Toronto-Dominion Bank Chief Executive Officer Bharat Masrani took a pay cut last year over the lender’s scuttled acquisition of First Horizon Corp. and the US probe it faces over anti-money-laundering controls.

“In acknowledgment of the termination of the First Horizon transaction and certain US regulatory issues, the CEO recommended, and the board approved” the $1 million (US$740,000) reduction in his direct compensation for fiscal 2023, the Canadian bank said in its annual proxy circular filed Tuesday.

He received total compensation of $13.4 million last year, down from $15.1 million in 2022. 

Toronto-Dominion was poised to expand its U.S. footprint with a US$13.4 billion deal to buy Memphis-based First Horizon, but scrapped the transaction in May 2023. The timing of closing had been thrown into doubt as it faced inquiries from US regulators and law enforcement into its handling of suspicious customer transactions.

Analysts estimate the probe, which remains unresolved, could lead to a fine of between US$500 million and US$1 billion, and Toronto-Dominion has already said it is spending hundreds of millions of dollars to improve its risk and control infrastructure. 

“Notwithstanding the progress we have made in our US business, it was disappointing that some shortcomings in our anti-money-laundering control environment were identified during the year, which we are working hard to address, and I am confident that in time we will,” Masrani said in a letter to shareholders included in the company’s annual report Tuesday. 

The “uncertainty of the approval time line” led the Toronto-based bank and First Horizon to mutually agree to call off the deal last year, he said, adding that while “this was a difficult decision – and one not taken lightly – it was the right one for the bank under the circumstances.”

Masrani’s target for salary, bonus and share- and option-based awards had been $15 million. In addition to the $1 million reduction, his direct compensation was also lowered by the bank’s failure to hit its earnings target for the year.

Still, “the board believes that the CEO demonstrated excellent personal leadership and performance through a challenging year,” Toronto-Dominion said in the proxy.

The CEOs at three of Canada’s other largest banks also took home less than their target pay last year as their earnings fell short of expectations amid a difficult operating environment. Among the top executives at Royal Bank of Canada, Bank of Nova Scotia, Bank of Montreal and Canadian Imperial Bank of Commerce, only Royal Bank’s Dave McKay was awarded more than his target for direct compensation in fiscal 2023.