Fattening your wallet in finance is getting a lot harder.
Since the global financial crisis, some of the world’s biggest financial institutions have been grappling with how to pay their bankers, while complying with stricter regulation intended to rein in the sort of risk-taking that contributed to the 2008 financial bust.
Now, reports the Financial Times (paywall), Credit Suisse is having to rework a previously announced plan to tie pay for its 5,500 senior bankers to the Swiss bank’s complex derivatives portfolio. Ironically, the plan, which was meant to reduce risky assets on the bank’s balance sheet by passing some of that risk on to its employees, is running afoul of regulatory requirements on capital.
Credit Suisse’s conundrum comes after the European Union urged banks to pay senior managers in equity-like securities that could be wiped out if the firm goes belly up—thereby linking pay to how well the firm does overall. Industry folks have referred to this as “bail-inable” pay.
Another Swiss banking giant, UBS, was one of the first banks to launch a “bail-inable” pay model last year (paywall) to comply with EU recommendations. Royal Bank of Scotland has also followed suit.
Other big financial institutions have also been struggling to figure out new ways to compensate their employees. Reports have emerged that Goldman Sachs is issuing a new type of pay, known as “role-based-pay,” for its bankers, which can be clawed back if the employee does anything that might sully the firm’s good name. Goldman’s pay changes were a response to rules the EU passed earlier this year capping banker bonuses. Barclays has been weighing similar tweaks to its bonus scheme to work around the new pay rules, according to Reuters.
But as Credit Suisse’s back-tracking on its bonus plan shows, the hunt for the perfect way to structure banker bonuses is far from finished.