January 18, 2017

Deutsche Bank’s Bonus Restraint Goes Only So Far

by Breakingviews

Deutsche Bank is exercising restraint on bonuses – sort of. The German lender says it’s taking tough steps on pay after shareholders endured a brutal year. That’s true, but only up to a point.

Deutsche has avoided the classic own goal demonstrated by plenty of banks following the financial crisis – paying huge bonuses despite hopeless returns. For 2016, Chief Executive John Cryan and the rest of his management board will waive all variable compensation, the bank said in a staff memo on Wednesday.

The sacrifice of the next tier down – the vice presidents, directors and managing directors – is less clear-cut, but still tangible. They will receive the “group” element of their variable pay, which reflects the wider performance of the bank, but not the “individual” component, which is more discretionary and reflects on-the-job performance. Given that shareholders saw a total return of minus 20 percent over the calendar year 2016, it’s reasonable to expect that group-based bonuses will shrink considerably, as should the 2.4 billion euros of total variable compensation paid out for the previous year.

Even so, around 75 percent of all staff will either be unaffected or barely affected by the changes. And Deutsche has created some loopholes for the remaining 25 percent. For a certain “limited number of employees in crucial positions”, there is still the potential for discretionary bonuses partly in the form of shares, which will be deferred by three to six years. About 20 percent of senior staff members typically receive such awards, so the payout could still be substantial. Moreover, Cryan also has the option of boosting fixed pay to compensate for lost bonuses among senior staff.

Investors will understand the need to retain key money-makers. Still, in a year in which the bank is paying no dividend, shareholders will notice that not all bankers are suffering comparable variable-comp pain.


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