A corporate reorganization unveiled by UBS this month could channel a greater share of the company-wide bonus pool toward private bankers, at the expense of the struggling investment banking division.
The bank said it will separate its business divisions into three autonomous units and "will align incentives for management and staff of each autonomous business division directly with its financial results" and degree of risk. "The new business model will enhance the incentive for each business division to be successful on its own merits, without relying on capital and funding rate cross-subsidies from the other businesses," the Swiss bank said when announcing the reorganization, in conjunction with its release of second-quarter results on Aug. 12.
Tying compensation and bonuses to individual unit performance rather than group-wide results will tend to favor private-client wealth managers and hurt investment bankers, the Financial Times observed. "UBS's private bankers, traditional mainstays of profitability, have long complained about being treated unfairly compared with their sometimes stratospherically paid investment banking and trading colleagues," the paper said.
The bank is expected to unveil the new bonus structure during the fourth quarter. It's also expected to take action to improve staff retention rates, according to the FT.
For the first half of 2008, salary and bonus accruals at UBS totaled 7.76 billion Swiss francs ($7.6 billion based on the June 30 exchange rate) - down 34 percent from the same period of 2007. The work force shrank by 2,387 positions last quarter, to 81,452. Most of the job cuts were concentrated in the investment bank, which ended the quarter with 19,745 employees.
UBS says it doesn't expect business to improve in the second half. The bank plans to continue its program to reduce personnel levels, costs and risk concentrations.