the bank.

TD Bank is also taking steps to refresh its board of directors, nominating Ana Arsov, the former global co-head of financial institutions at Moody’s Ratings, for a position. The addition of Ms. Arsov, who brings significant experience in the financial industry, is part of a broader effort to enhance the board’s oversight capabilities and ensure that it has the expertise necessary to guide the bank through this challenging period. The bank had previously announced four other nominations, each with expertise in risk and compliance, as five board members are expected to step down.

Looking ahead, TD Bank has signaled its confidence in the leadership of Raymond Chun by raising his compensation target for 2025 to C$12 million. This increase reflects the bank’s expectations for Chun’s performance as CEO and his role in steering the organization through the ongoing remediation efforts. Prior to assuming the CEO role, Chun served as the chief operating officer from November to February, during which time his compensation was set at C$9.5 million.

In addition to the changes at TD, its competitors are adjusting their executive compensation. The information about TD comes on the heels of news that JPMorgan Chase’s CEO, Jamie Dimon, will see a pay increase for 2024 following record profits, highlighting that success is still being rewarded within the financial industry.

The situation at TD Bank serves as a stark reminder of the critical importance of robust anti-money laundering controls and the potential consequences of compliance failures. The bank’s experiences underscore the need for financial institutions to prioritize AML compliance, invest in appropriate technology and personnel, and foster a strong culture of compliance throughout the organization. As TD Bank continues its remediation efforts, the financial industry and its regulators will be closely monitoring its progress and assessing the effectiveness of its actions. The bank’s ability to successfully address its AML issues and rebuild trust with its stakeholders will be crucial to its long-term success.