Credit Suisse is reportedly forcing managing directors in Asia to repay some of the cash portion of their bonuses if they leave within three years of pocketing the money. But the new clawback policy, which was reported by Bloomberg and appears to be aimed primarily at private bankers, might not be an effective way of encouraging people to stay with the firm, say industry experts.
Credit Suisse would not comment for this article, but Bloomberg reports that the clawback is likely designed to deter senior relationship managers from defecting to competitors. In theory at least, this makes sense – chronic talent shortages and continually high levels of recruitment have created a competitive job market in Asian wealth management. Banks in Singapore and Hong Kong need to do all they can to hang onto RMs.
Moreover, Credit Suisse’s headcount of RMs in Asia fell by 10 to 580 last year – a period when other private banks were hiring. Credit Suisse’s main rival in Asia, UBS, added 101 private bankers last year, taking its RM workforce to 1,138. Firms including HSBC, Deutsche Bank and Julius Baer have also been ramping up their headcounts.
But not everyone agrees that bonus clawbacks are a good tactic in Asian private banking. “I think this is a wrong move – it could get bankers more irritated,” says former Merrill Lynch private banker Rahul Sen, now a global leader in private wealth management at search firm Boyden. “You're paid a bonus for past performance, so if you’ve had a stellar year in 2018 and still want to leave in 2019, you should be allowed to without it affecting your bonus.”
Even if clawbacks are enforced, Sen doesn’t believe they will prevent many bankers from leaving. “A clawback is not the way to retain talent. If a banker wants to leave, they will leave. Deutsche Bank had a clawback clause a few years ago – and it didn't help in retaining bankers,” says Sen.
In the current tight job market in Asia, a rival bank might partially or fully compensate a private banker for a bonus they are required to pay back, adds Sen. As well as the likes of UBS and Citi, boutique private banks (e.g. EFG, LGT, Pictet, Safra Sarasin, UBP and VP Bank) are expanding in Singapore and Hong Kong. And they are offering generous compensation packages to lure bankers from larger players.
Bonus buy-outs are typically only used for managing directors, says Liu San Li, a former private banker, now a business partner at wealth management firm Avallis in Singapore. But the Credit Suisse clawback initiative also reportedly targets MDs. “It boils down to who needs the banker more. If the senior RM is very sought after, any bank with the budget will buy them out,” says San Li. “It’s all a calculated risk about whether to invest in the particular RM.”
San Li says clawbacks could still make some RMs think twice about moving. “But they could also deter others from joining the bank. It’s a double-edged sword.”
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