EX-99.1 2 o34355exv99w1.htm EX-99.1 Bank of Montreal
 

Exhibit 99.1
Notice of Annual Meeting of
Shareholders and Proxy Circular
 
Annual Meeting March 1, 2007

Bank of Montreal



(YOUR BMO LOGO)

 


 

Table of Contents
         
Invitation to Shareholders
    1  
         
Notice of Annual Meeting of Shareholders of Bank of Montreal
    2  
         
Proxy Circular
       
         
Q&A on Proxy Voting
    3  
         
Business of the Meeting
       
Financial Statements
    5  
Election of the Board of Directors
    5  
Appointment of Auditor
    5  
Amendments to the Stock Option Plan
    5  
Shareholder Proposals
    6  
         
Nominees for Election to Board of Directors
    7  
         
Board of Directors Compensation/Attendance
    16  
         
Reports
       
Audit Committee
    19  
Conduct Review Committee
    20  
Governance and Nominating Committee
    21  
Risk Review Committee
    22  
Human Resources and Management Compensation Committee
    23  
         
Report on Executive Compensation
    25  
         
Executive Compensation
    34  
         
Indebtedness of Directors and Executive Officers
    43  
         
Performance Graph
    43  
         
Directors’ and Officers’ Insurance
    44  
         
Additional Information
    44  
         
Contacting the Board of Directors
    44  
         
Directors’ Approval
    44  
         
Schedule 1 – Statement of Corporate Governance Practices and Board Mandate
    45  
         
Schedule 2 – Shareholder Proposals
    53  


Your Vote Counts...
Registered Shareholders
You will have received a form of proxy from Bank of Montreal’s transfer agent, Computershare Trust Company of Canada. Complete, sign and mail your form of proxy in the postage prepaid envelope provided or fax it to the number indicated on the form. To vote in person at the meeting, see page 3 of the Proxy Circular.
Non-Registered Shareholders
Your shares are held in the name of a nominee (securities broker, trustee or other financial institution).
     You will have received a request for voting instructions from your broker. Follow the instructions on your voting instruction form to vote by telephone, Internet or fax, or complete, sign and mail the voting instruction form in the postage prepaid envelope provided. To vote in person at the meeting, see the box on page 4 of the Proxy Circular.


 


 

Invitation to Shareholders



     
 
It is our great pleasure to invite you to join the Bank of Montreal Board of Directors and senior leadership team at our Annual Meeting of Shareholders on March 1, 2007. It will take place in Toronto at The Carlu.
This important meeting is your opportunity to hear a first-hand accounting of BMO’s performance to date and our plans for the future – and for us to respond to any questions you may have.
     This meeting is also your opportunity to vote on the important issues we face. If you are unable to attend in person, you may exercise the power of your proxy vote in a simple procedure that is explained in this Proxy Circular. We urge you to make your vote count.
     Live coverage of the meeting will be available on our web site, www.bmo.com. Following the meeting, a recording of the proceedings will be available online, where you will also find the full text of the Annual Report 2006, quarterly results, presentations to the investment community, and other useful information about BMO.
     Directors and management never lose sight of the fact that we guide this enterprise on behalf of you, our shareholders. We look forward to your participation in our deliberations on March 1.
Sincerely,
     
/s/ David Galloway
  /s/ Tony Comper
 
   
David Galloway
  Tony Comper
Chairman of the Board
  President and Chief Executive Officer
January 11, 2007
Bank of Montreal Proxy Circular 1

 


 

Notice of Annual Meeting of
Shareholders of Bank of Montreal
     
 
The Annual Meeting of Shareholders of Bank of Montreal will commence at 9:30 a.m. (Eastern Standard Time) on Thursday, March 1, 2007 in the Concert Hall, The Carlu, 444 Yonge Street, 7th Floor, Toronto, Ontario, and will have the following purposes:
1.   To receive the financial statements of the Bank for the year ended October 31, 2006 and the auditor’s report on those statements;
 
2.   To elect the Board of Directors for 2007;
 
3.   To appoint an auditor for 2007;
 
4.   To consider and, if thought fit, to approve a resolution amending the Stock Option Plan, including increasing the number of Common Shares reserved for issuance under the Plan by an additional 3,000,000 Common Shares;
 
5.   To consider shareholder proposals, attached as Schedule 2 of the Proxy Circular; and
 
6.   To transact any other business properly before the meeting.
Shareholders as at January 11, 2007 will be entitled to vote at the meeting. The number of eligible votes* that may be cast at this meeting is 501,096,694, such number being the total number of Common Shares of the Bank outstanding on January 11, 2007.
     If you cannot attend the meeting in person, please complete the enclosed form of proxy and return it in the postage prepaid envelope provided, or fax it to 1-866-249-7775 within Canada and the United States or 416-263-9524 from all other countries. For your vote to be recorded, your proxy must be received by Computershare Trust Company of Canada, by fax at the numbers noted above, or by mail at its Toronto office, no later than 5:00 p.m. (Eastern Standard Time) on Wednesday, February 28, 2007.
By order of the Board of Directors,
     
 
   
/s/ Robert V. Horte
   
Robert V. Horte
   
Vice-President and Corporate Secretary
   
January 11, 2007
   
*   The actual number of eligible votes may be less due to voting restrictions set forth in the Bank Act as described on page 3 in the answer to the question “Who is entitled to vote?”
2 Bank of Montreal Proxy Circular

 


 

Proxy Circular
 
This Proxy Circular is dated January 2, 2007 and all information is as at this date, unless otherwise indicated.
Q&A on Proxy Voting
Q:   What am I voting on?
A:   Shareholders are voting on the election of directors to the Board of the Bank for 2007, the appointment of an auditor for the Bank for 2007, amendments to the Stock Option Plan, and shareholder proposals.
Q:   Who is entitled to vote?
A:   Shareholders as at the close of business on January 11, 2007 are entitled to vote. Each Common Share is entitled to one vote on those items of business identified in the Notice of Annual Meeting of Shareholders of Bank of Montreal, except shares of the Bank which are beneficially owned by: the Government of Canada or of a province or any of their agencies; or the government of a foreign country or any political subdivision thereof or any of its agencies; or any person who has acquired more than 10% of any class of shares of the Bank without the approval of the Minister of Finance. No person, or entity controlled by any person, may cast votes in respect of any shares beneficially owned by the person or entity that represent, in the aggregate, more than 20% of the eligible votes that may be cast.
     If you acquired your shares after January 11, 2007, please refer to the answer to the question “What if ownership of shares has been transferred after January 11, 2007?” on page 4 to determine how you may vote such shares.
Q:   How do I vote?
A:   If you are a registered shareholder, you may vote in person at the meeting or you may sign the enclosed form of proxy appointing the persons named in the proxy or some other person you choose, who need not be a shareholder, to represent you as proxyholder and vote your shares at the meeting. If your shares are held in the name of a nominee, please see the box on page 4 for voting instructions.
Q:   What if I plan to attend the meeting and vote in person?
A:   If you are a registered shareholder and plan to attend the meeting on March 1, 2007 and wish to vote your shares in person at the meeting, do not complete or return the form of proxy. Your vote will be taken and counted at the meeting. Please register with the transfer agent, Computershare Trust Company of Canada, upon arrival at the meeting.
     If your shares are held in the name of a nominee, please see the box on page 4 for voting instructions.
Q:   Who is soliciting my proxy?
A:   The enclosed form of proxy is being solicited by the management of Bank of Montreal and the associated costs will be borne by the Bank. The solicitation will be made primarily by mail but may also be made by telephone, in writing or in person by employees of the Bank and/or Computershare Trust Company of Canada. The Bank will also use the services of an outside agency, Georgeson Shareholder Communications Canada, Inc., to solicit proxies, at a cost of up to $40,000 to the Bank.
Q:   What if I sign the form of proxy enclosed with this circular?
A:   Signing the enclosed form of proxy gives authority to David Galloway or Tony Comper, each of whom is a director of the Bank, or to another person you have appointed, to vote your shares at the meeting.
Q:   Can I appoint someone other than these directors to vote my shares?
A:   Yes. Write the name of this person, who need not be a shareholder, in the blank space provided in the form of proxy.
     It is important to ensure that any other person you appoint is attending the meeting and is aware that he or she has been appointed to vote your shares. Proxyholders should, upon arrival at the meeting, present themselves to a representative of Computershare Trust Company of Canada.
Q:   What do I do with my completed proxy?
A:   Return it to the Bank’s transfer agent, Computershare Trust Company of Canada, in the envelope provided, or by fax to 1-866-249-7775 within Canada and the United States or 416-263-9524 from all other countries, so that it arrives no later than 5:00 p.m. (Eastern Standard Time) on Wednesday, February 28, 2007. This will ensure that your vote is recorded.
Q:   If I change my mind, can I take back my proxy once I have given it?
A:   Yes. If you change your mind and wish to revoke your proxy, prepare a written statement to this effect. The statement must be signed by you or your attorney as authorized in writing or, if the shareholder is a corporation, under its corporate seal or by an officer or attorney of the corporation duly authorized. This statement must be delivered to the Secretary of the Bank at the following address no later than 5:00 p.m. (Eastern Standard Time) on Wednesday, February 28, 2007 or to the Chairman on the day of the meeting, Thursday, March 1, 2007, or any adjournment of the meeting.

Bank of Montreal
Corporate Secretary’s Department
21st Floor, 1 First Canadian Place
Toronto, Ontario M5X 1A1
Attention: Robert V. Horte, Vice-President
and Corporate Secretary
Fax: 416-867-6793


Bank of Montreal Proxy Circular 3

 


 

Proxy Circular (continued)
Q:   How will my shares be voted if I give my proxy?
A:   The persons named on the form of proxy must vote for or against or withhold from voting your shares in accordance with your directions, or you can let your proxyholder decide for you. In the absence of such directions, proxies received by management will be voted in favour of the election of directors to the Board, the appointment of an auditor and the amendments to the Stock Option Plan, and against the shareholder proposals set out in Schedule 2 of this Proxy Circular.
Q:   What if amendments are made to these matters or if other matters are brought before the meeting?
A:   The persons named in the form of proxy will have discretionary authority with respect to amendments or variations to matters identified in the Notice of Annual Meeting of Shareholders of Bank of Montreal and with respect to other matters which may properly come before the meeting.
     As of the time of printing of this Proxy Circular, management of the Bank knows of no such amendment, variation or other matter expected to come before the meeting. If any other matters properly come before the meeting, the persons named in the form of proxy will vote on them in accordance with their best judgment.
Q:   How many shares are entitled to vote?
A:   As of January 11, 2007, there were outstanding 501,096,694 Common Shares of the Bank. Subject to the terms of the Bank Act restricting the voting of shares (see “Who is entitled to vote?” on page 3), each registered shareholder has one vote for each Common Share held at the close of business on January 11, 2007.
     To the knowledge of the directors and officers of the Bank, as of January 2, 2007 no one person or entity beneficially owned, directly or indirectly, or exercised control or direction over more than 10% of the outstanding Common Shares of the Bank.
Q:   What if ownership of shares has been transferred after January 11, 2007?
A:   The person who acquired such shares after January 11, 2007 must produce properly endorsed share certificates or otherwise establish that he or she owns the shares and must ask the Bank no later than 5:00 p.m. (Eastern Standard Time) on Monday, February 19, 2007 that his or her name be included in the list of shareholders before the meeting in order to be entitled to vote these shares at the meeting.
Q:   How will the votes be counted?
A:   Except as provided in the Bank Act, each question brought before the meeting is determined by a majority of votes cast on the question. In the case of equal votes, the Chairman of the meeting is entitled to a second or casting vote.
Q:   Who counts the votes?
A:   The Bank’s transfer agent, Computershare Trust Company of Canada, counts and tabulates the proxies. This is done independently of the Bank to preserve the confidentiality of individual shareholder votes. Proxies are referred to the Bank only in cases where a shareholder clearly intends to communicate with management or when it is necessary to do so to meet the requirements of applicable law.
Q:   If I need to contact the transfer agent, how do I reach them?
A:   For general shareholder enquiries, you can contact the transfer agent by mail at:
Computershare Trust Company of Canada
100 University Avenue
9th Floor, North Tower
Toronto, Ontario M5J 2Y1
or by telephone:
within Canada and the United States at 1-800-340-5021, and from all other countries at 514-982-7800;
or by fax:
within Canada and the United States at 1-888-453-0330, and from all other countries at 416-263-9394;
or by e-mail at service@computershare.com.

Q:   If my shares are not registered in my name but are held in the name of a nominee (a bank, trust company, securities broker, trustee or other), how do I vote my shares?
A:   There are two ways you can vote your shares held by your nominee. As required by Canadian securities legislation, you will have received from your nominee either a request for voting instructions or a form of proxy for the number of shares you hold.
     For your shares to be voted for you, please follow the voting instructions provided by your nominee.
     Since the Bank does not have unrestricted access to the names of its non-registered shareholders, if you attend the meeting the Bank may have no record of your shareholdings or of your entitlement to vote unless your nominee has appointed you as proxyholder. Therefore, if you wish to vote in person at the meeting, insert your own name in the space provided on the request for voting instructions or form of proxy and return same by following the instructions provided. Do not otherwise complete the form as your vote will be taken at the meeting. Please register with the transfer agent, Computershare Trust Company of Canada, upon arrival at the meeting.
Q:   What is the final date to submit a shareholder proposal for the next Annual Meeting?
A:   The final date for submitting shareholder proposals to the Bank for the next annual meeting is October 12, 2007.


4 Bank of Montreal Proxy Circular

 


 

Business of the Meeting
 

1. Financial Statements
The Consolidated Financial Statements for the year ended October 31, 2006 are included in the 2006 Annual Report.
2. Election of the Board of Directors
The 17 nominees proposed for election as directors of the Bank are listed beginning on page 7. All are currently directors of the Bank with the exception of Mr. Downe, the Chief Operating Officer of the Bank. All nominees have established their eligibility and willingness to serve as directors. Directors will hold office until the next Annual Meeting of Shareholders of the Bank or until their successors are elected or appointed.
     Unless otherwise instructed, the persons designated in the form of proxy intend to vote for the election of the nominees listed beginning on page 7. If, for any reason, at the time of the meeting any of the nominees are unable to serve, and unless otherwise specified, it is intended that the persons designated in the form of proxy will vote at their discretion for a substitute nominee or nominees.
Majority Voting for Directors
The Board has adopted a policy stipulating that if the votes in favour of the election of a director nominee at a shareholders’ meeting represent less than a majority of the shares voted and withheld, the nominee will submit his or her resignation promptly after the meeting for the Governance and Nominating Committee’s consideration. The Committee will make a recommendation to the Board after reviewing the matter, and the Board’s decision to accept or reject the resignation will be disclosed to the public. The nominee will not participate in any Committee or Board deliberations in considering the resignation. The policy does not apply in circumstances involving contested director elections.
3. Appointment of Auditor
The directors propose that the firm of KPMG llp be appointed as the auditor of the Bank (Shareholders’Auditor) for the 2007 fiscal year. KPMG llp has served continuously since 1990 as one of the Bank’s auditing firms and became the Bank’s sole auditing firm on November 1, 2003.
Pre-Approval Policies and Procedures
As part of the Bank’s corporate governance practices, the Board continues to ensure that a strict policy is in place limiting the Shareholders’Auditor from providing services not related to their role as auditor. All services provided by the Shareholders’ Auditor are pre-approved by the Audit Committee as they arise or through an annual pre-approval of amounts for specific types of services. All services comply with our Auditor Independence Policy, as well as professional standards and securities regulations governing auditor independence.
Shareholders’ Auditor’s Service Fees
Aggregate fees paid to the Shareholders’ Auditor during the fiscal years ended October 31, 2006 and 2005 were as follows:
                 
Fees in millions of dollars (1)   2006     2005  
 
Audit fees
  $  10.7     $ 7.8  
Audit-related fees (2)
    0.1       0.2  
Tax fees
    0.0       0.0  
All other fees (3)
    0.5       1.6  
 
Total
  $ 11.3     $ 9.6  
 
(1)   The classification of fees is based on United States Securities and Exchange Commission definitions and applicable Canadian securities laws.
 
(2)   Audit-related fees for 2006 and 2005 relate to fees paid for accounting advice, specified procedures on our Proxy Circular and translation services.
 
(3)   All other fees for 2006 relate to fees paid for reviews of compliance with regulatory requirements for financial information, reports on internal controls over services provided by various BMO Financial Group businesses and corporate recovery services that were grandfathered when the Bank’s Auditor Independence Policy came into effect. All other fees for 2005 relate to the same services provided in 2006 as well as fees paid for assistance with documentation of internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act. These documentation services were provided under the direct supervision of Bank management.
4. Amendments to the Stock Option Plan
The purpose of the Stock Option Plan is to align incentives for executives with the creation of value for shareholders over the long term through competitive compensation arrangements. Details of the current Plan are included in the Report on Executive Compensation of the Human Resources and Management Compensation Committee on page 30 (3. Long-Term Incentive Plan) and page 41 (Equity Compensation Plan Information). A full copy of the Plan is available to any shareholder of the Bank upon request by writing to Bank of Montreal, Corporate Secretary’s Department, 21st Floor, 1 First Canadian Place, Toronto, Ontario, M5X 1A1 or by emailing to corp.secretary@bmo.com.
     Shareholders will be asked to consider a resolution to increase the maximum number of Common Shares of the Bank that may be issued pursuant to the exercise of options under the Plan by 3,000,000 shares, in addition to certain other proposed amendments to the Stock Option Plan described below (the “Proposed Amendments”). The Proposed Amendments have been approved by the Toronto Stock Exchange conditional upon shareholder approval.
     There are currently 59,200,000 Common Shares authorized under the Plan. As of January 2, 2007, taking into account options that have been forfeited or cancelled, a net total of 58,362,871 options have been granted to participants in the Plan. Since the Plan was adopted, option exercises have resulted in the issuance of 34,679,189 Common Shares. As of January 2, 2007, 837,129 stock options remain available for grant, which is insufficient for future anticipated grants. If the Proposed Amendments are approved, the total number of Common Shares reserved for the Plan, minus options that have been exercised, will represent approximately 5.5% of the total number of issued and outstanding Common Shares of the Bank.
     Bank of Montreal adheres to prudent governance standards regarding the use of options as an element of compensation. The Bank limits the total number of Common Shares reserved for the Plan, minus those options that have been exercised, to 7.5% or less of the total number of issued and outstanding Common Shares of the Bank. This reduces the future dilutive effects of stock options on share value. Stock options are generally granted to most executives of the Bank. In 2006, approximately 190 executives received stock option grants. This practice


Bank of Montreal Proxy Circular 5

 


 

Business of the Meeting (continued)

does not result in significant concentration for any single officer. Although the proportion of options outstanding under the Plan is slightly higher than that of other major Canadian banks, this is due in part to the fact that, in addition to vesting over time, a significant portion of the options that have been issued to participants under the Plan are subject to the restriction that they can be exercised, once they vest, only when either a 50% or a 100% increase in share price has been realized. For example, for options granted to senior executives in 2006, 33% of their stock option grants must satisfy the 50% price increase condition and 34% must satisfy the 100% price increase condition.
     The other Proposed Amendments are (i) to revise the amendment provisions of the Plan to specify which amendments require shareholder approval; (ii) to provide that when an option expiry date falls within one of the Bank’s blackout periods during which employees are restricted from trading in the Bank’s Common Shares, the expiry date will be the fifth business day following the expiry of the blackout period; and (iii) to enable part-time employees of the Bank and its affiliates to participate in the Plan. The rationale for each of these amendments is noted below.
     The Toronto Stock Exchange has stated that effective June 30, 2007 it would no longer permit amendments to be made to the Stock Option Plan unless shareholders approve revised amendment provisions that specify the circumstances in which shareholder approval is or is not required for an amendment. The Board believes that except for certain material changes to the Plan it is important that the Board has the flexibility to make changes to the Plan without shareholder approval. Such amendments could include making appropriate adjustments to outstanding options in the event of certain corporate transactions, the addition of provisions requiring forfeiture of options in certain circumstances, specifying practices with respect to applicable tax withholdings and changes to enhance clarity or correct ambiguous provisions, such as the changes that were recommended by the Human Resources and Management Compensation Committee and approved by the Board in 2006 which were not required to be submitted to shareholders for approval, described on page 42.
     Under the Bank’s Insider Trading Policy, specified employees are restricted from trading in securities of the Bank during periodic blackout periods imposed by the Bank. The Proposed Amendments address the situation where an option holder is unable to exercise an option expiring during a blackout period imposed by the Bank by providing that the option’s expiry date will be the fifth business day following the expiry of the blackout period.
     As part of the Bank’s commitment to creating an equitable and supportive workplace, a range of flexible work options are offered to employees, including executives, of the Bank and its subsidiaries. However, some of these executives are not eligible to receive stock options as eligibility to participate in the Plan is currently restricted to full-time employees. The Proposed Amendments will provide the flexibility to award stock options to regular part-time employees, which includes these executives.
     Shareholders will be asked at the meeting to pass the following resolution, with or without variation, relating to the Proposed Amendments:
THAT the Bank’s Stock Option Plan be amended to:
1.   provide that the number of Common Shares of Bank of Montreal issuable pursuant to the exercise of options under the Bank’s Stock Option Plan be increased by an additional 3,000,000 Common Shares;
2.   change the amendment provisions of the Plan to clarify that shareholder approval is not required for amendments except for any amendment or modification that (i) increases the number of Common Shares reserved for issuance under the Plan, (ii) reduces the exercise price of an option except for the purpose of maintaining option value in connection with a conversion, change, reclassification, redivision, redesignation, subdivision or consolidation of Common Shares or a reorganization, amalgamation, consolidation, merger, takeover bid or similar transaction involving the Bank (for this purpose, cancellation or termination of an option of a Plan participant prior to its expiry date for the purpose of reissuing options to the same Plan participant with a lower exercise price shall be treated as an amendment to reduce the exercise price of an option), (iii) extends the term of an option beyond the expiry date (except where an expiry date would have fallen within a blackout period of the Bank), (iv) extends eligibility to participate in the Plan to non-employee directors, (v) permits options or stock appreciation rights to be transferred other than for normal estate settlement purposes, (vi) extends the expiry date of an option beyond 10 years from its grant date (except where an expiry date would have fallen within a blackout period of the Bank), or (vii) permits awards, other than options and stock appreciation rights, to be made under the Plan;
3.   provide that when an option otherwise would have expired during a blackout period imposed under the Bank’s Insider Trading Policy, the expiry date will be the fifth business day following the expiry of the blackout period, provided that such extended expiration date shall not in any event be beyond the later of (i) December 31 of the calendar year in which the option was otherwise due to expire and (ii) the 15th day of the third month following the month in which the option was otherwise due to expire; and
4.   change the eligibility provisions of the Plan to enable part-time employees of the Bank and its affiliates to participate in the Plan.
To be effective the resolution must be passed by a majority of the votes cast thereon in person and by proxy by the shareholders at the meeting. The persons designated in the enclosed form of proxy, unless instructed otherwise, intend to vote in favour of the foregoing resolution.
5. Shareholder Proposals
Shareholder proposals submitted for the consideration of shareholders are attached as Schedule 2 of this Proxy Circular.


6 Bank of Montreal Proxy Circular

 


 

Nominees for Election to Board of Directors
 
(PHOTO OF ROBERT M. ASTLEY)
 
Robert M. Astley
Age: 62
Waterloo, Ontario
Canada
Director Since: 2004
Independent(1)
Bob Astley, a Corporate Director, is the former President and Chief Executive Officer of Clarica Life Insurance Company, a life and health insurance company headquartered in Waterloo, and former President of Sun Life Financial Canada, comprising the Canadian life and health insurance and wealth management operations of Sun Life Financial Inc. In 1999, as President and Chief Executive Officer of Mutual Life of Canada, he led the organization and its stakeholders through demutualization, an initial public offering and a corporate name change to Clarica Life Insurance Company. With the combining of the operations of Clarica and Sun Life Financial Services of Canada Inc. in 2002, Mr. Astley was appointed President of Sun Life Financial Canada, a position he held until his retirement in September 2004. Mr. Astley is a director of the CPP Investment Board, Chairman of the Kitchener-Waterloo Symphony, a member of the Dean’s Advisory Council of the School of Business and Economics at Wilfrid Laurier University, and a member of the faculty of The Directors College. He graduated from the University of Manitoba with an Honours degree in Science and is a Fellow of the Canadian Institute of Actuaries.
                             
 
Board/Committee Membership     Attendance     Public Board Membership During the Last Five Years
                         
Board of Directors
    12 of 12       100 %     CI Fund Management Inc.     2002 – 2004
Board of Directors’ Round Table(2)
    7 of 7       100 %     Clarica Life Insurance Company     1989 – 2002
Human Resources and Management Compensation
    11 of 12       92 %     Sun Life Financial Inc.     2002 – 2004
Risk Review
    8 of 8       100 %            
The Pension Fund Society of the Bank of Montreal Board
    7 of 7       100 %            
                         
Securities Held
 
                                                   
                Deferred                  
      Common     Share Units     Total of Common Shares     Total Market Value of     Minimum
Year     Shares(3)     (DSUs)(4)     and DSUs     Common Shares and DSUs(5)     Required(6)
                               
2006
      6,485         5,279         11,764       $ 813,128       $ 600,000  
2005
      6,485         2,460           8,945       $ 593,680       $ 480,000  
                               
Options Held(7)
 
Nil

 
(PHOTO OF STEPHEN E. BACHAND)
 
Stephen E. Bachand
Age: 68
Ponte Vedra Beach,
Florida, U.S.A.
Director Since: 1999
Independent(1)
Stephen Bachand, a Corporate Director, is the retired President and Chief Executive Officer of Canadian Tire Corporation, Limited. He graduated from Williams College in Williamstown, Massachusetts with a B.A. and from the Darden School of the University of Virginia with an M.B.A.
                             
 
Board/Committee Membership     Attendance     Public Board Membership During the Last Five Years
                         
Board of Directors
    11 of 12       92 %     Canadian Pacific Railway Limited     2001 – Present
Board of Directors’ Round Table(2)
    7 of 7       100 %     Fairmont Hotels and Resorts Inc.     2001 – Present
Governance and Nominating
    6 of 6       100 %     Krystal Bond Inc.     1996 – 2002
Human Resources and Management Compensation (Chair)
    12 of 12       100 %            
                         
Securities Held
 
                                                   
                Deferred                  
      Common     Share Units     Total of Common Shares     Total Market Value of     Minimum
Year     Shares (3)     (DSUs) (4)     and DSUs     Common Shares and DSUs(5)     Required(6)
                               
2006
      28,200         21,582         49,782       $ 3,440,932       $ 600,000  
2005
      28,200         17,825         46,025       $ 3,054,679       $ 480,000  
                               
Options Held(7)
 
                                               
            Number                         Value of Unexercised
Date Granted     Expiry Date     Granted     Exercise Price(8)     Total Unexercised     Options(9)
                               
March 1, 2002
    March 1, 2012       7,500       $ 36.01         7,500       $ 248,325  
February 28, 2003
    February 28, 2013       3,000       $ 43.25         3,000       $   77,610  
                               

 

 

 

 

 


Bank of Montreal Proxy Circular 7

 


 

Nominees for Election to Board of Directors (continued)
 
(PHOTO OF DAVID R. BEATTY)
 
David R. Beatty, O.B.E.
Age: 64
Toronto, Ontario
Canada
Director Since: 1992
Independent(1)
David Beatty is Chairman and Chief Executive Officer of Beatinvest Limited, a holding company, and is the former Chairman and Chief Executive Officer of Old Canada Investment Corporation Limited, an investment management company. Mr. Beatty is the Managing Director of the Canadian Coalition for Good Governance, an organization that represents 50 pension funds, mutual funds and money managers with over $1 trillion in assets under management. He is Professor of Strategic Management and Director of the Clarkson Centre for Business Ethics and Board Effectiveness at the University of Toronto’s Rotman School of Management. Mr. Beatty is Honorary Consul to Canada for the Government of Papua New Guinea and in 1993 was awarded the O.B.E. A graduate in economics from Trinity College of the University of Toronto, he was a Nuffield Scholar at Queen’s College, Cambridge, where he obtained an M.A.
                             
 
Board/Committee Membership     Attendance     Public Board Membership During the Last Five Years
                         
Board of Directors
    10 of 12       83 %     First Service Corporation     2001 – Present
Board of Directors’ Round Table(2)
    6 of 7       86 %     Husky Injection Molding Systems Ltd.     2004 – Present
Governance and Nominating
    5 of 6       83 %     Inmet Mining Corporation     2003 – Present
Risk Review (Chair)
    7 of 8       88 %     Ivanhoe Cambridge     1999 – Present
 
                    Garbell Holdings Limited     1995 – 2006
 
                    Goldcorp Inc.     1994 – 2006
 
                    Strongco Inc.     1998 – 2002
 
                    Thistle Mining Inc.     1998 – 2005
                         
Securities Held
 
                                                   
                Deferred                  
      Common     Share Units     Total of Common Shares     Total Market Value of     Minimum
Year     Shares(3)     (DSUs)(4)     and DSUs     Common Shares and DSUs(5)     Required(6)
                               
2006
      4,000         23,619         27,619       $ 1,909,025       $ 600,000  
2005
      4,000         20,252         24,252       $ 1,609,605       $ 480,000  
                               
Options Held(7)
 
                                               
            Number                         Value of Unexercised
Date Granted     Expiry Date     Granted     Exercise Price(8)     Total Unexercised     Options(9)
                               
March 1, 2002
    March 1, 2012       7,500       $ 36.01         7,500       $ 248,325  
February 28, 2003
    February 28, 2013       3,000       $ 43.25         3,000       $   77,610  

 
(PHOTO OF ROBERT CHEVRIER)
 
Robert Chevrier, F.C.A.
Age: 63
Montreal, Quebec
Canada
Director Since: 2000
Independent(1)
Robert Chevrier is President of Société de gestion Roche Inc., a management and investment company. He was formerly Chairman and Chief Executive Officer of Rexel Canada Inc. He is a graduate of Concordia University and is a Fellow of the Institute of Chartered Accountants.
                             
 
Board/Committee Membership     Attendance     Public Board Membership During the Last Five Years
                         
Board of Directors
    12 of 12       100 %     Addenda Capital Inc.     2004 – Present
Board of Directors’ Round Table(2)
    7 of 7       100 %     Cascades Inc.     2003 – Present
Audit
    6 of 6       100 %     CGI Group Inc.     2003 – Present
Conduct Review (Chair)
    5 of 5       100 %     Transcontinental Inc.     2001 – Present
The Pension Fund Society of the Bank of Montreal Board
    7 of 7       100 %     Richelieu Hardware Ltd.     1991 – Present
 
                    Les Boutiques San Francisco Inc.     1990 – 2002
                         
Securities Held*
 
                                                   
                Deferred                  
      Common     Share Units     Total of Common Shares     Total Market Value of     Minimum
Year     Shares(3)     (DSUs)(4)     and DSUs     Common Shares and DSUs(5)     Required(6)
                               
2006
      13,212         11,287         24,499       $ 1,693,371       $ 600,000  
2005
      10,321         10,360         20,681       $ 1,372,598       $ 480,000  
                               
Options Held(7)
 
                                               
            Number                         Value of Unexercised
Date Granted     Expiry Date     Granted     Exercise Price(8)     Total Unexercised     Options(9)
                               
March 1, 2002
    March 1, 2012       7,500       $ 36.01         4,723       $ 156,379  
February 28, 2003
    February 28, 2013       3,000       $ 43.25         3,000       $   77,610  
                               
*   Also holds 2,000 Bank of Montreal Class B Preferred Shares Series 4.

 

 

 

 

 


8 Bank of Montreal Proxy Circular

 


 

 
 
(PHOTO OF GEORGE A. COPE)
 
George A. Cope
Age: 45
Toronto, Ontario
Canada
Director Since: 2006*
Independent(1)
George Cope is President and Chief Operating Officer of Bell Canada, focused on driving profitable growth, enhancing customer service and delivering new communications products to the marketplace. Prior to joining Bell in 2005, Mr. Cope was President and Chief Executive Officer of national wireless carrier TELUS Mobility since 2000. Previously, he served as President and Chief Executive Officer of Clearnet Communications for 13 years. Mr. Cope serves on the Advisory Board of the Richard Ivey School of Business at the University of Western Ontario. A past recipient of Canada’s Top 40 Under 40 Award, Mr. Cope holds a Business Administration (Honours) degree from the University of Western Ontario.
                             
 
Board/Committee Membership     Attendance     Public Board Membership During the Last Five Years
                         
Board of Directors
    5 of 5       100 %     NII Holdings, Inc.     2004 – Present
Board of Directors’ Round Table(2)
    2 of 2       100 %     OnX Inc.     2001 – 2005
Risk Review
    2 of 2       100 %     Star Data Systems     1998 – 2001
                         
Securities Held
 
                                                   
                Deferred                  
      Common     Share Units     Total of Common Shares     Total Market Value of     Minimum
Year     Shares(3)     (DSUs)(4)     and DSUs     Common Shares and DSUs(5)     Required(6)
                               
2006
      9,660         231         9,891       $ 683,665       $ 600,000  
2005
      n/a         n/a         n/a         n/a         n/a  
                               
Options Held(7)
 
Nil
 
*   Mr. Cope was appointed to the Board of Directors effective July 25, 2006.

 
(PHOTO OF WILLIAM A. DOWNE)
 
William A. Downe
Age: 54
Winnetka, Illinois, U.S.A.
If elected, will be a
Non-Independent Director (1)
Bill Downe is Chief Operating Officer of BMO Financial Group and will become President and Chief Executive Officer effective March 1, 2007. He was appointed Chief Operating Officer in February 2006, with responsibility for all of BMO’s operating units including the Personal and Commercial Client Group, Investment Banking Group, Private Client Group, Technology and Solutions and Corporate Marketing. Prior to that, Mr. Downe served four years as Deputy Chair, BMO Financial Group and Chief Executive Officer, BMO Nesbitt Burns, a role in which he oversaw the Investment Banking Group, the Private Client Group and BMO Financial Group’s operations in the U.S. In over two decades with the Bank, he has served in several capacities. Mr. Downe serves on the Board of Directors of several Bank subsidiaries, including BMO Nesbitt Burns Corporation Limited and Harris Financial Corp. Mr. Downe holds an M.B.A. from the University of Toronto.
                         
 
Board/Committee Membership     Attendance     Public Board Membership During the Last Five Years
                         
Mr. Downe is not currently on the Board.
    n/a     n/a     None      
                         
Securities Held
 
                                               
      Common               Total of Common Shares     Total Market Value of     Minimum
Year     Shares(3)     Units(10)     and Units     Common Shares and Units     Required(11)
                               
2006
      101,923         151,419         253,342       $ 17,473,273       US $3,233,000
2005
      100,950         145,477         246,427       $ 15,983,012       US $2,750,000
                               
Options Held
 
Mr. Downe will not receive compensation for his services as a director and will not be entitled to receive DSUs or options under the Non-Officer Director Option Plan described on page 42.
Mr. Downe received Deferred Stock Units under the Bank’s Deferred Stock Unit Plan, Performance Share Units under the Bank’s Mid-Term Incentive Plan, Restricted Share Units under the Investment Banking Group Mid-Term Incentive Plan and Options under the Bank’s Stock Option Plan as described in the Report on Executive Compensation.
 

 

 

 

 

 


Bank of Montreal Proxy Circular 9

 


 

Nominees for Election to Board of Directors (continued)
 
(PHOTO OF RONALD H. FARMER)
 
Ronald H. Farmer
Age: 56
Toronto, Ontario
Canada
Director Since: 2003
Independent(1)
Ron Farmer is Managing Director of Mosaic Capital Partners, a Toronto-based holding company with interests in several private companies. Prior to joining Mosaic in 2003, he spent 25 years with McKinsey & Company, serving as the Managing Partner for the Canadian practice from 1991 to 1997 and as a senior Director from 1998 until his retirement in December 2002. Mr. Farmer is a Director of Integran Technologies, Morph Technologies, Inc., Pipal Research Corporation and PowerMetal Technologies. He holds a B.A. and an M.B.A. from the University of Western Ontario.
                             
 
Board/Committee Membership     Attendance     Public Board Membership During the Last Five Years
                         
Board of Directors
    12 of 12       100 %     None      
Board of Directors’ Round Table(2)
    7 of 7       100 %            
Audit
    6 of 6       100 %            
Conduct Review
    4 of 5       80 %            
Human Resources and Management Compensation
    12 of 12       100 %            
                         
Securities Held
 
                                                   
                Deferred                  
      Common     Share Units     Total of Common Shares     Total Market Value of     Minimum
Year     Shares(3)     (DSUs)(4)     and DSUs     Common Shares and DSUs(5)     Required(6)
                               
2006
      4,000         7,549         11,549       $ 798,267       $ 600,000  
2005
      4,000         4,751         8,751       $ 580,804       $ 480,000  
                               
Options Held(7)
 
Nil

 
(PHOTO OF DAVID A. GALLOWAY)
 
David A. Galloway
Age: 63
Toronto, Ontario
Canada
Director Since: 1998
Independent(1)
David Galloway is Chairman of the Board of Bank of Montreal, having been appointed to this position effective May 1, 2004. He was President and Chief Executive Officer of Torstar Corporation from 1988 to 2002. He is a Director of Bank of Montreal’s Harris Financial Corp. and a member of its Risk Oversight Committee. Mr. Galloway has a B.A. (Hons.) in political science and economics from the University of Toronto and an M.B.A. from Harvard Business School.
                             
 
Board/Committee Membership*     Attendance     Public Board Membership During the Last Five Years
                         
Board of Directors
    12 of 12       100 %     Abitibi-Consolidated Inc.     2006 – Present
Board of Directors’ Round Table(2)
    7 of 7       100 %     E.W. Scripps Company     2002 – Present
Governance and Nominating
    6 of 6       100 %     Shell Canada Limited**     2006 – Present
Human Resources and Management Compensation
    10 of 12       83 %     Toromont Industries Ltd.     2002 – Present
Risk Review
    7 of 8       88 %     Corel Corporation     2001 – 2003
 
                    Hudson’s Bay Company     2003 – 2006
 
                    Torstar Corporation     1988 – 2002
                         
Securities Held
 
                                                   
                Deferred                  
      Common     Share Units     Total of Common Shares     Total Market Value of     Minimum
Year     Shares(3)     (DSUs)(4)     and DSUs     Common Shares and DSUs(5)     Required(6)
                               
2006
      2,000         26,807         28,807       $ 1,991,140       $ 1,800,000  
2005
      2,000         21,512         23,512       $ 1,560,491       $ 1,375,000  
                               
Options Held(7)
 
                                               
            Number                         Value of Unexercised
Date Granted     Expiry Date     Granted     Exercise Price(8)     Total Unexercised     Options(9)
                               
March 1, 2002
    March 1, 2012       7,500       $ 36.01         7,500       $ 248,325  
February 28, 2003
    February 28, 2013       3,000       $ 43.25         3,000       $   77,610  
                               
*   Also an ex officio member (non-voting invitee) of Audit Committee, Conduct Review Committee and the Pension Fund Society of the Bank of Montreal Board.
 
**   Ms. Southern is also a director of Shell Canada Limited.

 

 

 

 

 


10 Bank of Montreal Proxy Circular

 


 

 
 
(PHOTO OF HAROLD N. KVISLE)
 
Harold N. Kvisle
Age: 54
Calgary, Alberta
Canada
Director Since: 2005
Independent(1)
Harold Kvisle is President and Chief Executive Officer of TransCanada Corporation, a leading North American energy company focused on natural gas transmission and power generation. He joined TransCanada in 1999 as Executive Vice-President, Trading and Business Development and was appointed to his current position in April 2001. Mr. Kvisle is Chair of the Board of Governors of Mount Royal College and was the 2004 Chairman of the Board of the Interstate Natural Gas Association of America. He holds an M.B.A. from the University of Calgary and a B.Sc. (Eng.) from the University of Alberta.
                             
 
Board/Committee Membership     Attendance     Public Board Membership During the Last Five Years
                         
Board of Directors
    12 of 12       100 %     PrimeWest Energy Inc.     1996 – Present
Board of Directors’ Round Table(2)
    7 of 7       100 %     TransCanada Corporation     2001 – Present
Human Resources and Management Compensation
    12 of 12       100 %     TransCanada PipeLines Limited     2001 – Present
 
                    ARC Strategic Energy Fund     1998 – 2002
 
                    Norske Skog Canada Ltd.     1997 – 2005
 
                    TransCanada Power, L.P.     1999 – 2005
                         
Securities Held
 
                                                   
                Deferred                  
      Common     Share Units     Total of Common Shares     Total Market Value of     Minimum
Year     Shares(3)     (DSUs)(4)     and DSUs     Common Shares and DSUs(5)     Required(6)
                               
2006
      6,000         4,299         10,299       $ 711,867       $ 600,000  
2005
      2,000         1,696         3,696       $ 245,304       $ 480,000  
                               
Options Held(7)
 
Nil

 
(PHOTO OF)
 
Eva Lee Kwok
Age: 64
Vancouver, British Columbia
Canada
Director Since: 1999
Independent(1)
Eva Lee Kwok is Chair and Chief Executive Officer of Amara International Investment Corp., a private corporation with diversified interests focused on real estate and land development, cross-cultural management and strategic partnerships. She is a Director of the Li Ka Shing (Canada) Foundation. Mrs. Kwok has an M.Sc. in nutrition from King’s College, University of London.
                             
 
Board/Committee Membership     Attendance     Public Board Membership During the Last Five Years
                         
Board of Directors
    12 of 12       100 %     Cheung Kong Infrastructure Holdings Ltd.     2004 – Present
Board of Directors’ Round Table(2)
    7 of 7       100 %     CK Life Sciences Int’l. (Holdings) Inc.     2002 – Present
Audit
    6 of 6       100 %     Husky Energy Inc.     2000 – Present
Conduct Review
    5 of 5       100 %     Air Canada     1998 – 2003
 
                    Shoppers Drug Mart Corporation     2004 – 2006
 
                    Telesystem International Wireless Inc.     2002 – 2003
                         
Securities Held
 
                                                   
                Deferred                  
      Common     Share Units     Total of Common Shares     Total Market Value of     Minimum
Year     Shares(3)     (DSUs)(4)     and DSUs     Common Shares and DSUs(5)     Required(6)
                               
2006
      4,000         17,262         21,262       $ 1,469,629       $ 600,000  
2005
      4,000         14,210         18,210       $ 1,208,598       $ 480,000  
                               
Options Held(7)
 
                                               
            Number                         Value of Unexercised
Date Granted     Expiry Date     Granted     Exercise Price(8)     Total Unexercised     Options(9)
                               
March 1, 2002
    March 1, 2012       7,500       $ 36.01         7,500       $ 248,325  
February 28, 2003
    February 28, 2013       3,000       $ 43.25         3,000       $   77,610  
                               

 

 

 

 

 


Bank of Montreal Proxy Circular 11

 


 

Nominees for Election to Board of Directors (continued)
 
(PHOTO OF BRUCE H. MITCHELL)
 
Bruce H. Mitchell
Age: 60
Toronto, Ontario
Canada
Director Since: 1999
Independent(1)
Bruce Mitchell is Chairman and Chief Executive Officer of Permian Industries Limited, a Toronto-based management and holding company with interests in the North American food processing and technology industries. Mr. Mitchell is a member of the Board of Trustees and a Councillor of Queen’s University, is on the Board of Gardiner Group Capital, is Vice-Chair of the Canadian Institute for Advanced Research and has served on the Board and executive committees of Ridley College and UNICEF Canada. He holds a B.Sc. from Queen’s University and an M.B.A. from Harvard University.
                             
 
Board/Committee Membership     Attendance     Public Board Membership During the Last Five Years
                         
Board of Directors
    12 of 12       100 %     GSW Inc.     2000 – 2006
Board of Directors’ Round Table(2)
    7 of 7       100 %     CFM Corporation     2003 – 2005
Governance and Nominating (Chair)
    6 of 6       100 %     Garbell Holdings Limited     2006 – Present
Risk Review
    8 of 8       100 %            
The Pension Fund Society of the Bank of Montreal Board
    7 of 7       100 %            
                         
Securities Held
 
                                                   
                Deferred                  
      Common     Share Units     Total of Common Shares     Total Market Value of     Minimum
Year     Shares(3)     (DSUs)(4)     and DSUs     Common Shares and DSUs(5)     Required(6)
                               
2006
      20,000         18,442         38,442       $ 2,657,111       $ 600,000  
2005
      20,000         14,993         34,993       $ 2,322,485       $ 480,000  
                               
Options Held(7)
 
                                               
            Number                         Value of Unexercised
Date Granted     Expiry Date     Granted     Exercise Price(8)     Total Unexercised     Options(9)
                               
March 1, 2002
    March 1, 2012       7,500       $ 36.01         7,500       $ 248,325  
February 28, 2003
    February 28, 2013       3,000       $ 43.25         3,000       $   77,610  

 
(PHOTO OF PHILIP S. ORSINO)
 
Philip S. Orsino,
O.C., F.C.A.
Age: 52
Toronto, Ontario
Canada
Director Since: 1999
Independent(1)
Philip Orsino, a Corporate Director, is the former President and Chief Executive Officer of Masonite International Corporation (formerly Premdor Inc.), an integrated global building products company with operating facilities in North America, South America, Europe, Asia and Africa. Mr. Orsino is an active volunteer and is involved in many community activities. He currently serves as Chairman of the Board of Trustees of the University Health Network. A published author, Mr. Orsino was appointed an Officer of the Order of Canada in 2004, was the recipient of the 2003 Canada’s Outstanding CEO of the Year Award, received the University of Toronto’s Distinguished Business Alumni Award for 2002 and won the 1998 Entrepreneur of the Year Award for Manufacturing sponsored by Ernst & Young International.
                             
 
Board/Committee Membership*     Attendance     Public Board Membership During the Last Five Years
                         
Board of Directors
    12 of 12       100 %     Clairvest Group Inc.     1998 – Present
Board of Directors’ Round Table(2)
    7 of 7       100 %     Masonite International Corporation     1989 – 2005
Audit (Chair)
    6 of 6       100 %            
Conduct Review
    5 of 5       100 %            
Governance and Nominating
    4 of 4       100 %            
                         
Securities Held
 
                                                   
                Deferred                  
      Common     Share Units     Total of Common Shares     Total Market Value of     Minimum
Year     Shares(3)     (DSUs)(4)     and DSUs     Common Shares and DSUs(5)     Required(6)
                               
2006
      7,619         14,194         21,813       $ 1,507,715       $ 600,000  
2005
      7,598         10,883         18,481       $ 1,226,584       $ 480,000  
                               
Options Held(7)
 
                                               
            Number                         Value of Unexercised
Date Granted     Expiry Date     Granted     Exercise Price(8)     Total Unexercised     Options(9)
                               
March 1, 2002
    March 1, 2012       7,500       $ 36.01         7,500       $ 248,325  
February 28, 2003
    February 28, 2013       3,000       $ 43.25         3,000       $   77,610  
                               
*   Mr. Orsino was appointed Chair of the Audit Committee effective March 2, 2006 and also became a member of the Governance and Nominating Committee and an ex officio member (non-voting invitee) of the Risk Review Committee at this time.

 

 

 

 

 


12 Bank of Montreal Proxy Circular

 


 

 
 
(PHOTO OF DR. MARTHA C. PIPER)
 
Dr. Martha C. Piper,
O.C., O.B.C.
Age: 61
Vancouver, British Columbia
Canada
Director Since: 2006*
Independent(1)
Dr. Martha C. Piper, a Corporate Director, was President and Vice-Chancellor of The University of British Columbia from 1997 to June 2006. Prior to this, she was Vice-President Research and External Affairs at The University of Alberta. She has served on the Board of the Advisory Council on Science and Technology, the British Columbia Progress Board and the National University of Singapore Council. In 2001, she served as Campaign Chair of the United Way of the Lower Mainland. Dr. Piper is an Officer of the Order of Canada and a recipient of the Order of British Columbia. She was named Educator of the Year by the Learning Partnership in 2004 and was recently appointed a member of the Trilateral Commission.
                             
 
Board/Committee Membership     Attendance     Public Board Membership During the Last Five Years
                         
Board of Directors
    5 of 5       100 %     TransAlta Corporation     2006 – Present
Board of Directors’ Round Table(2)
    2 of 2       100 %            
Human Resources and Management Compensation
    3 of 3       100 %            
                         
Securities Held
 
                                               
                Deferred                  
      Common     Share Units     Total of Common Shares     Total Market Value of     Minimum
Year     Shares(3)     (DSUs)(4)     and DSUs     Common Shares and DSUs(5)     Required(6)
                               
2006
      499       Nil       499       $ 34,491       $ 600,000  
2005
      n/a       n/a       n/a         n/a         n/a  
                               
Options Held(7)
 
Nil
 
*   Dr. Piper was appointed to the Board of Directors effective July 25, 2006.

 
(PHOTO OF J. ROBERT S. PRICHARD)
 
J. Robert S. Prichard,
O.C., O.Ont.
Age: 57
Toronto, Ontario
Canada
Director Since: 2000
Independent(1)
Robert Prichard is President and Chief Executive Officer of Torstar Corporation, a broadly based Canadian media company. Torstar Corporation has two principal businesses: newspapers, led by The Toronto Star, Canada’s largest daily, and book publishing, through Harlequin Enterprises, the leading global publisher of women’s fiction. He is also President Emeritus of the University of Toronto, having served as President from 1990 to 2000. Mr. Prichard is also Chairman of the Ontario Innovation Trust, Chair of the Visiting Committee of Harvard Law School and a director of the Toronto Community Foundation. He was appointed an Officer of the Order of Canada in 1994 and received the Order of Ontario in 2000.
                             
 
Board/Committee Membership*     Attendance     Public Board Membership During the Last Five Years
                         
Board of Directors
    12 of 12       100 %     Four Seasons Hotels Inc.     1996 – Present
Board of Directors’ Round Table(2)
    7 of 7       100 %     George Weston Ltd.     2000 – Present
Governance and Nominating
    4 of 4       100 %     Onex Corporation     1994 – Present
Human Resources and Management Compensation
    12 of 12       100 %     Torstar Corporation     2002 – Present
 
                    Charles River Associates     2000 – 2002
                         
Securities Held
 
                                                   
                Deferred                  
      Common     Share Units     Total of Common Shares     Total Market Value of     Minimum
Year     Shares(3)     (DSUs)(4)     and DSUs     Common Shares and DSUs(5)     Required(6)
                               
2006
      4,000         13,672         17,672       $ 1,221,489       $ 600,000  
2005
      4,000         10,823         14,823       $ 983,803       $ 480,000  
                               
Options Held(7)
 
                                               
            Number                         Value of Unexercised
Date Granted     Expiry Date     Granted     Exercise Price(8)     Total Unexercised     Options(9)
                               
March 1, 2002
    March 1, 2012       7,500       $ 36.01         7,500       $ 248,325  
February 28, 2003
    February 28, 2013       3,000       $ 43.25         3,000       $   77,610  
                               
*   Mr. Prichard joined the Governance and Nominating Committee effective March 2, 2006.

 

 

 

 

 


Bank of Montreal Proxy Circular 13

 


 

Nominees for Election to Board of Directors (continued)
 
(PHOTO OF JEREMY H. REITMAN)
 
Jeremy H. Reitman
Age: 61
Montreal, Quebec
Canada
Director Since: 1987
Independent(1)
Jeremy Reitman is President, Chief Executive Officer and a Director of Reitmans (Canada) Limited, a retailing company. He is also a member of the Board of Governors of McGill University. Mr. Reitman studied at Dartmouth College, Hanover, New Hampshire (A.B.) and McGill University (B.C.L.).
                             
 
Board/Committee Membership*     Attendance     Public Board Membership During the Last Five Years
                         
Board of Directors
    11 of 12       92 %     Reitmans (Canada) Limited     1975 – Present
Board of Directors’ Round Table(2)
    7 of 7       100 %            
Audit
    6 of 6       100 %            
Conduct Review
    5 of 5       100 %            
Governance and Nominating
    2 of 2       100 %            
                         
Securities Held
 
                                                   
                Deferred                  
      Common     Share Units     Total of Common Shares     Total Market Value of     Minimum
Year     Shares(3)     (DSUs)(4)     and DSUs     Common Shares and DSUs(5)     Required(6)
                               
2006
      10,000         30,065         40,065       $ 2,769,293       $ 600,000  
2005
      10,000         26,483         36,483       $ 2,421,377       $ 480,000  
                               
Options Held(7)
 
                                               
            Number                         Value of Unexercised
Date Granted     Expiry Date     Granted     Exercise Price(8)     Total Unexercised     Options(9)
                               
March 1, 2002
    March 1, 2012       7,500       $ 36.01         7,500       $ 248,325  
February 28, 2003
    February 28, 2013       3,000       $ 43.25         3,000       $   77,610  
                               
*   Mr. Reitman ceased to be a member of the Governance and Nominating Committee effective March 2, 2006.
Also an ex officio member (non-voting invitee) of the Risk Review Committee.

 
(PHOTO OF GUYLAINE SAUCIER)
 
Guylaine Saucier,
C.M., F.C.A.
Age: 60
Montreal, Quebec
Canada
Director Since: 1992
Independent(1)
Guylaine Saucier, a Corporate Director, is a former Chairman of the Board of Directors of the Canadian Broadcasting Corporation, a former director of the Bank of Canada, a former Chair of the Canadian Institute of Chartered Accountants (CICA), a former director of the International Federation of Accountants, and was Chair of the Joint Committee on Corporate Governance established by the CICA, the Toronto Stock Exchange and the Canadian Venture Exchange, and was also the first woman to serve as President of the Quebec Chamber of Commerce. She serves as a Director of the Fondation du Musée des Beaux Arts. Mme Saucier obtained a B.A. from Collège Marguerite-Bourgeois and a B.Comm. from the École des Hautes Études Commerciales, Université de Montréal. She is a Fellow of the Institute of Chartered Accountants and a Member of the Order of Canada. In 2004, she received the Fellowship Award from the Institute of Corporate Directors.
                             
Board/Committee Membership     Attendance     Public Board Membership During the Last Five Years
                         
Board of Directors
    8 of 12       67 %     Altran Technologies     2003 – Present
Board of Directors’ Round Table(2)
    6 of 7       86 %     AXA Assurance Inc.     1987 – Present
Audit
    6 of 6       100 %     CHC Helicopter Corp.     2005 – Present
Conduct Review
    5 of 5       100 %     Group Areva     2006 – Present
The Pension Fund Society of the
                    Petro-Canada     1991 – Present
Bank of Montreal Board (Chair)
    7 of 7       100 %     Nortel Networks Corporation     1997 – 2005
 
                    Tembec Inc.     1991 – 2005
                         
Securities Held
 
                                                   
                Deferred                  
      Common     Share Units     Total of Common Shares     Total Market Value of     Minimum
Year     Shares(3)     (DSUs)(4)     and DSUs     Common Shares and DSUs(5)     Required(6)
                               
2006
      6,090         25,176         31,266       $ 2,161,106       $ 600,000  
2005
      6,090         22,354         28,444       $ 1,887,828       $ 480,000  
                               
Options Held(7)
 
                                               
            Number                         Value of Unexercised
Date Granted     Expiry Date     Granted     Exercise Price(8)     Total Unexercised     Options(9)
                               
March 1, 2002
    March 1, 2012       7,500       $ 36.01         6,500       $ 215,215  
February 28, 2003
    February 28, 2013       3,000       $ 43.25         3,000       $   77,610  
                               

 

 

 

 

 


14 Bank of Montreal Proxy Circular

 


 

 
 
(PHOTO OF NANCY C. SOUTHERN)
 
Nancy C. Southern
Age: 50
Calgary, Alberta
Canada
Director Since: 1996
Independent(1)
Nancy Southern is President and Chief Executive Officer of ATCO Ltd. and Canadian Utilities Limited and a director of both corporations. ATCO Group is an Alberta-based corporation with companies actively engaged in power generation, utilities, logistics and energy services, industrials and technologies. Ms. Southern was born and raised in Calgary and has been involved in many community endeavours. She is Executive Vice-President of Spruce Meadows, renowned as one of the world’s finest show jumping facilities.
                             
 
Board/Committee Membership     Attendance     Public Board Membership During the Last Five Years
                         
Board of Directors
    11 of 12       92 %     Akita Drilling Ltd.     1992 – Present
Board of Directors’ Round Table(2)
    6 of 7       86 %     ATCO Ltd.     1989 – Present
Risk Review
    6 of 8       75 %     Canadian Utilities Limited     1990 – Present
 
                    Sentgraf Enterprises Ltd.     1982 – Present
 
                    Shell Canada Limited*     2001 – Present
                         
Securities Held
 
                                                   
                Deferred                  
      Common     Share Units     Total of Common Shares     Total Market Value of     Minimum
Year     Shares(3)     (DSUs)(4)     and DSUs     Common Shares and DSUs(5)     Required(6)
                               
2006
      8,945         7,082         16,027       $ 1,107,786       $ 600,000  
2005
      8,483         6,484         14,967       $ 993,360       $ 480,000  
                               
Options Held(7)
 
                                               
            Number                         Value of Unexercised
Date Granted     Expiry Date     Granted     Exercise Price(8)     Total Unexercised     Options(9)
                               
March 1, 2002
    March 1, 2012       7,500       $ 36.01         7,500       $ 248,325  
February 28, 2003
    February 28, 2013       3,000       $ 43.25         3,000       $   77,610  

 
 
*   Mr. Galloway is also a director of Shell Canada Limited.
 
Notes
(1)   “Independent” refers to the Board’s determination of whether a director is “independent” under the categorical standards adopted by the Board as described under the heading “Director Independence” on page 45. If elected, Mr. Downe will not be independent under the standards as he is an executive of the Bank.
 
(2)   Board of Directors’ Round Tables are informal directors’ sessions used as a forum for the Chief Executive Officer to discuss developing issues or as meetings of non-management directors. See pages 16 and 17 for futher information on directors’ meeting attendance.
 
(3)   “Common Shares” refers to the number of Common Shares of the Bank beneficially owned, or over which control or direction is exercised, by the nominee as of January 2, 2007 in respect of 2006 and as of January 3, 2006 in respect of 2005.
 
(4)   “DSUs” refers to the number of deferred share units held by the nominee under the Deferred Share Unit Plan for Non-Employee Directors described on page 17 as of January 2, 2007 in respect of 2006 and as of January 3, 2006 in respect of 2005.
 
(5)   The “Total Market Value of Common Shares and DSUs” is determined by multiplying the number of Common Shares and DSUs held by each nominee as of January 2, 2007 in respect of 2006 and as of January 3, 2006 in respect of 2005 by the closing price of the Bank’s Common Shares on the Toronto Stock Exchange (TSX) on each such date ($69.12 and $66.37, respectively).
 
(6)   “Minimum Required” refers to the value of Common Shares and/or DSUs the director is required to hold under the Board’s share ownership requirements. Directors are required to hold six times their annual retainer in Common Shares and/or DSUs as described on page 17.
 
(7)   “Options” refers to the number of unexercised options held by the nominee under the Non-Officer Director Stock Option Plan described on page 42 as of January 2, 2007. The granting of options under the Non-Officer Directors Stock Option Plan was discontinued effective November 1, 2003.
 
(8)   “Exercise Price” is the closing price of the Bank’s Common Shares on the TSX on the trading day immediately preceding the grant date of the option as described on page 42 under “Non-Officer Director Stock Option Plan”.
 
(9)   “Value of Unexercised Options” is determined by multiplying the number of unexercised options held by each nominee as of January 2, 2007 by the difference between the closing price of the Bank’s Common Shares on the TSX on January 2, 2007 ($69.12) and the exercise price of such options.
 
(10)   “Units” refers to the number of deferred stock units under the Bank’s Deferred Stock Unit Plan, Performance Share Units under the Bank’s Mid-Term Incentive Plan and Restricted Share Units under the Investment Banking Group Mid-Term Incentive Plan held by Mr. Downe as of January 2, 2007 in respect of 2006 and as of January 3, 2006 in respect of 2005. A description of each of these can be found in the Report on Executive Compensation.
 
(11)   Mr. Downe’s share ownership requirements as an executive of the Bank are described under “Executive Share Ownership Guidelines” on page 31.

 

 


Bank of Montreal Proxy Circular 15

 


 

Nominees for Election to Board of Directors (continued)

Additional Disclosure Relating to Directors
To the knowledge of the Bank, no director of the Bank is, or has been in the last 10 years, a director or executive officer of an issuer that, while that person was acting in that capacity, (a) was the subject of a cease trade order or similar order (including a management cease trade order) or an order that denied the issuer access to any exemptions under Canadian securities legislation, for a period of more than 30 consecutive days, (b) was subject to an event that resulted, after that person ceased to be a director or executive officer, in the issuer being the subject of a cease trade or similar order or an order that denied the issuer access to any exemption under Canadian securities legislation, for a period of more than 30 consecutive days, or (c) or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets except for the following:
(i)   Mr. Bachand, a director of the Bank, was a director of Krys-tal Bond Inc. when it became subject to a cease trade order for failure to file financial statements on April 12, 2002. It has since ceased to operate as a going concern;
(ii)   Mr. Beatty, a director of the Bank, was a director of Thistle Mining Inc. when it announced on December 21, 2004 that it intended to undertake a restructuring under the Companies’ Creditors Arrangement Act (CCAA). While Thistle completed the restructuring on June 30, 2005, its common shares were suspended from trading on the Alternative Investment Market from June 30, 2005 to July 13, 2005 and its common shares have been suspended from trading on the Toronto Stock Exchange since December 31, 2004 due to the restructuring. Mr. Beatty is no longer a director of Thistle Mining Inc.;
(iii)   Mr. Downe, Chief Operating Officer, BMO Financial Group, became a director of Goodwill Industries in 1996 to assist in its reorganization under Chapter 11 of the U.S. Bankruptcy Code, which was completed in June 1997. Mr. Downe is no longer a director of Goodwill Industries;
(iv)   Mr. Galloway, the Chairman and a director of the Bank, was a director of ITI Education Corporation (due to Torstar’s 40% ownership) when it voluntarily agreed to the appointment of a receiver in August 2001;
(v)   Mrs. Kwok, a director of the Bank, was a director of Air Canada when it filed for protection under the CCAA in April 2003. Air Canada successfully emerged from the CCAA proceedings and was restructured pursuant to a plan of arrangement in September 2004. Mrs. Kwok is no longer a director of Air Canada; and
(vi)   Mme Saucier, a director of the Bank, was a director of Nortel Networks Corporation and was subject to a cease trade order issued on May 17, 2004 as a result of Nortel’s failure to file financial statements. The cease trade order was revoked on June 21, 2005. Mme Saucier is no longer a director of Nortel Networks Corporation.


 
Board of Directors Compensation/Attendance
 

How Is the Board Compensated? (a)
Directors’ compensation is paid only to non-employee directors.
  Chairman of the Board annual retainer: $300,000 (b)
  Annual retainer: $100,000 per year
  Board meeting fee: $2,000 per meeting
  Committee meeting fee: $1,500 per meeting
  Committee Chair retainers: Audit Committee $35,000; Governance and Nominating Committee $15,000 (c); Human Resources and Management Compensation Committee $25,000; Risk Review Committee $25,000; Conduct Review Committee $15,000
  Travel fees: $1,500 per trip for directors having to travel more than 1,000 kilometres from their principal residence to participate in a meeting or series of meetings
  Related travel and out-of-pocket expenses
Notes
(a)   During the course of the year, five non-employee directors of the Bank served as directors of subsidiaries and affiliates, for which they received additional compensation as follows:
         Harris Financial Corp. — annual retainer: US$100,000; no Board or Committee meeting fees. Mr. Galloway is a director of Harris Financial Corp.
         The Pension Fund Society of Bank of Montreal — no annual retainer; Board meeting fee: $1,500; Chair retainer: $15,000. Mme Saucier, Chair, and Messrs. Astley, Chevrier and Mitchell are directors of The Pension Fund Society of Bank of Montreal. (Management directors do not receive compensation for their services as directors.)
         Directors are reimbursed for travel and other out-of-pocket expenses incurred in attending Board and Committee meetings of subsidiaries and affiliates.
(b)   The Chairman of the Board receives no additional fees in his capacity as a director.
(c)   Effective July 25, 2006, the Governance and Nominating Committee’s Chair retainer decreased from $25,000 to $15,000.


16 Bank of Montreal Proxy Circular

 


 

Deferred Share Unit Plan for Non-Employee Directors
With a view to aligning directors’ compensation with shareholders’ interests:
  50% of a director’s annual retainer must be paid in Common Shares of the Bank (purchased on the open market) or in Deferred Share Units. Directors have the option to receive up to 100% of their annual retainer and meeting fees this way. In fiscal 2006, 11 of 16 non-employee directors elected to take all of their annual retainer and meeting fees in Deferred Share Units. Directors are required to hold six times their annual retainer in Common Shares and/or Deferred Share Units and, until this level is achieved, directors must take all remuneration in the form of either Common Shares or Deferred Share Units. As at January 2, 2007, all non-employee directors were in compliance with fiscal 2006 shareholding requirements with the exception of Dr. Piper.
  A Deferred Share Unit is an amount owed by the Bank to directors having the same value as one Common Share of the Bank, but is not paid out until such time as the director leaves the Board, thereby providing an ongoing equity stake in the Bank throughout the director’s period of Board service. Payment of Deferred Share Units may be in cash or in Common Shares of the Bank
    purchased on the open market. As at January 2, 2007, the amount recorded in respect of Deferred Share Units outstanding to Board members was $16,289,251.
  Only non-employee directors participate.
Shareholdings of Board Members as at January 2, 2007
  Total Common Shares held by non-employee directors: 134,710
  Total Deferred Share Units held by non-employee directors: 226,546
  Total value of Common Shares and Deferred Share Units held by non-employee directors was $24,970,015 based on the closing price of the Bank’s Common Shares on the Toronto Stock Exchange as of January 2, 2007, which was $69.12.
Non-Officer Director Stock Option Plan
The granting of options under the Non-Officer Director Stock Option Plan was discontinued effective November 1, 2003. A description of the Plan can be found on page 42.


Summary of Directors’ Attendance for the Period November 1, 2005 to October 31, 2006
                                                                                                                                                                               
 
                                                                                                            Human                            
                                                                                                            Resources and                            
                                                                                        Governance       Management                            
                                                Audit       Conduct Review       and Nominating       Compensation       Risk Review       Pension Fund            
  Summary of     Board       Round Table (a)       Committee       Committee       Committee       Committee       Committee       Society Board            
  Attendance of Directors     (12 meetings)       (7 meetings)       (6 meetings)       (5 meetings)       (6 meetings)       (12 meetings)       (8 meetings)       (7 meetings)       Total    
 
 
      #         %         #         %         #         %         #         %         #         %         #         %         #         %         #         %         %    
 
Robert M. Astley
      12         100         7         100                                                         11         92         8         100         7         100         98    
 
Stephen E. Bachand
      11         92         7         100                                         6         100         12         100                                         97    
 
David R. Beatty
      10         83         6         86                                         5         83                         7         88                         85    
 
Robert Chevrier
      12         100         7         100         6         100         5         100                                                         7         100         100    
 
F. Anthony Comper (b)
      11         92         6         86         4         67                         6         100         11         92         6         75                         86    
 
George A. Cope (c)
      5/5         100         2/2         100                                                                         2/2         100                         100    
 
Ronald H. Farmer
      12         100         7         100         6         100         4         80                         12         100                                         98    
 
David A. Galloway (d)
      12         100         7         100                                         6         100         10         83         7         88                         93    
 
Harold N. Kvisle
      12         100         7         100                                                         12         100                                         100    
 
Eva Lee Kwok
      12         100         7         100         6         100         5         100                                                                         100    
 
Bruce H. Mitchell
      12         100         7         100                                         6         100                         8         100         7         100         100    
 
Philip S. Orsino (e) (f)
      12         100         7         100         6         100         5         100         4/4         100                                                         100    
 
Martha C. Piper (c)
      5/5         100         2/2         100                                                         3/3         100                                         100    
 
J. Robert S. Prichard (f)
      12         100         7         100                                         4/4         100         12         100                                         100    
 
Jeremy H. Reitman (e) (g)
      11         92         6         86         6         100         5         100         2/2         100                                                         94    
 
Guylaine Saucier
      8         67         6         86         6         100         5         100                                                         7         100         86    
 
Nancy C. Southern
      11         92         6         86                                                                         6         75                         85    
 
Notes
(a)   Informal Directors’ sessions used as a forum for the Chief Executive Officer to discuss developing issues or as meetings of non-management Directors.
(b)   Is not a Committee member but attends Committee meetings, in full or in part, as appropriate, as a non-voting director at the request of the committees.
(c)   Appointed to the Board of Directors effective July 25, 2006.
(d)   Member of Governance and Nominating, Human Resources and Management Compensation and Risk Review Committees and attends other committee meetings as a non-voting director.
(e)   Attends Risk Review Committee meetings as a non-voting director.
(f)   Appointed to Governance and Nominating Committee effective March 2, 2006.
(g)   Ceased to be a member of Governance and Nominating Committee effective March 2, 2006.
Bank of Montreal Proxy Circular 17

 


 

Board of Directors Compensation/Attendance (continued)
The following table sets out compensation paid to directors (other than Mr. Comper) who served during the year ended October 31, 2006.
Directors’ Compensation for Fiscal 2006
                                                                                           
 
                  Committee     Non-     Board and                                             Portion of fees taken in cash  
        Board     Chair     executive     Round Table     Committee                                   or applied to  
        retainer     retainer     Chairman     attendance     attendance     Travel fees     Other fees     Total     Common Shares and/or  
  Directors     ($) (a)     ($) (b)     retainer ($)     fee ($) (c)     fee ($)     ($)     ($)     ($)     Deferred Share Units (DSUs)  
 
Robert M. Astley
      100,000         -         -         40,000         39,000         -         2,000 (d)       181,000       100% DSUs  
 
Stephen E. Bachand
      100,000         25,000         -         38,000         27,000         16,500         1,500 (e)       208,000       100% DSUs  
 
David R. Beatty
      100,000         25,000         -         34,000         18,000         -         -         177,000       100% DSUs  
 
Robert Chevrier
      100,000         15,000         -         40,000         27,000         -         -         182,000       Annual retainer 50% in
cash and 50% in DSUs.
Meeting fees 100% cash.
 
 
George A. Cope
(appointed
July 25, 2006)
      33,333         -         -         16,000         3,000         -         -         52,333       Annual retainer 50% in
cash and 50% in DSUs.
Meeting fees 100% cash.
 
 
Ronald H. Farmer
      100,000         -         -         40,000         33,000         -         1,500 (d)       174,500       100% DSUs  
 
David A. Galloway
      -         -         300,000         -         -         -         -         300,000       100% DSUs  
 
Harold N. Kvisle
      100,000         -         -         40,000         18,000         10,500         -         168,500       100% DSUs  
 
Eva Lee Kwok
      100,000         -         -         40,000         16,500         13,500         -         170,000       100% DSUs  
 
Bruce H. Mitchell
      100,000         22,500         -         40,000         31,500         -         -         194,000       100% DSUs  
 
Philip S. Orsino
      100,000         23,333         -         40,000         31,500         -         -         194,833       100% DSUs  
 
Martha C. Piper
(appointed
July 25, 2006)
      33,333         -         -         16,000         4,500         6,000         -         59,833       Annual retainer 100% in
common shares.
Meeting fees 100%
in common shares.
 
 
J. Robert S. Prichard
      100,000         -         -         40,000         24,000         -         -         164,000       100% DSUs  
 
Jeremy H. Reitman
      100,000         11,667         -         36,000         30,000         -         -         177,667       100% DSUs  
 
Guylaine Saucier
      100,000         15,000         -         30,000         27,000         -         2,000 (d)       174,000       Annual retainer 50% in
cash and 50% in DSUs.
Meeting fees 100% DSUs.
 
 
Nancy C. Southern
      100,000         -         -         36,000         9,000         9,000         -         154,000       Annual retainer 50% in
cash and 50% in
common shares.
Meeting fees 100% cash.
 
 
Total
      1,366,666         137,500         300,000         526,000         339,000         55,500         7,000         2,731,666          
   
     
Notes
(a)
  The Board retainer fee was increased from $80,000 to $100,000 effective November 1, 2005.
(b)
  Mr. Mitchell’s retainer as Chair of the Governance and Nominating Committee was reduced from $25,000 to $15,000 effective July 25, 2006. Mr. Orsino became Chair of the Audit Committee effective March 2, 2006.
(c)
  Includes a double meeting fee paid for the two-day Directors’ Strategy Session.
(d)
  Fees paid for attending Harris Financial Corp. Board meeting.
(e)
  Fees paid for attending Joint Audit and Risk Review Committee meeting.
18 Bank of Montreal Proxy Circular


 

Report of the Audit Committee
 
The Audit Committee oversees the quality, integrity and timeliness of the Bank’s financial reporting, its internal controls, including internal control over financial reporting and disclosure controls and procedures, its internal audit function, and its compliance with legal and regulatory requirements. The Committee also reviews and assesses the qualifications, independence and performance of the Shareholders’ Auditor.
()
Members: Philip Orsino (Chair), Robert Chevrier, Ronald Farmer, David Galloway (ex officio), Eva Lee Kwok, Jeremy Reitman, Guylaine Saucier
Year in Review
Financial Reporting
     
  Reviewed with management emerging best practices in response to changes in securities legislation related to financial reporting. The Bank’s Chief Executive Officer and Chief Financial and Administrative Officer continue to certify the Bank’s annual and interim filings which include the Consolidated Financial Statements, Management’s Discussion and Analysis and Annual Information Form, as required under rules adopted by the Canadian Securities Administrators (CSA) and as required by the Sarbanes-Oxley Act of 2002 (SOX).
  Reviewed with management and the Shareholders’ Auditor: the appropriateness of the Bank’s accounting and financial reporting, the impact of adopting new accounting standards, the accounting treatment of significant risks and uncertainties, the key estimates and judgments of management that were material to the Bank’s financial reporting, and the disclosure of critical accounting policies.
  Reviewed and recommended for approval by the Board: the Audited Consolidated Financial Statements, Management’s Discussion and Analysis and financial releases on an annual and quarterly basis, and the Annual Information Form on an annual basis. Also reviewed and recommended for approval by their respective boards the annual Financial Statements of certain subsidiaries. The Committee concluded these documents were complete, fairly presented the Bank’s financial position and financial performance and were in accordance with generally accepted accounting principles that were consistently applied.
  Reviewed with management, the Risk Review Committee and the Office of the Superintendent of Financial Institutions (OSFI) the annual OSFI examination report.
 
   
Internal Controls, including Internal Control over
Financial Reporting and Disclosure Controls and Procedures
  Reviewed and approved the Committee Charter, corporate policies relating to internal controls and disclosure controls, as well as the Corporate Audit mandate.
  Monitored the Bank’s progress related to management’s first report on its assessment of the effectiveness of internal control over financial
     
 
  reporting required under SOX section 404. Management’s first report was provided as at October 31, 2006.
  Reviewed management’s evaluation of the effectiveness of the Bank’s disclosure controls and procedures required under SOX section 302 and under rules adopted by the CSA.
  Met regularly with the Chief Auditor without management present.
  Examined key regulatory developments and assessed their implications for the Bank.
  Examined reports of the General Counsel on legal matters and matters related to taxation and litigation.
  Examined reports of the Chief Compliance Officer on matters relating to compliance.
  Reviewed recommendations of the Shareholders’ Auditor and external regulators, as well as management’s response.
 
   
Shareholders’ Auditor
  Reviewed and approved the Bank’s Auditor Independence Policy. The Policy continues to exceed regulatory requirements, strictly curtailing non-audit services by the Shareholders’ Auditor and providing guidelines on hiring personnel from the Shareholders’ Auditor.
  Reviewed the reports of the Shareholders’ Auditor outlining all relationships between the Shareholders’ Auditor and the Bank to confirm the independence of the Shareholders’ Auditor.
  Met regularly with the Shareholders’ Auditor without management present.
The Committee is satisfied that it has appropriately fulfilled its mandate for the year ended October 31, 2006.
 
/s/ Philip S. Orsino
Philip S. Orsino
Chair



Bank of Montreal Proxy Circular 19


 

Report of the Conduct Review Committee
 
The Conduct Review Committee is responsible for performing duties set forth in its Charter to enable the Board to fulfill its oversight responsibilities in relation to transactions involving related parties; conflicts of interest and the use and disclosure of confidential information, including customer and employee information; consumer protection measures and dealing with customer complaints; and standards of business conduct and ethics for directors, senior management and employees. In addition, the Committee acts as the conduct review committee of certain subsidiaries as required by the Board.
()
Members: Robert Chevrier (Chair), Ronald Farmer, David Galloway (ex officio), Eva Lee Kwok, Philip Orsino, Jeremy Reitman, Guylaine Saucier
Year in Review
     
  Reviewed and approved the Bank’s updated procedures for complying with the Self-Dealing Provisions of the Bank Act, other governing legislation, applicable insider lending restrictions under the United States Securities Exchange Act and other non-legislated best practices adopted by the Bank.
  Reviewed material transactions with related parties of the Bank and its designated subsidiaries in order to identify any potential material effects of these transactions on the stability or solvency of the participants.
  Reviewed the revised FirstPrinciples: Our Code of Business Conduct and Ethics, and recommended its approval to the Board. The Code was updated to reflect the Bank’s continued commitment to ethical business practices as well as changes in legislation and the regulatory environment, including specific references to terrorist financing, anti-bribery provisions and restrictions on political contributions when prescribed by law.
  Reviewed the Bank’s reports relating to employee conduct procedures, including conflict of interest, personal trading in securities and results of the FirstPrinciples Annual Acknowledgement process.
  Reviewed the Bank’s procedures for dealing with customer complaints, including the Bank Ombudsman’s annual report on complaints resolution, and other consumer protection provisions, including procedures to fulfill the obligations imposed by the Financial Consumer Agency of Canada (FCAC).
     
  Reviewed the Bank’s report on the status of the FCAC compliance regime, as well as updates on FCAC activities and requirements and their impact on the Bank.
  Examined reports on disclosure of information to customers in compliance with the Bank Act, including the Chief Auditor’s attestation regarding the Bank’s related system of internal control.
  Reviewed reports on the use and disclosure of confidential information, including customer and employee information, to monitor compliance with the obligations imposed by privacy legislation.
  Reviewed the Committee Charter, which was updated to reflect the Committee’s review practices with respect to related party transactions and other minor changes made to reflect changes in terminology.
  Submitted to the Superintendent of Financial Institutions an annual report on the proceedings of the Committee.
The Committee is satisfied that it appropriately fulfilled its mandate for the year ended October 31, 2006.
 
/s/ Robert Chevrier
Robert Chevrier
Chair


20 • Bank of Montreal Proxy Circular


 

Report of the Governance and Nominating Committee
 
The Governance and Nominating Committee is responsible for developing and maintaining governance principles consistent with high standards of corporate governance, and reviewing and assessing on an ongoing basis the Bank’s system of corporate governance. The Committee identifies and recommends candidates for election or appointment to the Board and ensures that Board and Board committee orientation programs are in place for new directors, as well as an ongoing education program for all directors to update their knowledge and understanding of the Bank’s business and their responsibilities as directors. The Committee conducts an annual review of director compensation and makes recommendations to the Board thereon. The Committee is also responsible for developing and recommending to the Board a process for assessing the Board, its committees and individual directors, including the Board and committee Chairs.
()
Members: Bruce Mitchell (Chair), Stephen Bachand, David Beatty, David Galloway, Philip Orsino, Robert Prichard
Year in Review
     
  Position Descriptions – Recommended to the Board revised position descriptions for the Chairman of the Board and the committee Chairs.
  Evaluation of the Chairman of the Board – An evaluation of the Chairman of the Board, David Galloway, was conducted based on comments received from Board members, and was communicated to the Chairman and used to review 2007 priorities and initiatives and establish goals for the ensuing year.
  Corporate Governance Review – Ongoing assessment of the Bank’s system of corporate governance to ensure that the Bank’s corporate governance practices meet applicable legal and regulatory requirements and best practices. (The Bank’s corporate governance practices are summarized in Schedule 1 of this Proxy Circular. Additional information regarding the Bank’s corporate governance practices is available on the Bank’s web site at www.bmo.com.)
  Augmentation of the Board – Reviewed the skills and competencies of the Board as a whole and of individual directors against a list of desirable skills and competencies. Recommended the appointment of two new directors, based on a consideration of various factors, including the skills and experience such individuals would bring to the Board. Two new directors, George A. Cope and Martha C. Piper, were appointed to the Board on July 25, 2006.
  Majority Voting Policy – Developed a policy requiring majority voting for the election of directors. The policy provides that if the votes in favour of the election of a director nominee at a shareholders’ meeting represent less than a majority of the shares voted and withheld, the nominee will submit his or her resignation promptly after the meeting, for the Committee’s consideration. The Committee will make a recommendation to the Board after reviewing the matter, and the Board’s decision to accept or reject the resignation offer will be disclosed to the public.
  Board/Committee Composition – Assessed the composition and size of the Board, examining its breadth and the diversity of experience of its current members. Recommended to the Board the nominees to stand for election as directors at the Annual Meeting of Shareholders, as well as the committee members and Chairs for the year.
  Board, Committee and Director Performance Assessment – Reviewed the Board’s current evaluation process and conducted the annual evaluation
     
 
  of the effectiveness and contributions of the Board, its committees and individual directors based on a combination of questionnaires and interviews conducted by the Chairman of the Board.
  Director Independence, Shareholdings and Attendance – Worked with the Board in determining that, with the exception of the President and Chief Executive Officer, Tony Comper, all the directors were independent in accordance with the independence standards approved by the Board. Reviewed the shareholdings of directors and concluded that all directors met the six times annual retainer requirement in effect throughout fiscal 2006 with the exception of Dr. Piper. Monitored director attendance and determined that all directors met the requirement to attend at least 75% of all meetings (Board and committees) that they are required to attend during the year.
  Director Compensation – Conducted an assessment of the director compensation practices of comparator corporations and made recommendations to the Board regarding compensation of the Bank’s directors.
  Annual Strategy Session – Conducted a survey following the Board’s annual strategy session, which confirmed the directors’ agreement with the management strategies outlined and provided input regarding future strategy sessions.
  Annual Governance Reviews and Updates – Supervised the annual review of the Bank’s Approval/Oversight Guidelines, which define the lines of accountability for both the Board and management. Reviewed and made recommendations to the Board on amendments to the Board’s Mandate and the Board committee charters in light of applicable governance guidelines, standards and best practices. Supervised the development of Board committee orientation programs for new committee members.
The Committee is satisfied that it has appropriately fulfilled its mandate for the year ended October 31, 2006.
 
/s/ Bruce Mitchell
Bruce Mitchell
Chair


Bank of Montreal Proxy Circular 21


 

Report of the Risk Review Committee
 
The Risk Review Committee is responsible for performing the duties set forth in its Charter to enable the Board to fulfill its oversight responsibilities in relation to the identification, documentation, measurement and management of significant risks affecting the Bank. The Committee also monitors the Bank’s compliance with risk-related regulatory requirements and with its internal risk management policies and procedures.
()
Members: David Beatty (Chair), Robert Astley, George Cope, David Galloway, Bruce Mitchell, Philip Orsino (ex officio), Jeremy Reitman (ex officio), Nancy Southern
Year in Review
     
  Reviewed, amended and approved corporate policies that address risk management by means of controls, including controls on the authorities and limits delegated to the Chief Executive Officer. These policies and controls are aligned with prudent, proactive risk management principles, prevailing market conditions and the business requirements of the approved strategies. They are also designed to be in compliance with the requirements of the laws and regulatory bodies that govern the Bank and its subsidiaries.
  Approved the reclassification of corporate policies to corporate standards as appropriate and consistent with the Bank’s Policy Redesign Initiative.
  Reviewed and approved the quarterly total bank market risk profile.
  Reviewed the provision and allowance for credit losses prior to its approval by the Audit Committee.
  Reviewed, together with the Audit Committee, the annual examination report from the Office of the Superintendent of Financial Institutions.
  Reviewed and approved, as appropriate, decisions on risk exposures that exceeded delegated limits as per the Bank’s Counterparty Exposure Diversification Corporate Policy.
  Examined regularly the attestations and reports of the Executive Vice-President and Chief Risk Officer. These address positions and trends in the Bank’s risk exposures, including the comparison of actual positions to exposure limits as well as any exceptions to corporate policies.
  Reviewed core methods and procedures established by management to control key risks, and deemed by the Committee to be appropriate for prudent business practice.
  Examined and considered the validity of the Bank’s risk measures, including parameters and boundaries of measures.
     
  Reviewed significant credit and market risk exposures, industry sector analyses, topical risk issues, and the strategies of the Bank’s major business units, including related risk methodologies. The strategies of the business units are reviewed from an integrated perspective that encompasses all of the risk components, thereby providing a comprehensive view of both the risk and the expected returns.
  Considered risk issues in the broad context of the Bank’s enterprise-wide strategic management framework and the risk-adjusted return on capital of significant new businesses, group strategies and line-of-business initiatives.
  Evaluated the Committee’s effectiveness in carrying out the duties specified in its Charter.
  Reviewed regularly the Bank’s progress toward implementation of new regulatory capital requirements under the Basel II Framework and continued to prepare for the governance and operational changes that this will require.
  Reviewed the Bank’s material outsourcing arrangements in order to provide oversight on the aggregate use of outsourcing in the enterprise.
The Committee is satisfied that it appropriately fulfilled its mandate for the year ended October 31, 2006.
 
/s/ David R. Beatty
David R. Beatty
Chair


22 • Bank of Montreal Proxy Circular


 

Report of the Human Resources and
Management Compensation Committee
 
The Human Resources and Management Compensation Committee is responsible for assisting the Board of Directors in ensuring that the Bank’s human resources strategies support its objectives and sustain shareholder value.
()
Members: Stephen Bachand (Chair), Robert Astley, Ronald Farmer, David Galloway, Harold Kvisle, Martha Piper, Robert Prichard
Year in Review
During the year, the Committee reviewed strategic, organizational and leadership issues, executive compensation programs, performance assessments of the Bank’s most senior executives and succession management for all key executive positions. In fulfilling its role, the Committee:
     
  Undertook a comprehensive executive compensation review which examined the detailed design and administration processes of the Bank’s executive compensation programs. In particular, the Committee reviewed the degree to which the programs support the creation of shareholder value, contribute to the Bank’s goal of being the best performing financial institution in North America, reflect the Bank’s commitment to a high performance culture and demonstrate direct linkages between pay and performance.
  Reviewed compensation levels for all executives through an extensive review of the Bank’s benchmarking methodology and, for individual members of the Bank’s Management Board Executive Committee (MBEC, the most senior executives), reviewed individual compensation tally sheets and used this information to help validate compensation decisions.
  Reviewed the Bank’s Stock Option Plan and recommended to the Board for approval amendments to the Plan to permit the continued use of stock options to attract and retain talented individuals, enhance the prudent governance of the Stock Option Plan and clarify certain provisions.
  Ensured that effective succession plans (short- and long-term) for the Chief Executive Officer and all senior executive positions continue to be in place. These succession plans were reviewed with the Board.
  Recommended to the Board the appointment and reassignment of MBEC members, including the appointment of a Chief Operating Officer, and reviewed and approved the appointment and reassignment of other executives.
  Assessed the performance of the Bank’s President and Chief Executive Officer (CEO) and reviewed the assessment with the Board; determined the President and Chief Executive Officer’s compensation based on the Bank’s performance for the past fiscal year and recommended to the Board that, effective December 2006, CEO compensation be approved by the independent members of the Board following receipt of the Committee’s recommendations rather than being approved by the Committee.
  Reviewed and approved annual performance assessments submitted by the President and Chief Executive Officer for the other MBEC executives,
         
    and reviewed and approved compensation for these executives.
  Reviewed a comprehensive assessment of the human resources strategic priorities to widen and deepen the Bank’s performance culture. Progress being made on these key strategies included:
 
  -   increasing operational efficiency and effectiveness through organizational redesign and reduction of management layers,
 
  -   establishing more aggressive performance standards and aligning compensation to those standards,
 
  -   enhancing the management of talent and succession,
 
  -   strengthening employee engagement (morale) and the Bank’s status as an employer of choice, and
 
  -   matching training and development to business needs with significant focus on leadership development for the present and the future.
    A summary of the assessment and recommended enhancements for 2006/2007 was reported to the Board.
  Met with the Committee’s compensation advisors at Committee meetings without management present.
  Reviewed the performance of the Committee’s compensation advisors and established the advisors’ mandate and work plan for 2007.
Advisors to the Committee
The Committee has engaged Mercer Human Resource Consulting (Mercer) and Hugessen Consulting Inc. (HCI) to gather information and opine on the Bank’s compensation practices versus its direct comparators, other large financial services organizations and other widely held corporate employers. The Committee’s mandate with Mercer was established in 2003 and a mandate with HCI was established in 2006.
     The advisors provide advice to the Committee on policy recommendations prepared by management, and also review and provide commentary on the Bank’s Proxy Circular. In 2006, the advisors were additionally mandated to work with the Committee and senior management of the Bank to conduct a comprehensive review of the Bank’s executive compensation program. During fiscal 2006, the advisors attended portions of some Committee meetings, as requested by the Committee Chair.
     The Committee conducts an annual review of all work performed by each of the advisors and the associated fees.


Bank of Montreal Proxy Circular 23


 

Report of the Human Resources and Management Compensation Committee (continued)
     For fiscal 2006, Mercer’s fees as a Committee advisor totalled approximately $601,000, primarily for the review of the Bank’s executive compensation policies and programs. The Bank also paid Mercer approximately $4.3 million for non-Committee advisory work for various routine administration, actuarial and compliance tasks completed for Bank management at various locations around the world, unrelated to the compensation of the Bank’s executives.
     For fiscal 2006, HCI’s fees as a Committee advisor totalled approximately $232,000, primarily for the review of the Bank’s executive compensation policies and programs. HCI provided no other services to the Bank.
     As a matter of policy, the Committee has adopted a number of practices with regards to its executive compensation advisors:
     
  The Committee annually reviews the advisors’ performance and fees from all sources;
  The Committee agrees annually, and on an as-needed basis, with input from management and the advisors, the specific work to be undertaken by each of the advisors for the Committee, and the fees associated with this work;
  All services provided to the Bank by each of the advisors, beyond their role in supporting the requirements of the Committee, require written pre-approval by the Chair of the Committee outlining the scope of work and related fees. The Committee does not approve any such work that, in its view, could compromise an advisor’s independence in serving the Committee; and
  The Committee discloses annually in the Proxy Circular the work done and fees paid to each of the advisors for all work done for the Committee, and any other work the Committee has approved.
Other Compensation Advisors to the Bank
The Bank retains Hay Group and Towers Perrin from time to time to provide expertise and advice in connection with the development of compensation policies and to make recommendations respecting the design and implementation of executive compensation programs, for the Committee’s review and approval.
     
  For fiscal 2006, Hay Group’s fees as management’s advisor totalled approximately $81,000. The Bank also paid Hay Group approximately $425,000 for non-executive compensation and job evaluation consulting, compensation surveys, and training program design and facilitation.
  For fiscal 2006, Towers Perrin’s fees as management’s advisor totalled approximately $82,000 for executive compensation consulting and custom survey work. The Bank also paid Towers Perrin approximately $1.3 million for benefits consulting in connection with United States employee health and welfare programs.
The Committee is satisfied that it has appropriately fulfilled its mandate for the year ended October 31, 2006.
 
/s/ Stephen E. Bachand
Stephen E. Bachand
Chair


24 • Bank of Montreal Proxy Circular


 

Report on Executive Compensation
 
The following is the Human Resources and Management Compensation Committee’s report on executive compensation, which covers approximately 260 Bank of Montreal executives as well as executive equivalents in subsidiaries.
 

Executive Compensation Overview
Compensation of the Bank’s senior executives is a key area of focus for the Board of Directors, and is viewed as a means of supporting and enabling the Bank’s vision, objectives and culture.
     The current compensation programs reflect the Bank’s desire to attract, retain and motivate extraordinary talent that can further the Bank’s progress toward being the best performing financial institution in North America. While base salaries, health and welfare benefits and perquisites are generally at the median of those firms with which the Bank competes for talent, a superior level of incentive compensation at the individual level is provided for the achievement of superior individual and Bank performance when compared against the Bank’s competitors; conversely, individual and Bank underperformance result in a significantly lower level of incentive compensation. Retirement programs are designed to provide a competitive level of post-retirement income and a strong incentive for executives to remain with the Bank throughout their careers, allowing the Bank to prepare the next generation of talent and facilitate a smooth transition.
     Annual compensation targets for the Bank’s executives reflect 1) compensation benchmarking within the relevant markets for each executive group, and 2) the performance levels expected by the Board based on the Bank’s business planning process, rigorous analysis of the markets in which the Bank operates and the potential of each market based on best-in-class competitors.
     At the end of each fiscal year, the Committee reviews the compensation as calculated in accordance with existing compensation programs and policies. The Committee then carries out an assessment of business performance versus expectations using a series of performance metrics. In applying its judgment the Committee considers such key factors as actual versus expected loan loss provisions, the Bank’s relative performance against its peers and overall quality of earnings. Based on that assessment, the Committee approves awards that reflect the Bank’s performance.
     Actual compensation levels are intended to reflect the contribution of each executive. While awards are generally tied to performance against quantitative objectives, consideration is also given to an individual’s contribution to the organization through leadership, a demonstrated commitment to the Bank’s customers, innovation and teamwork.
Comparator Groups
  Total compensation “target” levels for executives (the sum of the policy amounts for base salary and short-, mid- and long-term incentives, plus pensions, benefits and perquisites) are set at the median of the relevant comparator markets:
  -   for Canadian executives, the relevant market is generally the other four major Canadian banks (Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of
      
      Canada and The Toronto-Dominion Bank), although for specialized positions, the Bank may consider a broader market, such as a broader group of large Canadian organizations (those with revenue over $5 billion), and
  -   for U.S. executives, the relevant market is a comparable group of U.S. regional banks.
  The actual amount of total direct compensation (the sum of base salary and short-, mid- and long-term incentives paid to executives) may be increased to deliver pay above the median when business performance exceeds expectations in terms of year-over-year growth, and relative performance as measured against the Bank’s peer group. (For business performance purposes, the peer group is comprised of the other four major Canadian banks listed above, and National Bank of Canada.)
  Conversely, if performance is below expectations, the actual amount of total direct compensation paid will be decreased to deliver pay below that of the peer companies.
Annual Compensation Review Process
Each year the Committee reviews the levels of compensation for all executives, and in particular for MBEC members, which includes the five Named Executive Officers whose compensation is detailed beginning on page 34. This benchmarking process assesses both “actual” compensation delivered to executives through base salary, short-, mid-, and long-term incentive awards, and the policy or “target” levels for these programs. The objective is to ensure that the total compensation position of the Bank’s executives compares appropriately with relevant comparator markets. The impact of the benefits, perquisites and pension programs is also considered.
     At the beginning of each year the Committee establishes business performance targets for funding the executive short- and mid-term incentive plans. These targets are set at a level consistent with the Bank’s business targets, with the objectives of driving desired business results and providing a competitive level of pay relative to the results achieved. Threshold and maximum performance levels are also set, to ensure appropriate limits are placed on minimum and maximum payout amounts and that an appropriate relationship exists between pay and performance. On at least a quarterly basis, the Committee reviews the year-to-date forecast business results and the incentive pool funding that would result.
     To provide the Committee with full context in determining annual incentive pool funding for short- and mid-term incentive plans, consideration is given to the achievement of the business performance goals that were established at the beginning of the year. Judgment is then applied to increase or decrease the formula-derived level of pool funding in order to determine the appropriate level of incentive compensation pool funding.


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Report on Executive Compensation (continued)

     In determining annual compensation decisions, a compensation tally sheet for each MBEC member is reviewed by the Committee. These tally sheets attribute a dollar value to each component of compensation, including: salary; short-term cash incentives; vested, unvested and previously paid equity awards; benefits; perquisites; pension including annual increases to liabilities, accumulated liabilities and projected payouts at retirement; and potential change in control severance payments.
     In any given year, if compensation design features come into question and might require modification, prior to doing so features are validated through a stress-testing process. For example, in 2005 the weighting of the STIP program’s two key performance metrics was changed and extensive modelling was undertaken. An analysis was conducted to determine the amounts the revised compensation plan would have paid out in the past over a multi-year performance period, based on each year’s actual financial performance, as well as under various future performance scenarios, in order to demonstrate to the Committee that the revised design should provide an appropriate result in future years.
Executive Compensation Review (ECR)
In 2006, the Committee and management initiated a comprehensive review of all aspects of the Bank’s executive compensation programs. The review is being led by the Committee and supported by the Committee’s executive compensation advisors
in conjunction with Bank management. Frequent working sessions are being held with the Committee, management and the Committee’s advisor. The review includes an examination of the compensation philosophy, plan design, and the associated administration processes for each of the cash and equity compensation programs.
     The objective of the ECR is to identify and act on opportunities to enhance the effectiveness and efficiency of the compensation programs. The plan review phase was completed in fiscal 2006, and the redesign phase, including the review of appropriate performance metrics and back-testing of the metrics, is now underway.
     The Committee anticipates that enhancements, including design changes, will be phased in as appropriate over the next 12 months.
Elements of Executive Compensation
Executive compensation consists of four main elements: base salary, short-term incentives, performance and/or restricted share units issued under the mid-term incentive plans, and stock options issued as long-term incentives. These are described in Table A below for all executives, excluding those in Investment Banking Group (IBG), except where noted. The compensation elements for IBG executives follow in Table B.


Table A: Compensation Elements for Executives (excluding those in IBG, except where noted)
                             
 
  Compensation element     Form     Eligibility     Performance period     Determination  
 
Base salary
    Cash     All executives     Annual    
Salaries are set to reflect market practices and each executive’s experience and performance
 
 
Short-term incentives
(STIP)
    Cash     All executives     1 year    
Aggregate awards are funded based on Bank and/or operating group results
 
 
 
                     
Individual awards reflect performance against predetermined business and individual objectives
 
 
 
    Deferred
stock units
    MBEC members, other selected     Until executive retires
or leaves the Bank
   
Units are awarded in lieu of cash payment, where the executive has made a prior election to do so
 
 
 
          executives and selected officers in IBG          
Payouts are based on final value of an equivalent number of the Bank’s shares
 
 
Mid-term incentives
(Bank MTIP)
    Performance
share units
    Most executives and selected officers in IBG     3 years    
Aggregate awards are funded based on Bank and/or operating group performance on productivity versus planned performance during the current fiscal year
 
 
 
                     
Individual awards are granted based on executive level, an assessment of individual contribution and reflect sustained performance
 
 
 
                     
Units vest and are paid out based on the Bank’s annualized total shareholder return relative to that of the Bank’s Canadian peer group over the performance period
 
 
Long-term incentives
(LTIP)
    Stock options     Most executives and selected officers in IBG     Up to 10 years    
Stock options are granted based on executive level, an assessment of individual contribution and reflect sustained performance
 
 
 
                     
Vesting of the options occurs over the four years following the grant date, and a portion of each award is also subject to a minimum share price growth requirement
 
 
 
                     
Unexercised options expire after 10 years
 
 
Note
For more detailed information please refer to the plan descriptions on pages 27-31.


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Table B: Compensation Elements for Executives in Investment Banking Group (IBG) (a)
                             
 
  Compensation element     Form     Eligibility     Performance period     Determination  
 
Base salary
    Cash     All executives
or executive
equivalents
    Annual    
Salaries are set to reflect market practices and each executive’s experience and performance
 
 
Short-term incentives
    Cash     All executives
or executive
equivalents
    1 year    
Aggregate awards are funded based on operating group results
 
                 
Individual awards reflect performance against predetermined business and individual objectives
 
 
Mid-term incentives
(IBG MTIP)
    Restricted
share units
    All executives
or executive
equivalents
    3 years    
Aggregate awards are funded based on annual business performance (net income, adjusted for productivity and loan loss performance)
 
                 
Individual awards reflect performance against predetermined business and individual objectives
 
                 
Awards are granted as restricted share units that vest and pay out one-third per year over three years, or in full at the end of the performance period, at the participant’s election (where permissible)
 
 
Notes
(a) In addition, the IBG Executive Committee (i.e., the five most senior executives, including Mr. Bourdeau) are eligible to participate in Bank MTIP, the Stock Option Plan and the Deferred Stock Unit Plan. For more detailed information please refer to the plan descriptions on pages 27—31.
Relative Weighting of Each Compensation Element
The relative weighting of each element of compensation is aligned with each executive’s ability to influence short-, medium- and long-term business results, ensuring appropriate emphasis on each performance period (i.e., one year, three years, 10 years). The actual incentive opportunity varies with an executive’s level of responsibility and is established through regular reviews of competitive practice. The table below shows the percentage each component comprises of the executive’s target total direct compensation.
                                                       
        Percentage of target total direct compensation (excluding IBG)        
                  Short-term     Mid-term     Long-term     Total pay  
  Title     Base salary     incentive     incentive     incentive (options)     at risk  
 
Chief Executive Officer
    15%     15%     35%     35%     85%  
 
Operating Group President
    26%     23%     25%     26%     74%  
 
Senior Executive Vice-President
Executive Vice-President
    31%     21%     23%     25%     69%  
                       
 
Senior Vice-President
    40%     20%     26%     14%     60%  
 
Vice-President
    47%     20%     24%     9%     53%  
 
1.   Short-Term Incentive Plans
1.1   Executive Short-Term Incentive Plan (other than Investment Banking Group)
1.1.1 Participation and Performance Measures
There are approximately 250 participants in this Plan, which excludes executives and executive equivalents in Investment Banking Group. The size of the short-term incentive plan (STIP) pool is determined either by Total Bank performance or by a combination of Total Bank and operating group performance, as noted in Table C.
     For MBEC members, the formula used to determine the level of incentive pool funding also includes relative performance, whereby Total Bank earnings per share and revenue growth are assessed relative to those of the Bank’s Canadian peer group (the other five major Canadian banks). The weighting of the performance measures is shown in Table C.
     Once the formula-driven pool is determined, the Committee may use its discretion to adjust the pool, either positively or negatively, taking into account the Bank’s performance on a variety of measures, in both absolute and relative terms.


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Report on Executive Compensation (continued)
Table C: Performance Measures Used to Determine the Level of Incentive Pool Funding (excluding IBG)
                                                                                     
                  Weighting of each measure        
                  Total Bank     Individual operating     Total Bank relative        
                  performance     group performance     performance        
                                      Net Income                          
                  EPS (GAAP)     Revenue     (GAAP)     Revenue     EPS (GAAP)     Revenue        
  Operating Group     Participants     growth     growth     growth     growth     growth     growth     Total  
 
Personal & Commercial Banking
and Private Client Group
    MBEC members     12.5%     12.5%     25.0%     25.0%     12.5%     12.5%     100%  
      Other executives     12.5%     12.5%     37.5%     37.5%     n/a     n/a     100%  
 
Corporate Groups
    MBEC members     37.5%     37.5%     n/a     n/a     12.5%     12.5%     100%  
      Other executives     50.0%     50.0%     n/a     n/a     n/a     n/a     100%  
 

1.1.2 Individual Performance and Allocating Incentive Pool Funds
Each executive’s performance is assessed against predetermined financial, operational and strategic objectives. Final STIP awards are allocated based on the individual’s contribution to annual business results, strategy development and strategy execution. The aggregate of individual STIP awards cannot exceed incentive pool funding.
1.1.3 2006 Payouts – Short-Term Incentive Plan
As highlighted in the Bank’s 2006 Annual Report, performance of the Bank as a whole and each of its operating groups improved over 2005 in a favourable banking environment. However, core business performance did not meet the Bank’s expectations and bonus pools declined year over year in each group. Personal & Commercial Banking did not meet growth targets and the bonus pool declined accordingly. Private Client Group had a good year and achieved its growth targets; however, its incentive pool was reduced compared to 2005, when performance was very strong. While the Bank as a whole achieved above-target earnings growth, revenue growth was
less than expected and expenses were high, reflecting continued investments in our retail businesses and change in our business mix. These factors, combined with increased performance expectations, resulted in a reduction in incentive pool funding for Corporate Groups compared to the prior year.
1.2   Short-Term Incentive Plan – Investment Banking Group (IBG) – Executive Committee
1.2.1 Participation and Performance Measures
For the executives of the IBG Executive Committee (the five most senior executives in IBG), the size of the short-term incentive pool is determined by a combination of Total Bank performance and the performance of IBG.
     For the MBEC member in IBG, relative performance is also considered, so that Total Bank cash earnings per share and revenue growth are assessed relative to those of the Bank’s Canadian peer group (the other five major Canadian banks). The weighting of these performance measures is shown below:


Table D: Performance Measures Used to Determine the Level of Incentive Pool Funding – IBG Executive Committee
                                                                       
              Weighting of each measure      
              Total Bank     Operating group     Total Bank relative        
              performance     performance     performance        
                                  Net income                    
  Operating           EPS (GAAP)     Revenue     (GAAP) relative     EPS (GAAP)     Revenue        
  Group     Participants     growth     growth     to plan (a)     growth     growth     Total  
 
IBG
    MBEC member     12.5%     12.5%     50%     12.5%     12.5%     100%  
      Executive Committee     12.5%     12.5%     75%     n/a     n/a     100%  
 
Note
(a) The short-term incentive pool is funded based on IBG’s net income (adjusted for loan loss performance).

1.2.2 Individual Performance and Allocating Incentive Pool Funds
Each executive’s performance is assessed against predetermined financial, operational and strategic objectives. Final STIP awards are allocated from the funded incentive pools based on the individual’s contribution to annual business results, strategy development and strategy execution. The aggregate of individual STIP awards cannot exceed incentive pool funding.
1.2.3 2006 Investment Banking Group Payout
Performance of Investment Banking Group improved over 2005, but fell short of expectations. However, short-term incentive compensation increased as higher revenue growth came from businesses with higher variable compensation.


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1.3   Deferral of Short-Term Incentives (Deferred Stock Unit Plans)
The purpose of the Deferred Stock Unit Plans is to further align the interests of executives with those of shareholders by linking short-term incentive awards to the future value of the Bank’s Common Shares.
     MBEC members and other selected executives are eligible to participate in the Deferred Stock Unit Plans, which allow participants to voluntarily defer cash awarded under the Short-Term Incentive Plans. The deferred amount is converted into deferred stock units (DSUs).
     Participants may elect to receive 0%, 25%, 50%, 75% or 100% of their short-term incentive awards in DSUs. For participants who are MBEC members, up to 100% of their bonus may be deferred; for participants who are not MBEC members, the individual annual deferral amount is capped at $350,000.
     Irrevocable elections must be made before the beginning of the fiscal year. Once short-term incentive awards are determined after the fiscal year-end, the percentage of their short-term incentive award that executives elected to defer is converted into DSUs based on the average closing price of the Bank’s Common Shares on the Toronto Stock Exchange (TSX) for the last five trading days of the fiscal year (ending October 31, 2006 for current-year deferrals). Additional DSUs are automatically credited to participants’ accounts in respect of dividends that are paid on Common Shares of the Bank.
     Redemption of DSUs for cash and/or the Bank’s Common Shares (purchased on the open market) can be made only upon termination of all positions with the Bank and its affiliates. The value of the DSUs is equivalent to the fair market value of an equal number of Common Shares at the time of redemption.
2.   Mid-Term Incentive Plans
The Bank’s mid-term incentive plans are designed to motivate creation of sustainable shareholder value and superior returns over a three-year performance period.
2.1   Executive Mid-Term Incentive Plans
2.1.1 Participation and Performance Measures
Participants in these Plans are the same as those in the Executive Short-Term Incentive Plan and the members of the IBG Executive Committee.
     Cash productivity (the cash expense-to-revenue ratio or the percentage of revenue consumed by operating expenses, excluding the impact of intangible amortization on non-interest expense) is used to adjust the size of the mid-term incentive pools. Productivity results for the Bank and each operating group affect pools as follows:
  If productivity fails to meet target ratios, mid-term incentive pools will be decreased by as much as 15.0% of the total direct compensation target level, or
  If productivity exceeds target ratios, mid-term incentive pools will be increased by up to 7.5% of the total direct compensation target level.
Once the formula-driven pool is determined, the Committee may use its discretion to adjust the pool, either positively or negatively, based on its assessment of the results achieved.
2.1.2 Individual Performance and Allocating Incentive Pool Funds
Individual awards are determined based on an assessment of the individual’s performance in the current year, the level and consistency of the individual’s contribution over the past three years (i.e., sustained performance), and the individual’s potential to assume greater responsibility and make an even more significant contribution in the future.
     Under these Plans, participants receive annual awards of performance share units (Units). The initial value of each of these Units is based on the average closing price of the Bank’s Common Shares on the TSX for the trading days occurring in the 90 calendar days preceding December 1 of the relevant grant year.
2.1.3 Final Payouts
Each award vests and is paid out at the end of a three-year performance period based on the following:
  The Bank’s average Common Share closing price on the TSX for the trading days occurring in the 90 calendar days preceding the vesting date,
  Additional Units representing dividends paid during the three-year performance period, and
  The Bank’s annualized total shareholder return (TSR, defined as dividends paid plus the change in share price) over the three-year performance period relative to the Bank’s Canadian peer group (the other five major Canadian banks).
When the Bank’s TSR exceeds the annualized TSR of its Canadian peer group, payouts may be increased by up to 50%. The Bank also sets a threshold level of relative TSR performance to be achieved (defined as peer group annualized TSR less more than 10 percentage points), below which payments are reduced to zero. If the Bank’s annualized TSR performance falls below the annualized TSR of the Canadian peer group but is above the threshold, payments are reduced on a sliding scale.
2.1.4 Funding of the December 2006 Mid-Term Incentive Pools
For 2006, the Bank did not meet its cash productivity improvement target of 100 to 150 basis points (bps), improving by only 25 bps, which resulted in a decrease to the mid-term incentive pools relative to target for executives in Corporate Groups. Personal & Commercial Banking also did not meet its productivity target and its mid-term incentive pool was decreased accordingly. While Private Client Group met its productivity target, the incentive pool funding was lower than last year, reflecting 2005’s very strong productivity performance.
2.2   Mid-Term Incentive Plans for Investment Banking Group
2.2.1 Participation and Performance Measures
Participants in the Investment Banking Group Mid-Term Incentive Plans include Mr. Bourdeau, and executives and selected senior managers in IBG.
     Under these Plans, the mid-term incentive pool is funded based on IBG’s net income, adjusted for productivity and loan loss performance.


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Report on Executive Compensation (continued)

2.2.2 Individual Performance and Allocating Incentive Pool Funds
Individual awards are based on the individual’s contribution to annual business results.
     Under these Plans, participants receive annual awards of restricted share units (Units). For awards made in December 2003, the initial value of each of these Units was based on the average closing price of the Bank’s Common Shares on the TSX for the five trading days ending on the date of the grant. For awards made in subsequent years, the initial value of each of these Units is based on the average closing price of the Bank’s Common Shares on the TSX for the 10 trading days ending on December 1 of the relevant grant year.
2.2.3 Final Payouts
These Units vest one-third in each subsequent year of the award and are paid annually as they vest or, at the election of the participant, at the end of the three years (as permitted by tax laws). Where permitted, elections are made within 30 business days following the award issue date. Unvested Units are forfeited if a participant is terminated for cause, or resigns or retires and moves to a competitor, or, in certain circumstances, re-enters the workforce.
     Dividend equivalents are added to the participants’ accounts in the form of additional Units. The payout value of the Units is based on the average closing price of the Bank’s Common Shares on the TSX for the 10 trading days ending on December 1 of the relevant year.
2.2.4 Funding of the December 2006 IBG Mid-Term Incentive Pool
Investment Banking Group net income improved over 2005 but fell short of expectations. Strong revenue growth in the fee-based businesses, lower year-over-year provisions for loan losses and a lower tax rate were more than offset by expenses, reflecting higher revenue in businesses with higher variable compensation and resulting in productivity below target. The mid-term incentive pool increased slightly however, compared to 2005 due to a shift in compensation mix.
3.   Long-Term Incentive Plan
3.1   Stock Option Plan
There are approximately 190 participants in this Plan, including selected Bank executives, executives in subsidiaries and the members of the IBG Executive Committee.
     The Bank’s Stock Option Plan includes the concept of price-conditioned options, rendering options worthless (with zero payout value) unless share price growth surpasses the share price thresholds outlined below. In setting these high thresholds, the Committee is encouraging executives to hold options for the long term and realize gains only when other shareholders have also realized substantial gains.
     Before stock options can be exercised, the following two conditions must be met: 1) the options must be vested (the Bank’s options vest 25% per year over four years), and 2) for a portion of these options, share price growth must meet or exceed prescribed increases in the price of the Common Shares; if such thresholds are not met, the options expire worthless. Exercise conditions are noted in the table below:
                                   
 
        Percentage of total award  
                  Senior Executive Vice-Presidents        
                  Executive Vice-Presidents     Vice-Presidents  
  Exercise conditions     MBEC (a)     Senior Vice-Presidents     and below  
 
1. Normal time vesting
    33%     50%     75%  
 
1. Normal time vesting
                               
 
2. 50% increase in share price before exercise can occur
    33%     50%     25%  
 
1. Normal time vesting
                               
 
2. 100% increase in share price before exercise can occur
    34%     n/a     n/a  
 
Total
    100%     100%     100%  
 
Note
(a) Including the Named Executive Officers listed on page 34.
The value of stock options granted each year is established as part of an executive’s total direct compensation, considering current market practice and subject to individual performance. Individual awards are determined based on an assessment of the individual’s performance in the current year, the level and consistency of the individual’s contribution over the past three years (i.e., sustained performance), and the individual’s potential to assume greater responsibility and make an even more significant contribution in the future. No consideration is given to the outstanding amount or terms of an individual’s performance share units, restricted share units or stock options, or to the current value of these holdings, in determining whether and how many options will be granted. Stock options are granted each year after the announcement of annual financial results. Grants occur in a period during which employees are permitted to trade in BMO Common Shares under the Bank’s Insider Trading Policy.
     To reduce the future dilutive effects of stock options on share value, the Committee has established a guideline that is intended to limit overhang to 7.5% or less of the total number of issued and outstanding Common Shares of the Bank.
     In addition, the Bank monitors the level of dilution (i.e., options issued but not exercised as a percentage of Common Shares of the Bank) and the annual burn rate (i.e., the number of stock options issued each year as a percentage of the issued and outstanding Common Shares of the Bank) relating to stock options.
     The Bank’s performance against these measures over the last three years is reported in the following table.
                                   
        2006       2005       2004    
 
Overhang (a)
    5.05%     6.03%     6.97%  
 
Dilution (b)
    4.64%     5.35%     6.05%  
 
Burn rate (c)
    0.28%     0.29%     0.33%  
 
Notes
(a)   Overhang is defined as the total number of options available for issuance, plus all options outstanding that have not yet been exercised, expressed as a percentage of the total number of issued and outstanding Common Shares of the Bank at the end of the fiscal year.
(b)   Dilution is defined as options issued but not exercised, expressed as a percentage of issued and outstanding Common Shares of the Bank at the end of the fiscal year.
(c)   Burn rate is defined as the number of stock options issued each year, expressed as a percentage of the issued and outstanding Common Shares of the Bank at the end of the fiscal year.


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3.2   Stock Option Exercise Protocol for the Chief Executive Officer (CEO)
A pre-arranged option exercise protocol for the Chief Executive Officer was established in 2002, in advance of the CEO’s first option exercise. Under the protocol, the Committee is consulted prior to the exercise of options by the CEO.
3.3   Amendments to the Stock Option Plan
In 2006, the Committee reviewed the terms of the current Stock Option Plan and the Board approved, on recommendation of the Committee, various changes to the Plan which are summarized on page 42. Certain of the changes approved by the Board are subject to shareholder approval as described on pages 5 and 6.
Other Equity-Based Plans
Deferral of Commissions and Cash Incentives in the Private Client Division (PCD) Deferred Stock Unit Plans
The purpose of the PCD Deferred Stock Unit Plans is to further align the interests of Investment Advisors and senior management in PCD with those of shareholders by linking short-term incentive awards to the future value of the Bank’s Common Shares.
     The PCD Deferred Stock Unit Plans allow participants to voluntarily defer commissions earned and cash incentives awarded under incentive plans in the Canadian retail brokerage. The deferred amount is converted into deferred stock units (DSUs).
     Participants may elect to receive 5%, 10%, 15%, 20% or 25% of their total commission and/or bonus in DSUs, up to a maximum of $125,000 or, in a limited number of instances, $175,000 or $200,000; elections must be made before the beginning of the performance period.
     In respect of deferred commissions, DSUs are credited to the employee’s account at the end of each quarter. The amounts elected for deferral are converted into DSUs based on the average closing price of Common Shares of the Bank on the TSX for up to 10 trading days immediately prior to and including the quarter end. In respect of a deferred bonus, in certain cases the employee can elect the method by which the number of DSUs to be credited shall be determined, with pricing done at the end of the annual performance period, or as an average of the prices at the end of each quarterly period. Additional DSUs are automatically credited to participants’ accounts representing dividends that are paid on Common Shares of the Bank.
     Redemption of DSUs for cash and/or Common Shares (purchased on the open market) can only be made subsequent to retirement, termination of employment or death. The value of DSUs is equivalent to the fair market value of an equal number of Common Shares of the Bank at the time of redemption.
Perquisite Allowance
In place of executive perquisites including car leases and annual club membership dues, a program was introduced in 2005 to provide executives with an unrestricted taxable cash allowance. The intention is to provide a market-competitive program, promote greater satisfaction through choice while supporting the needs of the business and manage future costs.
Executive Share Ownership Guidelines
The Committee strongly supports executives holding ownership in the Bank. In January 2001, the Bank introduced minimum shareholding guidelines, which were met by December 2003. In January 2003, the guidelines were increased to the levels outlined in the table below. Executives were required to meet these new minimum shareholding guidelines in fiscal 2006, and new executives within three years of appointment. All executives are in compliance with these increased ownership guidelines, which can be met through the holding of the Bank’s Common Shares, DSUs or Units under the Bank’s Mid-Term Incentive Plans. Once executives have met their initial shareholding requirement, they are expected to maintain compliance and their compliance is reconfirmed annually. Total equity holdings of the Named Executive Officers are reported on page 35 in footnote (e) to the Summary Compensation Table; the value of each Named Executive Officer’s holdings exceeds the applicable share ownership guideline set out below:
           
 
  Title     Share ownership guideline  
 
Chief Executive Officer
    7.0 times base salary  
 
Chief Operating Officer
Operating Group Presidents
    5.0 times base salary  
 
Senior Executive Vice-Presidents
Executive Vice-Presidents
    3.0 times base salary  
 
Senior Vice-Presidents
    2.0 times base salary  
 
Vice-Presidents
    1.5 times base salary  
 
To align executive and shareholder interests beyond retirement, and reinforce the importance of long-term strategic decisions and effective succession management, MBEC members must continue to meet their share ownership guidelines for a period following retirement. The CEO is required to maintain his share ownership level for two years following retirement and other MBEC members must maintain their share ownership levels for one year following retirement.
Cost of Management Ratio
In response to a shareholder proposal received in 2005, the Bank committed to working with other financial institutions to develop a cost of management ratio to be reported annually. The agreed upon measure, shown below, reports the total aggregate compensation for those individuals identified as Named Executive Officers in the Proxy Circular issued in the year following each of the last three fiscal years noted below, expressed as a percentage of net income after tax.
                                   
        2006     2005     2004  
 
Total aggregate NEO compensation ($ millions) (a)
      $31.9         $30.7         $31.7    
 
As a percentage of net income after tax (b)
      1.20%         1.28%         1.38%    
 
Notes
(a)   Total Named Executive Officer (NEO) compensation is defined as the aggregate of base salary, short-, mid- and long-term incentives, other compensation and the annual pension service and compensation cost as reported on pages 33 and 40.
 
(b)   Net income after tax (in accordance with Canadian GAAP) is reported on page 93 in the 2006 Annual Report.


Bank of Montreal Proxy Circular 31

 


 

Report on Executive Compensation (continued)

Compensation of the President and Chief Executive Officer
As previously mentioned, the Committee monitors and assesses the performance of Mr. Comper, President and Chief Executive Officer and recommends to the Board compensation amounts for Mr. Comper.
     For the fiscal year ending October 31, 2006, Mr. Comper’s compensation consisted of base salary and awards under the Short-Term Incentive, Mid-Term Incentive and Stock Option Plans. When assessing Mr. Comper’s compensation, the Committee considered the absolute and relative performance of the Bank, Mr. Comper’s individual performance and the median of the comparator market, which is made up of the CEOs of the other major Canadian banks. In determining his 2006 amounts, the Committee carefully considered all aspects of compensation including pension benefits and costs. Mr. Comper’s 2006 total compensation is positioned slightly below the median of the peer group.
1.   Base Salary
For fiscal 2006 Mr. Comper’s salary was $1,000,000 and will remain at this level.
2.   Short-Term Incentive
2.1 Business Performance Assessment
In determining the 2006 bonus award for Mr. Comper, the Committee assessed the following business performance measures and their assigned weightings:
  Earnings per share (EPS) growth from the prior year (37.5% weighting),
  Revenue growth from the prior year (37.5% weighting), and
  EPS growth and revenue growth relative to the Canadian peer group (25% weighting).
In 2006, earnings per share growth over the prior year exceeded the established performance target. Revenue growth was less than expected.
     The Bank’s reported earnings per share growth and revenue growth were below the Canadian peer group (the six major Canadian banks) average before taking into account significant items. The peer averages were elevated by the impact of litigation provisions in 2005 and a significant gain on the sale of a business in 2006. The sale of Harrisdirect, BMO’s former U.S. direct-investing business, negatively impacted BMO’s revenue growth.
Bank of Montreal 2006 Financial Highlights
                 
    GAAP     GAAP adjusted (a)
 
EPS growth
    11.2%          
 
Revenue growth
    1.5%       1.5% (b)
 
Revenue growth excluding Harrisdirect (c)
    4.2%       4.2%  
 
Notes
(a)   Non-GAAP measure
(b)   Taxable equivalent basis
    The Bank uses revenue on a taxable equivalent basis, a non-GAAP measure, to assess performance for compensation purposes. Securities regulators require that corporations caution readers that earnings and other measures adjusted on a basis other than GAAP do not have standardized meanings under GAAP and are unlikely to be comparable to similar measures used by other companies.
         Revenue on a taxable equivalent basis includes an adjustment that increases GAAP revenues and the provision for income taxes by an amount that would raise revenues on certain tax-exempt securities to a level equivalent to amounts that would incur tax at the statutory rate. For 2006, there is no difference in revenue growth if calculated using GAAP-based revenue.
(c)   In the fourth quarter of 2005, BMO completed the sale of Harrisdirect, our former U.S. direct-investing business. To assist in understanding performance, the revenue growth measure disclosed is presented both as reported and excluding Harrisdirect.
2.2 Impact of Business Performance on Short-Term Incentive Award
In 2006, the earnings per share growth standard established for a 100% short-term incentive payout (i.e., target level) was 5.0%. While the Bank outperformed the EPS growth target, revenue growth excluding Harrisdirect was less than expected, based on GDP growth. Taking these factors into consideration, as well as qualitative factors such as competitive results and the quality of revenue, Mr. Comper’s bonus amount was adjusted accordingly.
     After taking into account the significant items in 2.1 above, the overall assessment of BMO’s relative performance was determined to be average. As a result, no adjustment was made to Mr. Comper’s bonus amount for the effect of relative performance.
2.3 Individual Performance Assessment
In addition to solid financial results for the Bank, the Committee concluded that Mr. Comper delivered against each of the strategic and key operational objectives approved at the beginning of the fiscal year. The objectives focused on core financial performance, delivery on priority initiatives, building the capabilities and capacity BMO needs to sustain performance in the future and maintaining its leadership position in risk management and governance.
     This assessment, combined with the Bank’s absolute and relative business performance, resulted in the Board awarding Mr. Comper a bonus of $1,600,000 under the Short-Term Incentive Plan.
3.   Mid-Term and Long-Term Incentives
In developing its recommendation to the Board on the appropriate award levels for Mr. Comper under the Mid-Term Incentive Plan and the Stock Option Plan, the Committee considered: 1) Mr. Comper’s performance in fiscal 2006 and in particular the successful implementation of both key strategic initiatives and the leadership succession plan; 2) the target level and mix of compensation for the CEO position; and 3) that both Plans reward recipients only when returns are earned for shareholders.


32 Bank of Montreal Proxy Circular

 


 

     Based on the Committee’s recommendation, the Board granted Mr. Comper 39,399 Units under the Mid-Term Incentive Plan, representing an aggregate award value of $2,700,000 at a Unit price of $68.53, being the average closing price of Common Shares on the TSX for the 90 calendar days preceding December 1, 2006. The payout value of these Units, which vest at the end of three years, will be determined as set forth in the Plan description above.
     Under the terms of the Stock Option Plan, the Board granted Mr. Comper 149,800 stock options on December 14, 2006 with a strike price of $68.97, the closing price of Common Shares on the TSX on the trading day immediately preceding the date of the grant. The compensation value of this award is $2,800,000. Of these options, 67%, once vested, cannot be exercised until the following share price increase thresholds are met: 33% are subject to a 50% increase in Common Share price and 34% are subject to a 100% increase in Common Share price. Under the terms of the Plan, the Committee has exercised its discretion to convert the 100% price-conditioned options that were issued to Mr. Comper within the three years preceding his retirement to 50% price-conditioned options upon Mr. Comper’s retirement.
Summary of Compensation
F.A. Comper
President & Chief Executive Officer
Mr. Comper’s 2006 compensation is shown in the following three-year summary compensation table:
                         
    2006     2005     2004  
   
Cash
                       
Salary
  $   1,000,000       $   1,000,000       $    1,000,000  
Bonus
    1,600,000       1,700,000       2,000,000  
   
Total cash
  $ 2,600,000     $ 2,700,000     $ 3,000,000  
   
Equity
                       
Mid-term (a)
  $ 2,700,000     $ 2,700,000     $ 2,800,000  
Stock options (b)
    2,800,000       2,700,000       2,700,000  
   
Total equity
  $ 5,500,000     $ 5,400,000     $ 5,500,000  
   
Total direct compensation
  $ 8,100,000     $ 8,100,000     $ 8,500,000  
   
Pension service and compensation cost (c)
  $ 845,000     $ 897,200     $ 1,204,800  
   
Other compensation (d,e)
  $ 675,171     $ 560,454     $ 393,111  
   
Total
  $ 9,620,171     $ 9,557,654     $ 10,097,911  
   
Notes
(a)   Amounts shown are Performance Share Units (PSUs) granted under the Bank’s Executive Mid-Term Incentive Plans (Bank MTIP) and represent the value of PSUs granted in December of each year. For further details refer to section 2.1 Executive Mid-Term Incentive Plans on page 29.
(b)   These amounts represent the compensation value of the number of options granted as reported in the Summary Compensation Table on page 34. This compensation value is based on a methodology which considers, among other things, the full 10-year term of the option. For further details refer to section 3.1 Stock Option Plan on page 30.
(c)   Annual pension service and compensation cost is the value of the projected pension expense for the year of service credited and any other compensation-related costs, including the impact of differences between the actual compensation paid in the year and the actuarial assumptions used for the year. For further details refer to the Supplemental Pension Disclosure section on page 38.
(d)   Other compensation is detailed in footnote (f) to the Summary Compensation Table on page 35.
(e)   Perquisites and benefits are not included as the aggregate value in any of the three years is less than $50,000 and 10% of the CEO’s total salary and bonus.
Composition of the Human Resources and Management Compensation Committee
The Report on Executive Compensation has been approved by the Human Resources and Management Compensation Committee of the Board of Directors, the members of which are set out below. A majority of the members of the Committee are resident Canadians who are not affiliated with the Bank for the purposes of the Bank Act (Canada). Each member of the Committee is not an officer or employee of the Bank or an affiliate of the Bank; and is “independent” within the meaning of applicable Canadian securities laws and New York Stock Exchange rules.
     
/s/ Stephen E. Bachand
  /s/ Robert M. Astley
Stephen E. Bachand
  Robert M. Astley
Chair
   
 
   
 
   
/s/ Ronald H. Farmer
  /s/ David A. Galloway
Ronald H. Farmer
  David A. Galloway
 
   
 
   
/s/ Harold N. Kvisle
  /s/ Martha C. Piper
Harold N. Kvisle
  Martha C. Piper
 
  Joined the Committee
 
  July 25, 2006
 
   
 
   
/s/ J. Robert S. Prichard
J. Robert S. Prichard
   


Bank of Montreal Proxy Circular 33

 


 

Executive Compensation

Summary Compensation Table for Named Executive Officers
Compensation for the President and Chief Executive Officer, the next three most highly compensated executive officers and the Chief Financial and Administrative Officer (collectively the Named Executive Officers) is summarized in the table below:
                                                                 
                                    Long-term compensation        
                                    Awards     Payouts        
                                            Shares or units subject              
            Annual compensation             to resale restrictions              
                                    Securities under     (Performance/              
Name and                           Other annual     options/SARs     restricted     LTIP     All other  
principal position   Year     Salary ($) (a)   Bonus ($) (b)   compensation ($) (c)   granted (#) (d)   share units) ($) (e)   payouts ($)     compensation ($) (f)
 
F.A. Comper
    2006       1,000,000       1,600,000       n/a       149,800       2,700,000     Nil       675,171  
President and
    2005       1,000,000       1,700,000       n/a       158,200       2,700,000     Nil       560,454  
Chief Executive Officer
    2004       1,000,000       2,000,000       n/a       150,500       2,800,000     Nil       393,111  
 
K.E. Maidment
    2006       552,200       1,150,000       n/a       42,800       650,000     Nil       170,562  
Chief Financial and
    2005       518,867       950,000       n/a       46,900       700,000     Nil       138,791  
Administrative Officer
    2004       493,867       950,000       n/a       43,200       625,000     Nil       103,435  
 
Y.J.P. Bourdeau
    2006       300,000       2,500,000       n/a       26,800       3,200,000     Nil       529,968  
Chief Executive Officer
    2005       300,000       2,800,000       n/a       17,600       2,100,000     Nil       394,460  
BMO Capital Markets
    2004       300,000       2,900,000       n/a       16,700       2,200,000     Nil       280,514  
and Head of Investment
                                                               
Banking Group
                                                               
 
W.A. Downe
    2006     US 622,450     US 1,103,753     Nil       98,300     US 1,623,124     Nil     US 308,259  
Chief Operating Officer
    2005     US 550,000     US 2,300,000     US 391,837       46,300     US 1,400,000     Nil     US 242,008  
 
    2004     US 550,000     US 2,850,000     US 405,264       40,400     US 1,400,000     Nil     US 142,877  
 
G.G. Ouellette
    2006       500,000       1,900,000       n/a       45,500       750,000     Nil       321,968  
President and Chief
    2005       500,000       1,900,000       n/a       49,800       750,000     Nil       276,700  
Executive Officer
    2004       500,000       1,800,000       n/a       50,200       800,000     Nil       221,188  
Private Client Group
                                                               
 
Notes
(a)   While disclosure regarding salaries for fiscal 2007 is not required, this information may be of interest to shareholders. For fiscal 2007, the Committee determined that salaries for the Named Executive Officers would remain unchanged at this time.
(b)   Amounts shown were earned in respect of the fiscal year indicated. Messrs. Comper and Downe each elected to take 50% of their 2006 bonus in Deferred Stock Units (DSUs) under the Deferred Stock Unit Plans (DSU Plans), based on a share price of $68.84, which was the average closing price on the TSX of Common Shares of the Bank for the five consecutive trading days ending October 31, 2006. With respect to 2005 and 2004 bonus deferrals, Mr. Comper elected to take 50% of his bonus in each year in DSUs, Mr. Downe elected to take 50% of his 2005 bonus in DSUs and Ms. Maidment elected to take 50% of her 2005 bonus and 50% of her 2004 bonus in DSUs based on share prices of $56.93 for 2005 and $56.86 for 2004. Aggregate holdings of DSUs granted under the DSU Plans as at October 31, 2006 and their value at this date are noted in footnote (e). Additional DSUs are automatically credited to represent dividends paid on Common Shares of the Bank, and these amounts are reported under “All other compensation”.
(c)   The aggregate value of perquisites and benefits for each Named Executive Officer is less than the lesser of $50,000 and 10% of the Named Executive Officer’s total annual salary and bonus. The amounts shown for Mr. Downe represent tax equalization payments made by the Bank to Mr. Downe in respect of Canadian income taxes paid in excess of United States income taxes, as a portion of Mr. Downe’s duties were required to be performed in Canada. Payments for any calendar year may be made at various times during the Bank’s following fiscal year. To provide greater consistency in executive compensation reporting of tax equalization payments from year to year, the Bank reports the tax equalization amount in respect of any tax year in the year in which the final tax liability is determined, which is the following fiscal year of the Bank, regardless of the fiscal year in which it was paid. As such, the tax equalization amount of US$271,989 paid in fiscal 2004 in respect of the 2003 tax year is not shown. Amounts for prior years have been restated to align with the appropriate tax years. In addition, prior year amounts have been converted to U.S. dollars for consistency in reporting.
(d)   To provide greater clarity in reporting executive compensation, the Bank reports the option awards most recently approved, rather than those 12 months in arrears. Accordingly, amounts shown represent the number of options approved for granting in each of calendar years 2006, 2005 and 2004. As such, the number of options granted to each of the Named Executive Officers in fiscal 2004 (i.e., the options approved for granting in calendar year 2003) is not included in this table. The number of options granted to each Named Executive Officer in fiscal 2004 is as follows: Mr. Comper 157,900 options; Ms. Maidment 44,500 options; Mr. Bourdeau 17,500 options; Mr. Downe 44,100 options; Mr. Ouellette 87,700 options.
(e)   To provide greater clarity in reporting executive compensation, the Bank reports awards most recently approved, rather than those 12 months in arrears. Accordingly, amounts shown represent the value of performance share units and restricted share units (Units) granted in each of calendar years 2006, 2005 and 2004. As such, the value of Units granted to each of the Named Executive Officers in fiscal 2004 (i.e., the Units granted in calendar year 2003) is not included in this table. The value of Units granted to each of the Named Executive Officers in fiscal year 2004 is as follows: Mr. Comper $2,800,000 in the Bank’s Mid-Term Incentive Plan (Bank MTIP); Ms. Maidment $725,000 in Bank MTIP; Mr. Bourdeau a total of $2,200,000 in Bank MTIP and Investment Banking Group Mid-Term Incentive Plan (IBG MTIP); Mr. Downe a total of US$1,400,000 in Bank MTIP and IBG MTIP; Mr. Ouellette $900,000 in Bank MTIP. The amount shown for 2006 for each Named Executive Officer includes awards with an effective grant date of December 1, 2006 under the Bank MTIP, which were converted into Units based on a share price of $68.53, the average closing price on the TSX of Common Shares of the Bank for the 90 calendar days preceding December 1, 2006. These Units vest and are paid out at the end of three years. The amount shown for 2006 for Mr. Bourdeau also includes an award with an effective grant date of December 1, 2006 under the IBG MTIP, which was converted into Units based on a share price of $70.33, the average closing price on the TSX of Common Shares of the Bank for the 10 trading days ending December 1, 2006. These Units vest one-third each year, and are paid out one-third each year or as a lump sum at the end of the three years. Aggregate holdings of Units, DSUs, and Common Shares and their value at October 31, 2006 are noted in the following table.
34  Bank of Montreal Proxy Circular

 


 

The table below shows the aggregate number of Units, DSUs and Common Shares of the Bank held by each Named Executive Officer, and the value of such Units, DSUs and Common Shares as at October 31, 2006.
Performance/Restricted Share Units, Deferred Stock Units and Common Shares Held as at October 31, 2006
                                 
            Aggregate              
            number of Units(1)/     Values at     Total value at  
Name   Type   Common Shares     October 31, 2006 (2)   October 31, 2006  
 
F.A. Comper
  Bank MTIP     161,910     $ 10,783,195          
 
  DSU     130,307     $ 8,946,904          
 
  Common Shares     81,216     $ 5,640,451     $ 25,370,550  
 
K.E. Maidment
  Bank MTIP     40,065     $ 2,668,311          
 
  DSU     32,479     $ 2,230,022          
 
  Common Shares     5,374     $ 373,224     $ 5,271,557  
 
Y.J.P. Bourdeau
  Bank MTIP     17,537     $ 1,167,962          
 
  IBG MTIP     104,098     $ 7,104,689          
 
  DSU     115,536     $ 7,932,696          
 
  Common Shares     12,666     $ 879,654     $ 17,085,001  
 
W.A. Downe
  Bank MTIP     30,572     $ 2,036,086          
 
  IBG MTIP     43,280     $ 2,953,861          
 
  DSU     75,336     $ 5,172,565          
 
  Common Shares     101,916     $ 7,078,066     $ 17,240,578  
 
G.G. Ouellette
  Bank MTIP     48,084     $ 3,202,394          
 
  DSU     88,969     $ 6,108,616          
 
  Common Shares     188,845     $  13,115,285     $  22,426,295  
 
Notes
(1)   As additional Units are automatically credited to represent dividends paid on Common Shares of the Bank under Bank MTIP, IBG MTIP, and DSU Plans, DSU and Unit amounts include dividend equivalents automatically credited, which are also reported under “All other compensation”.
(2)   Units under Bank MTIP were valued based on the average closing price of the Bank’s Common Shares on the TSX for the 90 calendar days prior to October 31, 2006, which was $66.60. Units under IBG MTIP were valued based on the average closing price of the Bank’s Common Shares on the TSX for the 10 trading days ended October 31, 2006, which was $68.25. DSUs were valued based on the average closing price of the Bank’s Common Shares on the TSX for the five trading days ended October 31, 2006, which was $68.66. Common Shares were valued based on the closing price of the Bank’s Common Shares on the TSX on October 31, 2006, which was $69.45.
The table below shows the estimated future payouts for the awards granted in calendar year 2006 under the Bank MTIP, based on the number of Units. The actual payout value will be based on the average closing price on the TSX of Common Shares of the Bank for the 90 calendar days preceding the vesting date, will include accumulated dividend equivalents automatically credited and will be adjusted for the Bank’s annualized total shareholder return (TSR) relative to its peer group.
Bank Mid-Term Incentive Plan Awards Granted in Calendar Year 2006
                                         
            Performance or other period     Estimated future payouts
Name   Units granted (#)     until maturation or payout     Threshold (#)     Target (#)     Maximum (#)  
 
F.A. Comper
    39,399     3 years       0       39,399       59,098  
K.E. Maidment
    9,485     3 years       0       9,485       14,228  
Y.J.P. Bourdeau
    7,296     3 years       0       7,296       10,944  
W.A. Downe
    26,823     3 years       0       26,823       40,235  
G.G. Ouellette
    10,944     3 years       0       10,944       16,416  
 
(f)   The amounts shown represent: the amount of interest accrued for the fiscal year ending October 31, 2006 under the executive incentive bonus plan for amounts deferred prior to November 1, 1987; dividend equivalents automatically credited under the DSU Plans, the Bank MTIPs, and the IBG MTIPs for the fiscal year ending October 31, 2006; Bank contributions under the Bank’s Employee Share Ownership Plan for the fiscal year ending October 31, 2006; and Bank contributions under the Employees’ Savings and Profit Sharing Plan of Bank of Montreal/Harris. Named Executive Officers in Canada participate in the Employee Share Ownership Plan on the same basis as all other employees in Canada, whereby for each dollar contributed by employees up to 6% of base salary, the Bank will contribute additional Common Shares up to 50% of eligible contributions. Mr. Downe participates in the Employees’ Savings and Profit Sharing Plan on the same basis as all other U.S. employees, whereby the Bank matches the employee’s contribution up to the first 5% of eligible pay. Prior year amounts for Mr. Downe have been converted to U.S. dollars for consistency in reporting.
Bank of Montreal Proxy Circular  35

 


 

Executive Compensation (continued)

Stock Options
In calendar year 2006, stock options to purchase Common Shares of the Bank were granted to the Named Executive Officers as set out in the following table. All of the options granted had an exercise price equal to the closing price on the TSX of
 
Common Shares of the Bank on the date immediately preceding the date of the grant. (For details of the Stock Option Plan including the performance conditions, refer to page 30.)


Option Grants during the Calendar Year Ended December 31, 2006
                                         
    Number of     % of total options             Market value of underlying        
    securities under     granted to employees     Exercise or base price     securities on the        
Name   options granted (#)     in the calendar year     ($/security)     date of grant ($/security)     Expiration date
 
F.A. Comper
    149,800       12.28       68.97       68.97     December 14, 2016
K.E. Maidment
    42,800       3.51       68.97       68.97     December 14, 2016
Y.J.P. Bourdeau
    26,800       2.13       68.97       68.97     December 14, 2016
W.A. Downe
    98,300       8.06       68.97       68.97     December 14, 2016
G.G. Ouellette
    45,500       3.73       68.97       68.97     December 14, 2016
 

Amounts shown represent the number of securities under options granted to each of the Named Executive Officers in calendar year 2006. The options shown in the table were granted in December 2006 and represent the most recently approved stock option grants. The Bank has concluded that this reporting methodology will provide greater clarity in reporting executive compensation to its shareholders. The number of options and percentage of total options granted in fiscal 2006, reported last year and not shown in this table, are as follows: Mr. Comper 158,200, 11.67%; Ms. Maidment 46,900, 3.46%; Mr. Bourdeau 17,600, 1.30%; Mr. Downe 46,300, 3.42%; Mr. Ouellette 49,800, 3.67%. All of the options granted had an exercise price equal to the closing price on the TSX of Common Shares of the Bank on the date immediately preceding the date of the grant, which was $62.99. The options
vest over four years at the rate of 25% each year and have an expiration date of December 8, 2015. Of the Named Executive Officers’ option grants, 67% is subject to share price increase thresholds that must be met before the options can be exercised. (For details of the Stock Option Plan, including the performance conditions, refer to the Report on Executive Compensation, page 30.)
     The following table shows the number of Bank Common Shares acquired through the exercise of stock options during the fiscal year ended October 31, 2006, the aggregate value realized upon exercise, the aggregate number of options each Named Executive Officer holds and the value of these options based on the closing price on the TSX of Common Shares of the Bank on October 31, 2006, which was $69.45.


Aggregated Option Exercises during the Fiscal Year Ended October 31, 2006 and Fiscal Year-End Option Values
                                                 
                                    Value of unexercised  
    Securities     Aggregate     Unexercised options     in-the-money options  
    acquired on     value     at October 31, 2006 (#)     at October 31, 2006 ($)  
Name   exercise (#)     realized ($)     Exercisable     Unexercisable     Exercisable     Unexercisable  
 
F.A. Comper
    236,000       7,497,201       1,037,201       783,599       37,227,443       15,976,364  
K.E. Maidment
  Nil     Nil       246,630       142,470       7,790,500       1,925,982  
Y.J.P. Bourdeau
    52,000       1,565,268       346,702       120,398       13,011,286       2,841,913  
W.A. Downe
    180,000     US 5,877,941       654,963       348,437       23,287,872       8,671,612  
G.G. Ouellette
  Nil     Nil       546,973       250,827       20,634,985       4,502,043  
 
36  Bank of Montreal Proxy Circular

 


 

Executive Pension Plan
Retirement Allowance Agreements
Bank of Montreal has entered into retirement allowance agreements (RAAs) with the Named Executive Officers that outline the terms and conditions for retirement allowances. Upon retirement, Messrs. Comper, Bourdeau, Downe and Ouellette and Ms. Maidment are each entitled to receive an annual retirement allowance during their lifetime pursuant to these agreements. The total allowance will be
 
 
comprised of amounts payable under Bank of Montreal’s Pension Fund Society and the Executive Pension Plan, or the pension plan of a subsidiary, and the RAAs. The following table shows details regarding the total retirement allowance benefits for each of the Named Executive Officers:


                                   
       
        At normal retirement date     Early retirement  
  Name     Age     Annual benefit     Years of service     Age     Reduction in allowance  
 
F.A. Comper
    Age 62     Equal to 70% of best average earnings*     40 years     Age 57     5% per year between ages 57 and 62  
 
K.E. Maidment
    Age 60     Equal to 2% of best average earnings*
for each year of credited service
    30 years     Age 55     3% per year between ages 55 and 60  
 
Y.J.P. Bourdeau
    Age 62     Equal to 70% of best average earnings*
    38 years     Age 57     5% per year between ages 57 and 62  
 
W.A. Downe
    Age 60     Equal to 2% of best average earnings*
for each year of credited service
    29 years     Age 55     3% per year between ages 55 and 60  
 
G.G. Ouellette
    Age 60     Equal to 2% of best average earnings*
for each year of credited service
    17 years     Age 55     3% per year between ages 55 and 60  
 
Note
*Best average earnings for the Named Executive Officers are defined in the following table:
                 
 
  Name     At normal retirement date     Early retirement  
 
F.A. Comper
    Sum of: the final 12 months’ salary plus the average of the best five years of STIP awarded     Sum of: the final 12 months’ salary plus the average of the best five years of STIP awarded, with the STIP amount limited to 45% of salary  
 
K.E. Maidment
    Sum of: the final 12 months’ salary plus the average of the best consecutive five years of STIP awarded, with the STIP amount limited to 45% of final salary     Same as “At normal retirement date”  
 
Y.J.P. Bourdeau
    Sum of: the final 12 months’ salary plus the average of the best five years of STIP awarded, with the STIP for years subsequent to fiscal 1998 (a) limited to 200% of final salary     The greater of $609,000(a) or the sum of: the final 12 months’ salary plus the average of the best five years of STIP awarded, with the STIP amount limited to 100% of salary  
 
W.A. Downe
    Sum of: the final 12 months’ salary plus the average of the best consecutive five years of STIP awarded, with the STIP amount limited to 45% of final salary     Same as “At normal retirement date”  
 
G.G. Ouellette
    Sum of: the final 12 months’ salary plus the average of the best consecutive five years of STIP awarded, with the STIP amount limited to 45% of final salary     Same as “At normal retirement date”  
 
Note
(a)   Effective fiscal 1999, Mr. Bourdeau joined IBG and his prior Bank of Montreal pension arrangements were grandfathered.
If any such individual is receiving an annual retirement allowance at the time of his/her death, the Bank will pay annually to his/her surviving spouse during his/her lifetime 60% of this retirement allowance.
Bank of Montreal Proxy Circular  37

 


 

Executive Compensation (continued)
Estimated annual retirement allowance benefits payable upon retirement to the specified Named Executive Officers are shown in the following table:
Estimated Annual Retirement Benefits upon Retirement (a)
                                                 
            Years of credited service (c)
Best average earnings (b) ($)     15     20     25     30     35 or more  
 
  500,000    
 
    150,000       200,000       250,000       300,000       350,000  
  1,000,000    
 
    300,000       400,000       500,000       600,000       700,000  
  1,500,000    
 
    450,000       600,000       750,000       900,000       1,050,000  
  2,000,000    
 
    600,000       800,000       1,000,000       1,200,000       1,400,000  
  2,500,000    
 
    750,000       1,000,000       1,250,000       1,500,000       1,750,000  
  3,000,000    
 
    900,000       1,200,000       1,500,000       1,800,000       2,100,000  
  3,500,000    
 
    1,050,000       1,400,000       1,750,000       2,100,000       2,450,000  
  4,000,000    
 
    1,200,000       1,600,000       2,000,000       2,400,000       2,800,000  
  4,500,000    
 
    1,350,000       1,800,000       2,250,000       2,700,000       3,150,000  
 
Notes
(a)   The annual benefits payable upon retirement as shown in the above table are comprised of amounts payable under Bank of Montreal’s Pension Fund Society and the Executive Pension Plan, or the pension plan of a subsidiary, and the RAAs. Pension benefits are not reduced by the maximum Canada/Quebec Pension Plan benefit payable at the relevant time.
(b)   Best average earnings for the Named Executive Officers are defined on page 37.
(c)   The projected years of credited service at their normal retirement date under the RAAs are as follows: Mr. Comper 40 years, Ms. Maidment 30 years (which includes 13 years of prior service recognition to be earned over an equivalent period of employment with Bank of Montreal), Mr. Bourdeau 38 years, Mr. Downe 29 years and Mr. Ouellette 17 years (which includes eight years of prior service with Nesbitt Thomson and Burns Fry, to be earned over an equivalent period of employment with Bank of Montreal).

Based on current compensation, the estimated annual benefits payable upon retirement at normal retirement age are as follows: Mr. Comper $1,918,000, Ms. Maidment $438,600, Mr. Bourdeau $686,000, Mr. Downe $604,600 and Mr. Ouellette $246,500.
Supplemental Pension Disclosure
The previous section on executive pensions complies with the disclosure regulations currently in place. In the interest of greater disclosure and clarity for shareholders, the following tables detail the pension expense for the Bank in respect of each of the Named Executive Officers.
Fiscal 2006 Pension Expense Related to Service
and Compensation
Amounts reported in the table below represent the pension expense related to 2006 service for each of the Named Executive Officers and the impact of differences between actual compensation paid in 2006 and the actuarial assumptions used for the year.
         
    Fiscal 2006 pension expense  
Name   related to service and compensation  
 
F.A. Comper
  845,000  
K.E. Maidment
  216,500  
Y.J.P. Bourdeau
  210,200  
W.A. Downe
  922,800  
G.G. Ouellette
  243,700  
 


Fiscal 2006 Changes in Accrued Pension Liabilities
The accrued pension liability is calculated following the method prescribed by the Canadian Institute of Chartered Accountants and is based on management’s best estimate of future events that affect the cost of pensions, including assumptions about future salary adjustments and STIP award amounts. Changes in the accrued pension liabilities for the Named Executive Officers are summarized in the following table. These changes include the fiscal 2006 expense attributed to service and compensation as reported in the previous table as well as the normal increases (1) to pension liabilities arising from the annual valuation of the Bank’s pension plans, which includes all employees who are participants.
                                 
    Accrued liability at     Change in accrued     Accrued liability at        
    October 31, 2005  (2)   liability for 2006  (2,3)   October 31, 2006  (2)   Years of credited service at  
Name   (a)     (b)     (c) = (a) + (b)     October 31, 2006  
 
F.A. Comper
  24,004,400     2,801,400     26,805,800       39  
K.E. Maidment
  1,633,300     421,600     2,054,900       12  
Y.J.P. Bourdeau
  6,927,400     829,700     7,757,100       34  
W.A. Downe
  5,507,400     832,600     6,340,000       23  
G.G. Ouellette
  2,606,400     469,600     3,076,000       15  
 
Notes
(1)   The normal increases include interest on the beginning-of-year liability, employee contributions to the pension plan, changes in interest rate assumptions as the result of changes in long-term bond yields and changes in exchange rates.
(2)   The calculation of reported amounts uses actuarial assumptions and methods that are consistent with those used for calculating pension liabilities and annual expense as disclosed in the Bank’s 2005 and 2006 Consolidated Financial Statements. As the assumptions reflect the Bank’s best estimate of future events, the values shown in the above table may not be directly comparable to similar estimates of pension liabilities that may be disclosed by other corporations.
(3)   Excluded from the change in accrued liability for 2006 is the impact of investment returns on the Bank’s pension plan assets.
38  Bank of Montreal Proxy Circular

 


 

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