Less cash, more stock

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Here's a scary thought for Hallowe'en: not only will bonuses be down, more of them will be paid in stock.

DealBook reports that UBS has every intention of upping the stock element of bonuses after the Swiss bank reported a CHF830m ($712m) 3Q loss and plummeting profits for the first nine months of the year.

Rumour has it that Deutsche, which today revealed a 40% cut in 3Q compensation expenditure, is considering a similar move. So too, we hear, is JPMorgan. And Citi is reputedly engaged in a stock review plan, the results of which are due to be announced tomorrow.

"Banks will definitely try and ramp up the amount of bonuses they pay in stock," says Lee Thacker of executive search firm Silvermine Partners. "Everyone is looking to reduce compensation expenditure."

Most banks already pay a proportion of bonuses in deferred stock and options, with the cash element of bonuses decreasing on a sliding scale as payouts rise.

Staff earning above $300k are typically paid around 20% of their bonus in stock, rising to 50% for senior staff on multi-million dollar payouts.

Discounting ABN's 'Keep' programme, which pays just about everyone 50% of their bonus in cash rather than stock on a two-year basis, Lehman Brothers has traditionally been the leader in stock deferral programmes - paying 15% to 50% of bonuses in four-year deferred stock from $300k upwards (or so we hear).

UBS reputedly paid around 20% of its total bonus pool in restricted stock last year and is said to be looking to increase the total to 30% for 2007.

Thacker says junior staff are liable to find themselves on the receiving end of the new policies: "You might see analysts and associates paid in stock as banks reduce the threshold at which it's allocated."

Paying out more stock might be good news for banks, which can amortize the expense over several years rather than taking an immediate hit, but with stock at the likes of Merrill falling more than 40% since the start of 2007, it doesn't look quite so great if you're on the receiving end: "200k becomes 100k pretty quickly," says one headhunter.

There are also downsides for investors: "Paying more stock dilutes earnings per share," says Jim Reda at US pay consultancy James Reda & Associates.

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