Financials

Deutsche Bank Turns Screw on Bonuses

Daniel Schäfer and Sharlene Goff
Watch Berkshire

Deutsche Bank has become the first global bank to introduce rules allowing it to strip staff of bonuses they earned at previous employers in the latest crackdown on pay.

Deutsche Bank
Michael Nagle | Bloomberg | Getty Images

The largest European lender by assets has significantly tightened its bonus rules this year, enabling it to take back unvested shares that newly hired senior staff received in exchange for stock earned at another bank.

Pay consultants said such a rule was unusual if not unique in the banking world but might well turn into a blueprint for rivals.

It comes as European banks, under pressure from investors, politicians and regulators, are stepping up efforts to hold employees accountable for illicit or loss-creating behavior by clawing back their bonuses more frequently.

UK banks including HSBC, Royal Bank of Scotland and Lloyds Banking Group, have been among the most active users of clawback rules, which came into force in 2009.

RBS, which is 82 percent owned by the government, has taken back bonuses from about 35 individuals, while HSBC has done so in more than 10 cases, according to people familiar with the situation.

Meanwhile UBS , the first global bank to introduce clawbacks in late 2008, said it had withheld SFr204m of deferred awards in 2011.

Pay experts expect the use of clawbacks to rise sharply this year following a string of recent banking scandals, including the manipulation of Libor and anti-money laundering failures.

One big European bank told the Financial Times it was reviewing hundreds of new cases that were likely to lead to bonuses being cut.

Clawback rules allow banks to reduce or eliminate the deferred parts of bonuses that have not yet paid out. They can do so if the profits generated by an individual or division fail to measure up to expectations held when the award was made.

High-profile recent examples include JPMorgan Chase , the US bank, which clawed back bonuses from employees at the center of a $5.8 billion trading loss in the bank’s London-based treasury unit. Lloyds also cut awards for former executives in light of the payment protection insurance mis-selling.

At Deutsche Bank, Anshu Jain, its new co-chief executive, recently said he wanted to position the lender “at the forefront” of a cultural change that includes reforms to investment bankers’ pay.

“We firmly believe that the industry as a whole will have to change its compensation model,” the former head of Deutsche’s investment bank said last month.

The German banks’ stricter bonus rules, which came into force in January, apply to all new senior hires considered to be involved in the bank’s risk-taking, a spokesman said.

These more than 1,300 “regulated employees“ include managing directors in the corporate and investment bank and members of the management committees of all other units.

One recruitment expert warned the rule could make it harder for Deutsche Bank to attract senior talent as the potential job candidates might not be willing to put at risk stock earned at a previous bank.

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