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Tim Kiladze

The top two executives who retired from Canadian Imperial Bank of Commerce last September are guaranteed to earn an extra $25-million combined in "post-employment arrangements," even though they no longer work for the financial institution.

Under agreements signed by CIBC, former chief executive officer Gerry McCaughey and former chief operating officer Richard Nesbitt will be paid $16.7-million and $8.5-million, respectively, in addition to the compensation they received for working up to their retirement date of Sept. 15, 2014.

In the spring of 2014, both executives announced plans to retire, with Mr. Nesbitt promising to stay with the bank until October, 2015, and Mr. McCaughey agreeing to stay for up to two years. Mr. McCaughey's agreement allowed for the possibility that, should his successor have been prepared to become CEO before the end of two years, he would retire sooner.

The two executives ultimately left on the same day last September, roughly six months after their announcements, but the agreements they signed ensure that they will be paid for the entire time they originally said they could stay.

Their announcement of their departures rocked CIBC last year, as the institution unexpectedly lost its top two executives.

Because the bank had no clear successor for Mr. McCaughey, the board of directors took some criticism from corporate governance experts and shareholders, and was criticized for its poor planning.

With no immediate heir in place, Mr. McCaughey agreed to stay with the bank up to April 30, 2016, in case an outsider was brought in and a long handover process was required. However, Victor Dodig, an internal candidate who previously ran the bank's wealth management arm, was quickly named as Mr. McCaughey's successor in late July.

Mr. McCaughey left on Sept. 15, giving the new CEO less than two months to prepare for the bigger role.

"The two-year arrangement between CIBC and Mr. McCaughey ensured that there would be leadership continuity throughout the succession process," CIBC spokesperson Kevin Dove said in a statement. "It also recognized the potential for a shorter time frame in the event the succession process did not take the full two years. Given Mr. Dodig's extensive knowledge of CIBC and the board's confidence in his leadership, he was able to assume the role of president and CEO without the need for an extended transition."

The bank noted in its proxy circular that it "chose to accelerate" the two men's retirement. Although the language may suggest both men were forced to exit early, sources at CIBC have said they left on their own.

The agreements signed by both former executives guarantee they will continue to be paid a combination of base salary, monthly incentives, pension and benefit programs and a lump sum of unused vacation days. The arrangements also prevent both executives from working at competing financial institutions for a set period of time after their retirement date – 24 months for Mr. McCaughey and 15 months for Mr. Nesbitt.

As of Oct. 31, 2014, Mr. McCaughey's CIBC defined benefit pension was worth $25.9-million, while Mr. Nesbitt's was worth $4.9-million.

Because the succession process was so rocky, Mr. Dodig, who is widely considered an affable leader, sought to maintain some sort of stability among his executive team and kept most existing managers in their roles.

Analysts have expressed concern about CIBC's bottom line going forward because the bank is heavily exposed to Canada, with roughly 70 per cent of its profit stemming from its domestic personal and commercial banking operation – a unit that in recent years had fallen behind its peers. The Canadian market is also expected to suffer from weaker loan growth than in the past.

Since he took over, Mr. Dodig has stressed the importance of diversifying the bank, which he has been trying to do by expanding in wealth management, particularly in the United States.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 27/03/24 4:00pm EDT.

SymbolName% changeLast
CM-N
Canadian Imperial Bank of Commerce
-0.46%50.07
CM-T
Canadian Imperial Bank of Commerce
-0.66%67.9

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