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Credit Suisse is now deferring any bonuses that meet or exceed $51,845 (50,000 Swiss francs), by up to four years.The $51,845 threshold for deferring bonuses instead of paying them out in cash is totally new; the lower limit used to be about $129,000 (F125,000).
Why the change?
The bank basically admits it’s bowing to pressure from vexed shareholders and government officials over compensation practices, according to Bloomberg.
But there’s also a clawback option written into the packages if employee actions result in future harm to the bank, its reputation or its earnings.
The deferral rate could account for anywhere between 35% to 70% of employee compensation the bank said. Plus, about 50% more employees will have their compensation deferred this year compared to last year.
[C]ash bonuses will be paid out over four years—one-quarter annually—and be linked to Credit Suisse’s return-on-equity from next year to 2014. The return on equity over the four years represents the maximum potential for the cash awards to rise.
In bonuses paid out as bank stock, Credit Suisse is removing leverage from 2010’s plan, which investors had criticised in past years because bankers could win additional shares depending on the bank’s share price, without ceding any shares if the stock slumped.
Like Goldman Sachs’ latest bonus changes, the bank says the modifcations are aimed at reducing the situation and motivation for bankers to make risky but high-yield investments, which might not result in long term value for the company.