Today is the day that UBS has announced its fourth quarter results. The Swiss bank has also provided some very detailed information on the structure of this year’s bonus pool. This is what you need to know.
1. UBS is paying more cash than before and more cash than rivals
UBS has slightly reduced the percentage of the bonus pool that will be deferred until future years from 33.3% in 2011 to 32% in 2012.
This follows a similar but more dramatic move at Deutsche Bank, which cut its proportion of deferred bonuses from 61% in 2011 to 47% in 2012.
While UBS’s move is less dramatic than Deutsche’s, the rationale is similar. Both UBS and Deutsche said that they are reducing costs to be amortized over future periods. This suggests a shift in thinking. Deferred bonuses were previously been presented as beneficial to shareholders because their recipients were encouraged to think long term. Now, deferrals are seen as adding unwanted inflexibility to future costs. Cash bonuses are making a comeback.
With 32% of UBS’s CHF2.5bn bonus pool deferred, the bank looks considerably more cash-generous than its rivals. However, UBS also said that CHF0.4bn of this year’s bonus pool is being paid in cash to bankers who are retiring. Of the remaining CHF2.1bn bonus pool paid to non-retirees, 38% is deferred. This is lower than the headline figure, but still a far lower proportion than at Deutsche Bank.
2. UBS’s cap on cash bonuses is crazily high
Credit Suisse is capping total cash compensation at CHF250k. Deutsche Bank is capping cash bonuses at €300k ($409k). UBS is capping cash bonuses at CHF1m. In its defence, UBS says it’s reduced the cash cap from its previous level of CHF2m.
On the other hand, UBS says that 60% of all performance awards exceeding CHF/US$ 250k will be deferred. The CHF1m cash cap will therefore apply only to UBS bankers earning in excess of CHF2.5m.
3. UBS has introduced a punitive new payment vehicle: the deferred contingent capital plan
Henceforth, all employees at UBS will receive half of deferred payment in the form of a ‘deferred contingent capital plan’ (DCCP). Bonuses paid in this instrument will be written down to zero if UBS’s BASEL III core tier one capital ratio falls to 7% or less.
4. Bonuses paid under the DCCP won’t vest at all for five years
The really bad news is that the 50% of deferred bonuses paid under the DCCP won’t vest at all for five years, at which point they will vest in their entirety. In this sense, UBS’s DCCP deferrals are similar to Deutsche Bank’s cliff vesting arrangement for its managing directors.
The key difference, however, is that Deutsche’s Bank’s cliff vesting applies only to its most senior staff, whereas from now on all staff with deferred bonuses at UBS will have to wait five years until half those bonuses vest. This is a new, unfortunate, development.
5. Five year deferrals are now the norm at UBS
50% of UBS’s deferred bonuses will be paid under the ‘Employee Ownership Plan’ (EOP). EOP bonuses will vest in three equal tranches in years three, four and five. This also looks punitive: five year deferrals have become the norm at UBS. More positively, employees can at least access 33% of their EOP awards in year three.
6. UBS has cut the bonus pool by 7% compared to 2011 and by 42% compared to 2010
Across the bank, UBS’s bonus pool is down 7% compared to 2011 and by 42% compared to 2010. Pay per head in the investment bank was down 4% compared to 2011, to CHF324k.
Separately, UBS is cutting 10,000 jobs, mostly in its investment bank, before 2015. It still has a long way to go. Since the third quarter of 2012, when the cuts were announced, it’s reduced headcount in the investment bank by just 789 people.
Our Swiss editor has pointed out that this is how much UBS is paying across different divisions of the bank:
Investment Banking: CHF324k (-3.6%)
Wealth Management Americas: CHF283k (+5.5%)
Global Asset Management: CHF234k (-8%)
Wealth Management: CHF177k (-14.8%)
Retail & Corporate Banking: CHF127k (-14.3%)
UBS Total: 235,310 francs (-2.4 percent)