Top Dogs Forego Bonuses; Impact on Others Unclear
Goldman Sachs's top seven executives won't be taking bonuses for 2008. The top 12 at UBS won't receive any for this year, and beginning next year the bank is dropping the annual bonus system for its chairman and installing an entirely new model of variable pay for other top executives and unspecified "risk-takers."
The moves raise pressure on other Wall Street chief executives to forego bonuses for a year in which the industry lost so much money that most of its leading institutions had to go on government life-support.
However, the year-end bonus calculus for the rank and file of bankers, traders and support staff remains very much in flux. About the only general statement it's safe to make at this point is that cash payouts to most will be smaller than last year if the person's level in the hierarchy didn't change.
'There's Still Going to Be a Bonus Pool'
"There's still a P&L, and there's still going to be a bonus pool," says Burke St. John, vice chairman of the global executive search firm CT Partners.
Under an intense spotlight from regulators and politicians, most managements are still wrestling with the issue of how to compensate staff for the horrible year that's now drawing to a close. "There's a tremendous awareness among these firms about what the others are doing," St. John observes. "Paying your people and the way you retain your human capital is the lynch pin of success for these firms."
Another global search-firm leader, Options Group Chief Executive Michael Karp, told eFinancialCareers News: "We will see banks come up with a cash capped comp structure, as UBS did last year and this year. Compensation will be stock loaded as banks would like to retain top talent and will have to tie them in for the long-term if they can." Karp also noted that banking boutiques, asset management firms, hedge funds and insurance companies are looking to hire talented individuals away from bulge-bracket banks.
At Goldman Sachs, the compensation committee reportedly approved a request Sunday by seven top executives, including Chief Executive Lloyd Blankfein, to grant them no bonuses for 2008. As a result, each executive's cash compensation this year is limited to $600,000 base salary. Last year, Blankfein and his two top lieutenants took bonuses of about $70 million each.
At the same time, media reports indicate Goldman is still inclined to pay bonuses to many bankers and staffers working in the trenches. Says the Journal: "Distinctions are being made between the highest-ranking executives and lower-level traders and investment bankers... Many of these employees performed well in 2008 despite the market turmoil, (unnamed sources) say, but could get plucked away by rival firms if compensation practices are significantly altered."
UBS Unveils New Pay Model For Upper Ranks
UBS also indicated much of its rank and file might still receive cash bonuses this year, albeit at reduced levels, and will remain within the current bonus system in the future. However, UBS senior corporate officers and "risk-takers" will be placed under a radically different compensation model starting next year. The Swiss bank also said Monday its 12-member group executive board "will receive no variable compensation" for 2008 - neither cash nor stock.
Starting in 2009, UBS's chairman will receive a fixed salary only, while other executive board members will be paid according to a "bonus/malus" system in which each year's bonus is deferred for a few years and can be clawed back in case of future losses.
"Revision of compensation will occur in a similar manner for the next executive level (potentially lower) and specific employees, the so-called 'risk takers,'" the bank said in a document posted on its Web site. "For the remaining employees, the current system of variable compensation will basically not change. For many lines and functions, the current compensation program ensures sustainable remuneration in line with divisional and overall performance."