Skirmishes Over 'Loyalty' Pay, Stock Bonuses
At a time when bankers elsewhere fear losing their jobs, top performers at ABN AMRO are reportedly demanding a total of $1.11 billion in accelerated retention bonuses because the Dutch-based institution was acquired by a consortium led by Royal Bank of Scotland.
The ABN bankers are threatening a "revolt" unless they're paid so-called "loyalty bonuses" in cash "as soon as possible," according to a Reuters story drawn from the Dutch daily, Het Financieele Dagblad.
Earlier this year, a group led by RBS, along with Spain's Santander and Belgian-Dutch Fortis, bought ABN AMRO for 70 billion euros.
"The ABN bankers, most of whom will move to RBS under the takeover while some will go to Fortis, want the loyalty bonuses they had been due if they stayed with ABN for three years to be paid in cash as soon as possible," Reuters says. The obstacle for RBS is that ABN reportedly accounted for the resulting liability over the ensuing four years. RBS says it's mulling the issue but will respect employees' rights.
Separately, a column in the Financial Times probes the balancing act that bank managements face if most bonuses this year are paid in shares instead of cash. That's been the expectation ever since UBS indicated it will cap every employees' cash compensation at $750,000 this year, paying the remainder in stock.
Making substantial share-based payments could alienate not only employees but also shareholders who may fear dilution, writes FT columnist Lina Saigol. Employees currently own 6 percent of UBS, 10 percent of Credit Suisse, 3 percent of Deutsche Bank, 25 percent of Merrill Lynch and "slightly less" of Goldman Sachs, according to the FT.
The column also questions the standard rationale that payment in shares or options aligns employees' interests more closely with the company. "Share ownership does not necessarily lead to staff stability," it says. If a bank's share price falls, it costs less for a rival to lure employees away. Also, "Share price fluctuations are well outside the control of individuals or teams and bankers know this."
The FT suggests that banks think about tying bonuses to return-on-equity targets - an approach adopted at Merrill Lynch in the early '90s under former chief executive Herb Allison.