Deutsche Bank AG, Europe’s biggest bank by assets, changed rules on bonuses to allow the company to claw back stock awarded to its workers by former employers.
The rules would apply to unvested stock from previous posts converted into shares of Deutsche Bank and affect senior bankers who started in or after January, Ronald Weichert, a spokesman for the Frankfurt-based lender, said today by phone.
Deutsche Bank co-Chief Executive Officer Anshu Jain, 49, said on July 31 that the banking industry needs to address the balance of rewards for shareholders and staff. About 17 percent of global banks reclaimed compensation in 2011 as European and North American regulators pressured firms to impose penalties on employee risk-taking, according to consulting firm Mercer.
“The sector will have to move in unison for a plan like this to work for Deutsche Bank,” said Christian Hamann, an analyst with Hamburger Sparkasse who recommends investors sell the stock. “They also have to address their total levels of compensation so that more money goes to shareholders and less to staff.”
The introduction of clawbacks, or taking back compensation, was spurred by the financial crisis of 2008. Governments and regulators came under public pressure to curb bankers’ pay after top executives whose banks collapsed or required government bailouts walked away with millions of dollars of severance payments or accumulated pay packages.
Clawbacks are “relatively new phenomena” in compensation programs, so it will take some time for them to “bed down,” Vicki Elliott, the global financial-services human capital leader at Mercer, said in a statement this month.
The Financial Times reported Deutsche Bank’s decision earlier today. Citing pay consultants it didn’t identify, the newspaper said Deutsche Bank’s move was unusual in the banking industry and may be followed by its peers.
UBS AG, Switzerland’s biggest bank, introduced clawback provisions after record losses during the credit crisis. Some of those rules permit the bank to not pay deferred bonuses when units or the group as a whole turn out to be unprofitable. In 2010, senior bankers at UBS were deprived of 300 million francs of deferred bonuses after the company reported a 2.74 billion-franc loss for 2009.
UBS said it has a similar compensation system to Deutsche Bank. If previous awards that an employee forfeits as a result of leaving a former employer are tied to performance conditions, the replacement payments that are granted to compensate for joining UBS will likewise be subject to performance criteria, spokeswoman Eveline Mueller-Eichenberger said today in a written response to questions.
In the U.K., Lloyds Banking Group Plc, Britain’s largest mortgage lender, denied former Chief Executive Officer Eric Daniels and three other departed directors bonuses in March due to be paid out following the integration of HBOS Plc. HSBC Holdings Plc said in February that it has clawed back bonuses for employees because of the mis-selling of payment protection insurance.