Report on Executive Compensation for Fiscal 2008

The compensation program for the Bank’s executives is designed to provide pay for performance, i.e., to provide a clear link between an executive’s total direct compensation and both business performance and the executive’s own performance. In particular, how much an executive officer earns should depend to a significant degree upon how well the business and the executive officer perform against established measures that are aligned with shareholder interests. At the same time, the Bank must attract, retain and motivate exceptional talent to meet the Bank’s objectives. The Bank’s compensation philosophy is to:

• Establish compensation opportunities that are at a competitive level in relation to the Bank’s comparator group, and in line with the market median of relevant comparator groups;
  
• Grant higher levels of individual incentive compensation when the Bank and the individual achieve higher performance relative to their peers;
  
• Grant lower levels of individual incentive compensation when the Bank and the individual underperform relative to their peers; and
  
• Encourage executive officers to view their compensation as being tied to the long-term best interests of the Bank’s shareholders.
  
  

The Bank uses two primary comparator groups in setting competitive pay. Within these comparator groups, the Bank reviews compensation levels of comparable jobs, and assesses relative performance and the relative institution size. Other financial institutions and non-financial companies are also reviewed to consider the wider pool from which talent may be recruited.

The primary comparator group that the Bank uses for Canadian executives includes the five other largest Canadian banks named below. The banks are direct competitors and share the same economic and business challenges as BMO, making relative performance comparisons meaningful.

• Bank of Nova Scotia
• Canadian Imperial Bank of Commerce
• Royal Bank of Canada
• Toronto Dominion Bank
• National Bank of Canada
  

For executives in the United States, the Bank uses a comparator group of the nine regional mid-sized banks named below. They are all publicly traded and are comparable to the Bank’s U.S. operations in terms of business mix and size.

• Marshall & Ilsley Corp.
• Huntington Bancshares Inc.
• Associated Banc-Corp.
• TCF Financial Corp.
• Commerce Bancshares Inc.
• Citizens Republic Bancorp, Inc.
• Wintrust Financial Corp.
• First Midwest Bancorp Inc.
• MB Financial Inc.
  

There are four main elements of direct compensation:

• Base salary;
• Short-term cash incentive plan;
• Mid-term incentive plan based on restricted share units; and
• Long-term incentive plan that issues stock options.

Incentive compensation plans are designed to reward executives based
on performance in as many as three areas: (1) total Bank, (2) operating
group, and (3) individual performance.

Full Report on Executive Compensation for 2008 (PDF 186 Kb, 9 pages)