Credit Suisse has warned senior bankers they will have to give up some of their cash bonus if they leave within three years, a controversial step designed to retain staff as the lender battles to recover from a series of crises.
Under the plan announced to directors and managing directors on Friday, Credit Suisse said it would be offering those earning more than $250,000 (€224,000) an “upfront cash award”, meaning a larger proportion of their annual bonus will be paid immediately in cash than in previous years.
However, an employee will have to relinquish a proportion of the money if they resign, a departure from the conventional practice in which the only element of a banker’s compensation subject to clawback provisions is the deferred shares they receive.
“[The year] 2021 was a difficult year for Credit Suisse, which creates a challenging context for the bonus pool,” the bank said to staff in a memo, a copy of which was seen by the Financial Times. “This change is intended to rebalance the amount of immediate cash that is paid compared to prior years.”
The move comes as Credit Suisse attempts to reset its strategy and overhaul its culture after scandals involving Greensill Capital and family office Archegos. The episodes severely damaged its reputation for risk management and raised questions over the bank's leadership.
In a bid to offset the new clawback on the cash bonus, Credit Suisse is also offering its top cadre of directors and managing directors a new share award on top of their existing overall bonus package if certain objectives are met in the next three years. The memo did not specify the amount or the strategic goals that had to be achieved.
Several senior staff told the Financial Times that the cash clawback policy could backfire and result in another round of defections to competitors.
In the memo, the bank acknowledged “that accepting the terms and conditions of your cash bonus may be a new process for you; however, the UCA [upfront cash award] is a key tool to provide cash to employees in an affordable way”.
The clawback plan comes just weeks after António Horta-Osório resigned as the bank’s chair after a board investigation into multiple breaches of Covid-19 quarantine rules and his extensive use of the company’s private jet. Under the terms of his departure, he will receive 3.8 million Swiss francs (€3.6 million) in total, including CHF1.1 million paid in cash not subject to clawback.
Before he left, Mr Horta-Osório had said he wanted to overhaul the pay policy to better reflect the bank’s profitability and tie it more closely to responsible risk management. Chief executive Thomas Gottstein and new chairman Axel Lehmann will need to persuade bankers of the merits of the new policy.
Credit Suisse earlier this week warned that its investment bank would report a loss for the fourth quarter as trading revenues slowed and it revealed another $545 million provision to cover litigation settlements. Its stock has fallen almost 30 per cent in the past year.
Traditionally, bonuses at Credit Suisse have comprised three elements: a cash proportion paid immediately, a share award that can be sold after one year and a deferred stock element that can only be cashed in over a number of years – and is subject to forfeit if an employee departs.
When bankers move to a rival employer, it is common for them to be compensated for deferred shares that have yet to vest. Senior staff said that it is likely that anyone leaving the bank will now seek to be compensated for the cash bonus they will forfeit, potentially making them more expensive to recruit.
The changes to bonuses “should reinforce a culture that is based on personal accountability and responsibility with appropriate incentives”, the memo said. “We have and will continue to put an even stronger focus on aligning compensation with positive behaviours going forward.”
“Credit Suisse aims to strike an appropriate balance with the interests of shareholders and wider stakeholders,” the bank said in a statement to the Financial Times. “We have also said that we will further align remuneration with our new strategic objectives, including our renewed focus on risk management.” – Copyright The Financial Times Limited 2022