Record cash bonuses on way at Deutsche

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Deutsche Bank employees are to receive record cash bonuses this month after the corporate and investment bank cut the stock element of its bonus scheme.

The bonuses take average compensation at the investment bank to $502,000 (€417,000) for last year, up 21 percent on 2004. This is just a few thousand dollars behind the average $521,000 pay at Goldman Sachs. The rise follow a 57 percent increase in underlying pre-tax profits in the division in 2005.

Stock and options will make up a smaller share of that total than in previous years after Deutsche altered the cash-to-stock ratio. This year an average of about 15 percent of bonus compensation will be paid in stock, according to Deutsche bankers. Stock accounted for between 20 percent and 25 percent of bonuses in 2004 and 2005. Deutsche declined to comment.

A banker at Deutsche Bank said: "It would be fair to say compensation last year was not that exciting. This year things have changed. Anyone would be pleased with the stock share falling to 15 percent."

Deutsche Bank is keen to reduce the amount of stock and options to its staff to avoid diluting existing shareholders and to avoid building up too much outstanding deferred stock.

At the end of 2004 the bank had €4.4bn in share amounts outstanding, according to its annual report.

The staff of bulge-bracket peers JP Morgan and Merrill Lynch receive between 20 percent and 30 percent of total compensation in stock. Managing directors at JP Morgan receive about 35 percent.

Deutsche Bank has been an active user of stock and options in the past. One analyst said up to 40 percent of the bank's total staff compensation used to be made in non-cash payments.

One Deutsche managing director said: "Stock option bands at Deutsche are less about your rank and more about how much you get paid. The stock proportion has been cut back this year but lots of us are heavy in stock, so no one is complaining."

One former Deutsche managing director told Financial News he had received as much as half his compensation in stock in the past.

Deutsche's share price was trading last week at a four-year high of €89. The share price has risen 34 percent in the past 12 months and analysts believe there is little upside left this year.

Analysts' consensus is that the share price will reach €92.97 in February 2007, 4 percent above last week's close, according to data provider Thomson.

Deutsche's chief executive Josef Ackermann announced a return on equity for 2005 of 26 percent, beating a target of 25 percent he had set and which many analysts had regarded as unrealistic, when he announced the group's final results this month.

Only Lazard gave a bigger increase in average staff pay of the investment banks that have reported 2005 results. The bank, which announced a two-fold increase in profits last week, increased average compensation by 29 percent. Others that have reported double-digit increases in average compensation include Morgan Stanley with a 15 percent rise, Lehman Brothers with 12.5 percent and Goldman Sachs with 10.6 percent. Average pay at JP Morgan's investment bank rose 4.6 percent and Bear Stearns 1 percent. Bank of America, Citigroup and Merrill Lynch do not disclose compensation for their investment bank divisions.

Investment banks in Europe have taken a more performance-related approach to bonuses this year and Deutsche has followed that pattern. A leading headhunter said: "Deutsche is incredibly shrewd at sending clear messages to its staff via compensation levels. The bank differentiates more than any other house between performers and non-performers."

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