UBS to cut back on options awards

UBS is to reduce dramatically the number of stock options it awards employees from next year, it revealed in its third-quarter results.

The Swiss banking group said from 2004 it will limit options to matching voluntary investments by staff in restricted stock.

However, it will continue to award options packages on a discretionary basis to star performers.

UBS previously paid bonuses above a certain level in a mixture of cash, stock and options, but will be removing the options element from the package.

Morgan Stanley saw its third-quarter income boosted by $350m (€305m) as a result of making changes to its equity-based compensation programme.

UBS's decision comes as the use of stock options in incentive packages is being widely debated.

Changes to the International Financial Reporting Standard (IFRS) early next year are likely to call for options to be expensed. Investment banks are expected to cut their use of options once they are required to include them on their balance sheets.

A spokeswoman said UBS changed its options strategy following a review of its compensation policy, not specifically because of the IFRS changes. The new standards will be adopted when they come into effect. She said: "UBS previously had a conservative options strategy and that will become even more conservative. Management concluded that the targeted use of options as an element of the overall compensation strategy gives employees appropriate long-term incentives."