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Deutsche Bank looks at tying bonuses to its share price

Deutsche Bank ditches cash bonuses

Embattled German lender Deutsche Bank is looking into tying compensation of senior employees to share price development, the bank's chief financial officer, Marcus Schneck told investors Thursday.

"We have taken down cash bonuses that we planned for this year," Schneck said, adding that tying the compensation of senior employees to share price made sense, but no decision had yet been taken.

However, this may be contradictory to Deutsche Bank's chief executive officer John Cryan's thinking that the share price does not impact the daily functioning of the bank. When asked if he was worried about the stock price, Cryan said "I don't try and manage the share price ever, I manage the bank."

The decision to take down the bonuses is aimed at saving costs as the bank struggles with a $14 billion settlement negotiation with the U.S. Department of Justice over mis-selling of mortgage backed securities in the run-up to the financial crisis.

A man walks past Deutsche Bank offices.
Luke MacGregor | Reuters

Speculation is rife over the bank's new compensation strategy. A source familiar with the matter who wanted to remain anonymous due to the sensitivity of the situation told CNBC that the bank might be looking at deferred stocks as part of compensation. This means paying the bonus in parts through the year in the form of stocks.

However this may be risky as it exposes the employee to the performance of the stocks. Deutsche Bank shares have had a fairly volatile performance this year with the stock down more than 40 percent since the start of the year.

Some analysts have also said that while the bank may be able to save costs by scrapping bonuses, it might dampen employee morale and lead to staff moving out of the bank.

"It is key for investment bank to keep its staff. In any change with what has been agreed with staff will impact morale," Gildas Surry, partner at Axiom Alternative Investments told CNBC Thursday.

"I think it is a very constructive debate because you have got 2.4 billion euros of deferred bonus to be paid under cash. And some other banks have chosen to pay via contingent convertible bonds, especially Credit Suisse with actual equity stakes in portfolios of collateralized debt obligations (CDOs). Maybe European banks need to take the approach of paying in the traditional ways to its staff. "

The bank announced better-than-expected revenue and income for its third quarter on Thursday. The bank's third-quarter net income came in at 278 million euros ($303 million), which compares favorably to a 6 billion euro loss for the same period a year ago. The number also beat market expectations, as did revenues which came in at 7.49 billion euros ($8.17 billion). Deutsche Bank also set aside $6.4 billion for legal fees.

Clarification: This article has been updated since first published following clarification from Deutsche Bank.

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