Credit Suisse is the first bank to link bonuses to troubled assets left over from its past. The bank—one of the few that did not receive taxpayer money—said it would put $5 billion of the assets into a new investment vehicle. Shares of the vehicle, which mostly includes commercial mortgage loans and leveraged loans, will be given to its managing directors and directors as part of their bonuses, replacing some of the stock that would have been paid in bonus money.
The plan could turn out to be a bonanza for Credit Suisse bankers. The bank has marked the assets down to 65 cents on the dollar, on average, so the bank’s shareholders have already suffered much of the pain. That means if the assets appreciate, the bank’s employees—not shareholders—will benefit.
However, the asset plan allows the bank to save money on compensation this year, which benefits shareholders, a spokeswoman said. And many banks have sold troubled assets to outsiders at steep discounts, passing on any future gains.
To be sure, Wall Street bonuses, although diminished, are still far higher than those in many other industries. At Goldman, for instance, partners who were paid $12 million to $15 million last year will be paid $3 million to $4 million this year—an 80 percent reduction, people briefed on the matter said. But everything above $222,000 of those lofty sums will be paid in restricted stock and stock options. Workers at Goldman who are not partners could receive more than that amount in cash in their bonuses.
Morgan Stanley, which notified workers of their bonuses on Tuesday, has reduced its bonus pool by roughly 50 percent this year, to $2 billion. That pool includes the amount that will be paid in cash or stock this year, though it does not include the hundreds of millions of dollars in deferred compensation that could be paid if those workers remain at the bank, people familiar with the matter said. Bonuses were cut more than 60 percent for members of the bank’s management and operating committees.
Merrill Lynch will be the next bank to notify workers of its bonuses, beginning Friday and continuing into next week. Its new parent, Bank of America, played a role in limiting bonuses.
The questions that linger among compensation experts are how much this year’s pull-back in pay and new rules will change behavior in the industry when more lucrative times return.
“Wall Street disproportionately focuses on short-term results compared to other industries,” said Richard Cellini, a senior vice president at Integrity Interactive, a consulting firm in Waltham, Mass. “In the short run, we all look like geniuses. It’s the middle run that counts in most businesses.”