Deutsche Bank announced Tuesday some 1,900 employees are about to hit the street as a weakened euro dampened revenues in the face of rising costs. For employees inside the struggling bank, the euro’s decline has meant things have gone from bad to worse.
Deutsche Bank is one of the only global banks to peg large pieces of its employee compensation to the euro — meaning, as the euro continues to decline, so does the value of the bank’s top performers.
Here’s the full breakdown: Bonuses at the vice president level and above are divided into three parts. One-third is paid up-front. Another third is deferred in the form of Deutsche Bank stock . And the final third is deferred in euro-based cash, a source of consternation for non-euro zone bankers watching their pay fall. At least 30 percent of the company’s employees are located outside the euro zone and Africa, according to company filings.
“When the euro was rising, this was a great thing,” said one senior banker who requested anonymity because he was not authorized to speak about compensation. “I guess it can only go up from here.”
While the initial bonus amounts are set in stone, the latter two portions are paid out equally over three years — meaning deferred compensation has been subject to swings in both Deutsche Bank shares and the euro.
Since bankers got their “numbers” in February, Deutsche Bank shares have fallen 35 percent. In the same period, the euro has fallen 9 percent against the dollar.
To illustrate: €100,000 bonus (worth $132,000 to a US-based banker in February) would now be worth roughly $111,000 due to respective stock and foreign exchange fluctuations. The harsh reality is that most bankers are playing with numbers much larger than that.
Discussions between senior bankers and management over alternative pay structures are open, people familiar with the discussions said, though any changes are unlikely to be in place by the next pay cycle. Possible options would include allowing individuals to hedge their packages, or hedging the entire compensation pool, these people said.
Banks with similar international footprints like UBS and Credit Suisse traditionally have allowed employees to opt into compensation hedges or pay out all their deferred compensation in local currencies.
While the issue remains a major source of discontent among employees, it likely won’t have a major impact on recruitment, according to compensation experts and Wall Street headhunters.
For Deutsche Bank to attract top talent, “It probably doesn’t hurt,” says Alan Johnson, a recruiter with Johnson & Associates. The challenge “is really in keeping people. The hold you expected is now a lot less than it was a year or two a year ago — that’s the problem.”
Deutsche Bank declined to comment on its compensation procedures but did address potential pay changes, or further cuts, in its Tuesday statement: “As part of a range of measures to bring about a cultural change, the Bank is reviewing its compensation practices, in order to address both the absolute level of compensation and the relative balance between rewards for shareholders and those for employees.”
Compensation is the Frankfurt-based firm’s biggest single cost, making up some 39 percent of its 2011 revenues. While the impending cuts represent 2 percent of Deutsche Bank’s workforce, most of the cuts will come from the corporate & investment bank.