Banker Bonus Curbs Hurting Talent Hunt, Danske Chairman Says

Ole Andersen, the chairman of Danske Bank A/S, says limits on bonuses are making it difficult to recruit the most talented people.

Denmark’s 50 percent cap on variable pay as a proportion of fixed compensation is “a problem,” Andersen said in an interview in Copenhagen on Thursday. In the search for talent, such pay curbs make it difficult to match total compensation offered elsewhere without providing more in base pay, he said.

“We would actually prefer to have maybe a little bit of a lower share in fixed [pay] and a higher share relating to longer-term value creation,” Andersen said. “Not short-term, of course, but long-term value-creation.”

Thomas F. Borgen, Danske’s chief executive officer, was paid a total of 16.2 million kroner ($2.5 million) in 2015, according to the bank’s annual report. Some 1.8 million kroner of that was in stock awards, while 2.2 million kroner was in pension contributions and 700,000 kroner was a variable cash payment. Borgen’s total package is a fraction the amount paid to executives at some of Europe’s biggest banks.

Danske’s share gains helped it overtake Deutsche in market value this year.
Danske’s share gains helped it overtake Deutsche in market value this year.

Banks operating in the European Union must cap the ratio between management’s variable pay and the fixed component of their total remuneration at 100 percent, or 200 percent if shareholders give their approval, according to the European Banking Authority.

Not only does Denmark impose a tougher ratio, it also restricts use of stock options. They can account for no more than 12.5 percent of executives’ and boards’ total pay, according to the Financial Supervisory Authority.

Danske, which this year overtook Deutsche Bank AG in market value, paid its top circle of seven executives a total of 69 million kroner in 2015. The 12 people who sat on the Deutsche board for varying periods last year were paid a total of 22.7 million euros ($25.6 million) in salaries, of which co-CEO John Cryan received 1.9 million euros.

Swiss-based UBS Group AG raised its bonus pool by 14 percent in 2015, according to its annual report published on Friday. CEO Sergio Ermotti received a total compensation of 14.3 million francs ($14.8 million), of which his bonus made up 11.5 million francs. That compares with cuts in variable pay announced at other big European banks, including Deutsche and Credit Suisse Group AG.

Andersen notes that part of the problem with recruiting talented people in Denmark is the high level of taxation in the country -- top income earners generally hand over a little more than half their gross earnings to the government. Foreign nationals who have joined the bank have discovered that “the tax regime in Denmark is somewhat different from what they’re used to,” he said.

Andersen said Danske’s goal is to “align management compensation with results.” But as the chart above suggests, bank executive pay isn’t necessarily always linked to share performance.

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