Credit Suisse overhauling banker bonus pay, adding clawback penalty - Business Insider

Credit Suisse is overhauling its bonus structure for its struggling investment banking and capital markets division, and instituting stiff clawback penalties. Under the new plan, cash bonuses will be paid in the form of an “upfront cash award,” which in practice functions like a three-year, interest-free loan. Employees who leave early will have to pay back compensation.The bank, which is set to announce bonuses February 11, is requiring employees to sign an agreement accepting the new terms.The 2019 bonus pool for the dealmaking unit is expected to fall by as much as 25%, two industry sources told Business Insider Visit Business Insider's homepage for more stories.

Credit Suisse is overhauling its bonus structure for its struggling investment banking and capital markets division, imposing financial penalties on that will make it more financially onerous for higher-earning bankers to depart for rivals.The firm on Wednesday finalized a new compensation plan for its dealmaking group, including a provision requiring the cash portion of a bonus to paid in the form of an “upfront cash award” with stiff clawback provisions, according to people familiar with the plans. The payment in practice is akin to a three-year, interest-free loan, and bankers who leave or are fired for cause within three years of earning a cash award will have to pay back the remaining term portion based on the pre-tax amount. It doesn't apply to junior investment banking ranks, the sources said. Like most Wall Street firms, Credit Suisse pays its top earners partially in cash and partially in deferred stock that vests over several years — with the highest earners drawing more of their bonus in equity.Under the new plan, which only affects higher earners in the Investment Banking and Capital Markets division, Credit Suisse will pay the cash portion via an “upfront cash award,” essentially a forgivable loan that vests monthly over the course of 36 months, the people said. For instance, an employee who received a bonus and resigned 12 months later would be required to pay back two-thirds of the awarded money, based on the pre-tax amount.

A Credit Suisse spokesman declined to comment. Bonuses, which are considered supplemental income, are taxed at a higher rate in the US than a traditional salary. The stock portion will remain on a three-year vesting schedule. The bank, which is scheduled to communicate 2019 compensation to staff on February 11, is requiring employees to sign an agreement accepting the new terms, or otherwise forego the cash portion of their bonus, the people said.

While atypical, a compensation plan with such clawback penalties isn't unprecedented, even within Credit Suisse. The firm last year implemented a similar compensation plan among senior bankers in its Asia-Pacific division. Jefferies is also known to impose stiff clawback provisions on employee compensation. The more restrictive bonus system is the latest blow for Credit Suisse's beleaguered dealmaking division, which has underperformed the rest of the firm. Credit Suisse in 2019 fell to the 7th from 6th on the global investment banking fee league table, as its market share decreased to 3.8% from 4.3%, according to Dealogic. In November, CEO Tidjane Thiam appointed David Miller as the head of the investment banking and capital markets group, replacing Jim Amine. The Financial Times reported last week that the Swiss bank had frozen its overall bonus pool for the second year running, as gains in sales and trading were offset by lackluster performance in advisory and capital markets.

Two industry sources told Business Insider the bonus pool for the dealmaking unit was expected to fall by as much as 25%.