Deutsche Bank AG named a panel of business executives and a former German finance minister to review its compensation system as Europe’s biggest bank by assets seeks to lower costs and address criticism of banker pay.
Juergen Hambrecht, the former chief executive officer of German chemical company BASF SE, will lead the group, the Frankfurt-based lender said in an e-mailed statement today. The panel’s recommendations will influence pay practices for this year, according to the statement.
Banks are under pressure from shareholders, regulators and politicians to cut compensation costs following taxpayer-funded rescues and as volatile markets and stricter rules hurt profit. Deutsche Bank, which has cut bonuses and overhauled pay for its senior management, is betting that bankers won’t consider it a less attractive employer as competitors follow suit.
“This panel and its work constitute a vital part of our commitment to place Deutsche Bank at the forefront of cultural change in our industry,” Anshu Jain and Juergen Fitschen, the lender’s co-CEOs, said in the statement.
Other panel members are Michael Dobson, CEO of U.K. fund manager Schroders Plc, Morris Offit, an independent director at American International Group Inc. and chairman of Offit Capital Advisors LLC, Michael Otto, supervisory board chairman of German retailer Otto Group, and former finance minister Theo Waigel, according to the statement.
The group will benchmark Deutsche Bank’s systems against “industry best practice” and regulatory requirements as well as formulate “core principles” and minimum standards for future pay structures, according to the statement.
Deutsche Bank has said it will increase the vesting period for deferred bonuses for about 150 senior managers to five years from three, and will make a single payout after the deferral period ends.
The company plans to lower costs by 4.5 billion euros ($5.9 billion) a year by 2015 to reduce its cost income ratio to less than 65 percent from 78 percent last year. That will help boost after-tax return on equity, or ROE to 12 percent by 2015 from 8.2 percent in 2011, Deutsche Bank said Sept. 11.
Deutsche Bank’s bonus payments as a percentage of net revenue have fallen from 22 percent in 2006 to 11 percent last year, according to company filings. Deutsche Bank shrank its 2011 bonus pool by 17 percent and deferred about 61 percent of the total amount, the company said in February.
The German bank, which didn’t require direct state aid amid the turmoil following the collapse of Lehman Brothers Holdings Inc. in 2008, has said it will cut about 1,900 jobs, or almost 2 percent of its workforce, to reduce costs.
Jain called on investors at a conference in London in September to demand banks follow Deutsche Bank’s plans in changing their compensation policy.
“We have taken a bigger first step than most of our competitors,” he said. “Is there a risk that our competition doesn’t follow suit? Only if you are willing to accept low ROEs with unchanged compensation practices elsewhere.”