Dresdner to reward teams, not individuals

Bankers at the newly renamed Dresdner Kleinwort are to be paid bonuses based upon the performance of their business units and the bank as a whole, instead of how well they do individually.

If all goes to plan, bonuses at the bank will be determined by a 'rigorous algorithm' based on profits rather than revenues aimed at allocating pay more transparently, the Financial Times reports. Managers will no longer have the discretion to award bonuses according to individual performance.

Most banks include an element of team and business performance in bonus calculations, while also taking into consideration how well each banker does. Dresdner appears to be doing away with the latter.

The new arrangement is reportedly part of a shake-up initiated by chief executive Stefan Jentzsch. Jentzch is said to be endeavouring to reduce the bank's 92% cost-to-income ratio, discourage a star culture and improve cross-selling between its investment bankers and corporate bankers.

However, one pay consultant cautions against fiddling with the bonus system. "It's all very admirable to say we're not going to have any stars and are going to focus on star performing teams," he tells eFinancialCareers. "But in areas like trading certain individuals simply perform better than others and you need to be able to pay for that."

He adds that introducing pay formulae can be bad news when it comes to controlling costs: "If you have a transparent formula you're obliged to pay out a lot of money when the bank makes high profits and times are good. If you have a discretionary method of awarding bonuses you can hold back some of the money and use it when times are more moderate."

It was this that apparently led banks to eschew formulaic methods of awarding bonuses in the 1980s.

Following the combination of Dresdner Kleinwort and Dresdner Bank's corporate lending business, the new bonus programme is proposed for both investment and corporate bankers.

A spokeswoman for the bank told us the programme isn't finalised. "It's a plan at the moment, not a ratified scheme," she says. "It needs to be approved by the board and the German works council."