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| Credit the Swiss |
| Jeffrey Goldfarb / Oct 22, 2009, 00:17 IST |
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Credit Suisse bonuses: Credit Suisse seems to think the best form of defence is attack. The banking industry is facing heavy criticism over bonuses. In response, the Swiss group is the first to set out the details of a new compensation structure, upholding a recent tradition of forward thinking on pay.
The bank says the new scheme hews to recent guidelines from the G20. In contrast to the much narrower plan unveiled by UBS a year ago, it also covers more than 7,000 senior employees. The structure builds on a five-year-old effort that already included deferrals and significant share-based components.
Some parts of the new structure seem unnecessary. Paying directors and managing directors higher base salaries may follow the broad wishes of some regulators, but it also makes the firm’s cost base less flexible. There’s also going to be the possibility of upside, as well as clawbacks, on deferred payments. That seems a bit rich — after all, if the bank does especially well in subsequent years, bankers will get fresh bonuses to reflect that.
Beyond these quibbles, though, Credit Suisse’s plan looks sensible. Among the employees involved, the portion of the bonus required to be deferred rises with seniority, starting as low as about 15 per cent and reaching nearly 100 per cent at the top. The deferred portion is divided evenly between a share-based component and a cash-based one.
The shares vest annually over four years, refining the mechanics of previous schemes tried at the bank. What’s more, the number of additional shares will be adjusted – up or down – according to a formula based on Credit Suisse’s average return on equity, a logical measure.
Another important new wrinkle is that the cash component can be reduced if parts of the bank have bad years, even if the employee doesn't work there. Sure, there’s the arguably unnecessary upside if the bank does well over three years – but also the possibility of the cash payout being clawed all the way back to zero.
What the scheme lacks in plain English —add SISU and APPA components to predecessors PIP, PAF and ISU — it makes up for with substance. It’s unlikely to be the last word in bonus schemes – but Credit Suisse deserves credit for going first.
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