Credit Suisse on Tuesday announced revised compensation practices effective January 1, 2010, that will also be applicable to 2009 bonuses.
Credit Suisse is changing the mix of bonus and salary payable to managing directors and directors, such that fixed salaries will be a larger component of the overall payout for employees at these senior levels. Vice-presidents and below will not be affected. Bonuses up to $100,000 will continue to be paid in cash. Higher amounts will be subject to deferral.
For deferred compensation Credit Suisse is introducing two new instruments: scaled incentive share units (sisu) and adjustable performance plan awards (appa). Deferred compensation will be paid half in sisu and half in appa. Up to 50% of bonuses for MDs and directors will be payable in these two forms.
Sisu are similar to the incentive share units that Credit Suisse has been using for the past three years. Sisu are linked to a base share amount on a four-year pro-rata basis, which vests annually. The difference is that the holder is also entitled to additional shares, which vest after four years based on Credit Suisse's average share price over a four-year period as well as the return on equity (ROE) the bank has achieved. If Credit Suisse's average ROE over the four-year period is higher than a pre-set target, the number of additional shares will be adjusted upwards, and if it is below the target, the number of additional shares will decrease.
The appa has a notional cash value and vests pro-rata over three years. This is also linked to ROE -- it has a notional value that adjusts upward annually using Credit Suisse's ROE for that year as a multiplier. If the employee works in an area of the bank that has made losses, the appa will be adjusted downwards. For divisions that earn revenues, payouts will be linked to financial contribution. For shared services and support functions, payouts will be based on the financial performance of Credit Suisse as a whole.
This Swiss bank is also introducing minimum share ownership requirements for members of management committees and for the executive board, presumably to ensure that the net worth of senior decision-makers is linked to the performance of the firm.
Credit Suisse said the new guidelines are consistent with discussions at the Group of 20 summit which was held in Pittsburgh in September.
"At a time of strong focus on executive compensation, we are announcing a compensation structure that enables us to strike the right balance between paying our employees competitively, doing what is right for our shareholders and responding appropriately to regulatory initiatives and political as well as public concerns, " said Brady Dougan, chief executive officer of Credit Suisse Group.
Compensation for bankers is becoming a heated debate, especially in the US, where much of the population is reeling under recessionary conditions.
Earlier this year Morgan Stanley outlined a compensation plan that pays bonuses to executives over three years based on defined performance parameters for the individual and the firm.
On its third quarter earnings call on October 15, Goldman Sachs told analysts, according to a transcript posted on seekingalpha, that it was providing $5.4 billion, or 43% of revenues, for compensation and benefits for its 31,700 employees. Goldman highlighted that this was just a provision and bonus decisions would be made at year-end, but said the "accrual reflects our record year-to-date revenues in 2009".
"We're also cognisant of what's going on in the world and the pressures we're under and so we're going to try and balance those things as we work through the end of the year and we'll make our decisions as we get to year end based on the overall performance of the firm and our people," said David Viniar, Goldman's chief financial officer on the call. The third-quarter accrual was below the $6.6 billion, representing 49% of revenues, that Goldman provided for compensation in the second quarter.
Last month, at a Handelsblatt Banking Conference, Goldman Sachs CEO Lloyd Blankfein acknowledged that much of the controversy and anger regarding banker compensation was "understandable and appropriate". Blankfein went on to outline the principles governing compensation at Goldman Sachs, which include paying senior people mostly in deferred equity and evaluating performance over time to avoid excessive risk taking.
