Credit Suisse Group AG, which slashed 2009 bonuses for about 400 managing directors in the U.K. to reduce a one-time tax on the payouts, plans to provide them with a Sept. 1 cash award, according to people briefed on the matter.
Managing directors in the U.K. were notified last week about the payments, which will be deferred over three years and subject to clawback provisions as well as the bank’s return on equity performance, according to one of the people. They refused to be named because the payments haven’t been publicly disclosed.Karen Laureano-Rikardsen, a spokeswoman in New York for the Zurich-based company, declined to comment.
Wall Street firms typically wait until after year-end to pay out bonuses tied to performance over the previous 12 months. For senior employees, the payments are often several times larger than their annual salaries, and can make up the bulk of a bank’s compensation expense.
Credit Suisse, the second-biggest Swiss bank by assets, trimmed its reward pool for 2009 by 5 percent to spread the cost of the U.K.’s 50 percent tax on bonuses, and cut U.K. managing directors’ incentive awards an additional 30 percent. The Sept. 1 payment to managing directors is part of the firm’s effort to ensure that its employees are being paid competitively, said one of the people.
Credit Suisse paid 447 million Swiss francs ($436 million) for the U.K. bonus tax, compared with 242 million francs for larger Zurich-based rival UBS AG. Among New York-based firms, Goldman Sachs Group Inc. paid $600 million and JPMorgan Chase & Co. $550 million.
The Wall Street Journal reported earlier today on Credit Suisse’s Sept. 1 bonus payments and the possibility that some banks may accelerate bonuses to avoid higher U.S. rates.
Potential increases to U.S. tax rates, which are being debated in Congress, might spur some banks to pay U.S. bonuses early to spare employees from the higher levies, according to Alan Johnson, president and founder of compensation consultant Johnson Associates Inc. in New York.
“Everyone thinks taxes are going to go up in 2011,” Johnson said. “Certainly it will be on the table whether you pay early.”
David Wise, a principal in New York at benefits consulting firm Hay Group, said banks have come under so much criticism for their high compensation levels that they may be wary about speeding up bonus payments to help employees reduce their tax bills.
“Given all the heat on Wall Street pay, it’s not a tenable solution to change the timing of bonuses,” he said. “In this environment, legislators, taxpayers will be watching this very closely.”
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