Today is the day that Deutsche Bank has released its remuneration report for 2012. If you're thinking of working for the German bank, or simply wondering how well it rewards its investment bankers, you may like to familiarize yourself with the following points.
1. Up to €100k, all bonuses at Deutsche are paid in cash. Then it gets nasty.
Deutsche Bank is being kind to its lower earners: all bonuses below €100k were paid entirely in cash for 2012. Beyond €100k, however, at least 50% of bonuses were deferred.
This looks nasty: Deutsche's cash ceiling is low and its rate of deferral is high. Credit Suisse, for example, is only deferring bonuses once an individual's total compensation (including salary) hits CHF250k (€205k). Beyond this, deferrals at the Swiss bank are starting at just 15%.
Once an employee earns more than €1m, Deutsche said the entirety of his/her bonus will be deferred. On average, Deutsche said 90% of bonuses for the 'senior management group' (comprised of the 119 most senior employees across all business areas) were deferred for 2012. 70% of bonuses for Deutsche's regulated employees were.
Deutsche's €100k ceiling for all-cash bonuses looks harsh compared to last year, when it was said to take effect at €200k.
2. Deutsche Bank isn't deferring most bonuses for too long, however
Deutsche Bank introduced 'cliff vesting' last September. Under this scheme, bonuses for its management committee and for its senior management group, are deferred for five years with the entirety of those bonuses only becoming available in year five. There is no vesting before then.
This sounded harsh. Today's report, however, goes someway to softening the blow. Only 50% of the deferred bonuses for the management committee and senior management group will be made in deferred equity which pays out entirely in year five. The other 50% will be paid in deferred cash which pays out annually over a four year period, starting 1.5 years after the award takes place.
Away from the senior management group and the management committee, bonuses at Deutsche are deferred over a three year period, with a third of them becoming available each year. This looks good compared to UBS, which has implemented a harsh five year deferral plan for its high earners.
3. At least half of Deutsche's front office investment bankers earned less than €100k last year
Deutsche's Bank's front office investment bankers are not nearly as well off as people might think. The German bank said it only deferred bonuses for 3,500 non-regulated employees last year. A further 1,089 employees were regulated and were therefore likely to have had a proportion of their bonuses deferred on a mandatory basis.
In total, therefore, no more than 4,589 people at Deutsche Bank had their bonuses deferred in 2012. Therefore, no more than 4,589 people earned more than €100k.
When it released its fourth quarter results for 2012, Deutsche said it 9,094 front office investment bankers. Today's information suggests that at least half of them are not earning six figures.
4. Deutsche has still got very harsh bonus clawbacks
Deutsche Bank is well known for its harsh bonus clawbacks. Not only does it clawback bonuses awarded to people by their previous employers, but it claws back 100% of unvested bonuses in a particular year in the event of a divisional or company-wide loss.
This remains the case. In 2012 Deutsche actually strengthened its bonus clawbacks, adding a performance clause enabling bonus confiscation if an employee's performance turns out to have been misstated.
5. No one will be getting more than €300k in cash
Beyond €100k, at least 50% of bonuses are deferred. However, bankers with multi-million euro bonuses could still take home a large cash pile.
To prevent this, Deutsche said it has capped this year's cash payouts at €300k. If all bonuses are deferred beyond €1m, this implies that 78% of bonuses are deferred on average between €100k and €1m.
6. Deutsche seems to be incentivising its senior managers to take some crazy risks
One component of senior managers' bonuses at Deutsche is dependent upon the bank's return on equity. As the graph below (taken from the bank's remuneration report) demonstrates, senior managers' bonuses at Deutsche are subject to a multiplier until return on equity at the bank reaches 28%. Last year, the post-tax return on equity at Deutsche was 0.4% and the pre-tax return on equity was 1.3%. If they want their bonuses multiplied, senior management may be inclined to take some risks to bump that figure up.
7. The European Union wants banks to have more regulated staff, but Deutsche has been reallocating people away from its regulated group
The European Union has said it will be tightening the definition of regulated staff (who are effected by its compensation edicts) to ensure banks aren't able to avoid things like its bonus cap.
Nevertheless, Deutsche Bank seems to have decided that it had mistakenly classified too many investment bankers as regulated employees and has taken around 150 people out of its regulated group. Some of these may be redundancies, but Deutsche also said it had 'identified' fewer managing directors as regulated employees than previously. Those 150 people will not have their bonuses capped after all.
8. Deutsche Bank still needs to cut bonuses and to increase salaries in order to meet the EU's bonus cap
The European Union is capping bonuses at no more than 2.5 times salaries. In 2012, bonuses for all regulated staff at Deutsche Bank were three times higher than salaries.
9. Deutsche Bank only pays its risk takers the same as UBS
In 2012, Deutsche Bank paid its average risk taker across the bank €1.3m ($1.7m). In Deutsche's investment bank, the average risk taker was paid the same amount.
At Credit Suisse, the average risk taker last year was paid $2.6m. Deutsche therefore looks a little ungenerous: it pays on a par with UBS.
However, it's worth noting that even after cutting 150 people from its group of regulated employees, Deutsche still classifies 1,215 people in that category, whereas there are only 523 regulated employees at Credit Suisse and only 514 at UBS. It can therefore be assumed that Deutsche's group of regulated employees includes a higher proportion of junior staff than at Credit Suisse or UBS. This may account for the discrepancy in compensation.
10. Deutsche still pays sign-on bonuses
RBS doesn't sign-on bonuses. Deutsche Bank does. Last year, the German bank paid 34 sign-on bonuses in the investment bank, valued at an average of €1.4m each.