Out of crisis comes opportunity. For Deutsche Bank, that opportunity is the chance to finally call a spade a spade when it comes to how bankers are paid.
“Many people in the sector still believe they should be paid entrepreneurial wages for turning up to work with a regular salary, a pension and probably a health-care scheme and playing with other people’s money,” John Cryan, Deutsche Bank’s co-CEO, said at a conference in Frankfurt on Monday (Nov. 23), according to Bloomberg. “There doesn’t seem to be anything entrepreneurial about that except the compensation structures.”
Cryan took over in July to try and fix a bank with its back against the wall. How do you count Deutsche’s pain? In so many ways:
Here are profits, or the lack thereof:
And a list of litigation charges for a litany of misdeeds:
Those charges don’t end anytime soon. There’s more pain ahead, as shown in this chart.
Controlling costs is a major goal—and an unfulfilled one. The bank’s cost-income ratio goal is 65%; for the first nine months it was 110%:
Cryan is using Deutsche’s horrendous performance—note that €6 billion loss in the third quarter—to kitchen-sink its problems. The company already has announced it will nix its dividend for this year and next, and cut at least 9,000 jobs by 2018.
Cryan’s focus now on the weak underbelly of banking’s pay-for-performance model underscores just how bad things have gotten.
His chief complaint is that bonuses are paid too soon, before the work is completed and fairly measured (think of all the mergers that have destroyed value, and of seemingly lucrative trades that have gone on to blow up a bank’s balance sheet). Nowadays, there is a “promise to pay first and then be in the ridiculous position where the baby’s been given the candy and you’ve got the difficulty of taking it away,” he said.
Not only does Cryan question whether bankers take enough risk to warrant such big paychecks, he also questions whether paying big bonuses actually make people work harder, which is a little bit like the pope questioning his own infallibility. “I’ve never been able to understand the way additional excess riches drive people to behave differently,” he said.
Cryan said he doesn’t operate that way. “I have no idea why I was offered a contract with a bonus in it because I promise you I will not work any harder or any less hard in any year, in any day because someone is going to pay me more or less.”
Cryan’s pay package has not been disclosed yet. But now that he has announced that he doesn’t believe in big bonuses, it seems he’s boxed himself in a bit. Perhaps this year he will take no bonus, or at least defer it for many years to come—at which point Deutsche Bank may be making money again.