UBS’s 2016 compensation report is out along with its annual report. The Swiss bank is less generous with its bonuses than it used to be, but it’s mitigating that in other ways. This is what you need to know.
1. Cash bonuses were down 8% UBS in 2016. The overall bonus pool was down 17%
‘Cash performance awards’ at UBS were down 8% in 2016 on the year before (to CHF1.8bn). Cash bonuses were still more than 2014, however (CHF1.7bn).
Cash payouts fell, but they didn’t fall by as much as the pool as a whole. UBS set aside 17% less for bonuses last year in 2016, with an overall bonus pool of CHF2.9bn.
2. You can now access a higher proportion of your UBS bonus in the first year
Like Barclays, UBS’s smaller cuts to cash bonuses mean a higher proportion of bonuses are available for employees to spend in the year they receive them. This year, 24% of UBS’s bonus pool is deferred. Last year, 29% was. It’s not a lot, but it makes a difference.
3. Once you’re paid more than CHF300k at UBS, 48% of your bonus is deferred
Deferrals at UBS pick up when you hit a high pay bracket. Once your combined salary and bonus are CHF300k+, 48% of your bonus will be deferred until future years.
4. Cash bonuses at UBS are capped at CHF/$1m
UBS will never pay more than CHF1m in cash as a bonus.
5. UBS has a cliff vesting compensation scheme like Deutsche’s for its most highly paid bankers
Deutsche’s payment of stock bonuses which “cliff vest” in their entirety only after year five is well known. Turns out UBS has something similar. Both banks reserve the punitive schemes for their most highly paid and senior staff.
UBS’s arrangements fall under its Deferred Contingent Capital Plan (DCCP). This year, that fully vests only in 2022. In the meantime, bonuses awarded under the scheme come with a notional interest rate of 2.55%. Payments under the DCCP are written down if UBS’s group common equity tier one capital ratio falls below 10% for its executive board, or 7% for all other employees.
6. Most employees at UBS’s investment bank get their deferred stock in years two and three…
Most people at UBS’s investment bank are paid under the bank’s equity ownership plan. This vests in years two and three.
7. ….But they’ll only get this stock if the investment bank achieves a return on target equity of 10% and the bank as a whole achieves a RoTE of 8%
The bad news is that there are vesting conditions attached to stock bonuses issued under UBS’s EOP. The bank as a whole has to meet a performance target, as does the division the banker is working for.
If UBS’s group return on target equity is between 0% and 8%, the award vests on a linear basis of 0% to 100% – providing the relevant business division performance is met. For the investment bank, the divisional RoTE target is 10%, as per the table below.
This shouldn’t be a problem. Last year, the RoTE at UBS’s investment bank was 18%.
8. UBS’s bankers below the rank of managing director can leverage their bonuses and salaries by reinvesting them in the bank’s shares
If you’re any kind of employee except an MD at UBS, you can leverage your compensation by investing it in the bank’s stock. Up to 30% of an employee’s base salary and up to 35% of his/her bonus (up to CHF/$200k) can be used to buy UBS shares. For every three shares purchased through this program, UBS adds an extra one. The purchased shares vest after three years so long as the individual remains employed by the bank (it’s not clear what happens if they don’t.)
The scheme could be pretty lucrative when you consider that UBS’s shares are now up 37% on their lows of last July.
9. If it likes you, UBS will give you a sign-on payment
Andrea Orcel, chief executive of UBS’s investment bank, says he’s still (slowly) hiring M&A rainmakers. Today’s compensation report suggests UBS is willing to pay up front to attract the right people. 145 people at the bank got sign-on payments in 2016, up from 114 in 2015.
10. Payments to contractors at UBS have gone through the roof
Deutsche Bank is feverishly trying to reduce the amount it pays its contractors. If UBS wants to do the same, it’s not succeeding. Payments to contractors at the Swiss bank rose 15% last year and are up nearly 80% since 2014.
11. Andrea Orcel, head of UBS’s investment bank has 207,114 vested shares he hasn’t sold yet
Andrea Orcel clearly thinks UBS’s share price has further to rise. He has 207,000 vested shares he hasn’t sold – worth CHF3.4m at today’s prices. Orcel also has 1,203,535 shares that haven’t vested, so he has another good reason to hope he’s right.