Lunchtime Links: Bonus ‘malus’ arrangements are very prevalent, but easy to avoid

Welcome to a town call ‘malus’; 80% of investment banks now have provisions in place to reduce (or cancel entirely) deferred bonus awards as the result of poor performance, misconduct or firm-wide scandals that effect revenues, according to a new compensation report from Mercer.

This is more common than actually clawing back bonuses already awarded, with just 14% of firms employing these tactics despite around half having them in place.

“Clawbacks are relatively new phenomena in compensation programs so it will take some time for them to bed down. A small number of clawbacks doesn’t signify that the sector is ignoring lessons from the financial crisis but does raise legitimate questions about whether companies will actually seek pay-back of compensation paid,” said Vicki Elliott, global financial services human capital leader at Mercer.

Indeed, but in some ways a clearly defined ‘malus’ scheme negates the need for clawbacks anyway – if you don’t hit the defined targets the bank is well within its rights to pay nothing.

The reality is, though, that this is unlikely. As we pointed to in our special focus on compensation, most of these provisions are quite light (at Credit Suisse, there has to be a divisional loss of CHF6.67bn before all bonuses are forfeited).

Mercer’s survey suggests that just 4% of banks said that they had performance targets that were difficult to meet, while 35% said they were ‘easily achievable’.

Meanwhile:

Aviva is planning another 800 UK job cuts as part of its ongoing restructuring (Bloomberg)

10,000 investment banking staff, or 5.6% of the global total, have been cut in the last year (Financial News)

Bank of America has four new directors (Financial Times)

LCH.Clearnet has made another senior hire, this time a new CFO (Financial News)

Citigroup is expanding its European credit and sales team by 5%, hoping to capitalise on its downsizing rivals (Bloomberg)

Religare Capital Markets, the Indian financial services firm, is shuttering its UK investment bank after a period of expansion from 2008. Around 25 staff will be affected (Financial News)

In the US, banks are afraid of the regulators. The same can’t be said about the UK (Financial Times)

‘Anyone’ could manipulate Libor at RBS, says sacked trader (Times)

UK MP claims Libor scandal could be worse at RBS than Barclays (Guardian)

This ranking has New York as the world’s number one financial centre, followed by London (Shanghai Daily)