UBS needs a 'Performance Incentive Plan' like Credit Suisse's, but it won't get one

As we noted last week, 200+ MDs at Credit Suisse are understood to be anticipating some very lucrative payouts under a performance incentive plan implemented by the bank five years' ago.

All indications are that the Credit Suisse plan had something to do with Oswald Gruebel, who was co-CEO (with John Mack) of the Credit Suisse Group from 2003 to 2004, and sole CEO from 2004 to 2007.

Needless to say, Oswald (Ozzie) is now chief executive of UBS, where he is valiantly endeavouring to reinvigorate the investment bank via a resurgent fixed income, currencies and commodities (FICC) unit. The aim is to increase revenues in the fixed income unit to CHF8bn, up from CHF900m in 2009.

Early indications are that he's succeeding, with UBS FICC revenues likely to be slightly below CHF2.5bn in the first quarter.

However, Ozzie also faces challenges at UBS. Equities staff are rumoured to be miffed at the quantities of cash being thrown at fixed income. And the investment bank has an unmanageably high compensation ratio of 81%.

Now is therefore, surely, the time for Oz to bring the joys of the Credit Suisse PIP programme to UBS: it would have the advantage of tying people in, wouldn't register as a cost immediately, and could - if the UBS investment bank recovers as predicted by the likes of analysts at KBW, offer some significant upside which would prevent senior people from leaving.

Ozzie certainly appears partial to the Credit Suisse PIP. Over the weekend, he defended the big money it's now paying out, saying Credit Suisse people are being rewarded for making the bank what it is today.

The (less generous) UBS PIP equivalents

In truth, UBS does appear to have something not dissimilar to the Credit Suisse PIP. The bank's annual report reveals the existence of both a Performance Equity Plan (PEP) and an Incentive Performance Plan (IPP) for senior staff, both of which involve multipliers based on share price and ROE. Like the Credit Suisse PIP, the IPP even pays out after five years.

However, while the Credit Suisse plan offered the potential for unlimited upside, UBS's latest plans show definite signs of restraint.

Hence, while the multiplier under the Credit Suisse plan was 4.8, under the UBS PEP the multiplier is capped at 2, and under the UBS IPP it's capped at 3.

Therefore, if UBS senior staff stay around for five years and the investment bank meets its performance criteria, they will definitely be rewarded - but Credit Suisse-style payouts of 10m+ look distinctly unlikely.

"It's clearly rational for UBS to implement a plan similar to the Credit Suisse PIP, but that kind of open-ended scheme is unlikely to be palatable in the current political climate," says Matt Clarke, an analyst at KBW. Unfortunately for senior bankers at UBS, Clarke appears to be right.