Executive Pay and Loyalty

International - Banking and Exec Loyalty (and Compensation)

See Banking Generally

International News:

 E.U. Parliament Caps Banker Bonuses
Starting in 2014, the EU's efforts to curb excessive risk-taking will impose the following limits on banker bonuses:
  • Who?  (1) All EU-based employees of any bank, wherever based; and (2) the worldwide employees of any bank headquartered in the EU.
  • Basic Limit: one times base salary.
  • Maximum Limit: if approved by shareholders, the maximum bonuses may increase to two time base salary, provided that at least 25% of bonus amounts above one times salary must be deferred for at least five years.
  • Shareholder Approval Vote: an increase above the one-times limit must be approved by at least 66% of shareholders, or 75% if less than 50% of a company's total shares would be represented by the 66% vote.   
  E.U. Moves Toward Banker Bonus Cap in 2014
"As of Jan. 1, 2014, bankers' bonuses will be capped at 100 percent of their annual pay, or 200 percent with shareholder approval." That is the word from the German press, in an article explaining that "The regulation will apply to all bankers working within the EU, as well as employees of European bank subsidiaries abroad." London's mayor calls the measure "deluded" and warns that it will drive financial services business from the E.U. to Asia and the U.S. Indeed, it is reminiscent of the U.S. TARP program, which limited incentive pay by reference to base salary, thereby leading to base salary increases and artifices such as "stock salary" (i.e. vested shares that only became transferable some years later, in order to create a continuing stake by executives in their bank's performance).

  Another Claw-back via Hold-back ... Lloyds Bank. Lloyds bank claws back £1.5m bonuses from directors” -- quoting from the Guardian (2/20/2012), further reporting that “Lloyds Banking Group is to claw back at least £1.5m from five former and current executives and eight other senior managers, to penalise them for £3.2bn of losses the bailed-out bank incurred after the bonuses were awarded”. It is the first time that a large UK bank has reclaimed executive bonuses, though mostly in the form of hold-backs, as UBS has done (see the 2012.Feb.9 entry below).  All of this suggests banks, and other employers, are likely to pursue better governance and risk management through the increased use of multi-year vesting schedules that basically establish performance-based or discretionary forfeiture risks. 
 >>> For follow-up, feel welcome to contact Jeremie Gicquel who provided this information.)  

2012.Feb.9  Banks Defer 2012 Bonuses, Claw-back 2011 Share Bonuses, and Fail to Recover on Forgivable Loan.  Per Reuters, Deutsche Bank will defer any part of an employee's bonus above 200,000 euros ("the deferred portion will also be half cash and half shares, and will be paid out over a period of three years in equal annual installments, beginning in 2013"). Separately, UBS has notified some of its highest-paid investment bankers that they will forfeit the maximum amount (50%) of share bonuses that were awarded in 2011 and that were scheduled to vest in 2012 (in the first of three vesting installments).  See Wall Street Journal

The foregoing is consistent with Lucian Bebchuk's Harvard Law blog under the title "
Executive Pay and the Financial Crisis" where he advises: "Going forward, these two problems can and should be addressed by improved design of pay arrangements.To address the first problem, pay arrangements should generally tie executives’ payoffs to long-term results (along the lines proposed in Bebchuk and Fried (2010) or otherwise). To address the second problem, executives’ payoffs should be tied not only to long-term results for shareholders but also (as Bebchuk and Spamann (2010) advocate) to long-term results for other contributors of capital to their financial firm."
2012.Jan.23  "Credit Suisse Again Bundles Risk and Reward"  Credit Suisse plans to pay a portion of senior employees' bonuses in bonds backed by derivatives, reviving a maneuver from 2008 that helped the firm dispose of risky assets while preserving value for staff" so starts the following Bloomberg article.

2012.Jan.23   Basel Commission Report: Range of Methodologies for Risk and Performance Alignment of Remuneration.