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Bonuses at Deutsche Bank could slip to $71k, why US investment banks are the places to get paid

For all the talk of the evisceration of the bonus pool at Deutsche Bank, a decline of 15-20% is likely in the investment bank this year, according to reports. While this doesn’t sound great, other European investment banks could slash variable remuneration by up to 60%.

Average bonuses in Deutsche’s corporate and investment bank (which includes back office staff) were €68.2k ($89k) last year, according to figures in its compensation report for 2011. If the 15-20% decline reported in Der Spiegel is correct, this implies an average reduction per head of €10.2-13.6k ($13.3-17.7k), so a worst-case-scenario would see bonuses slip to $71.2k.

Deutsche declined to comment, but will unveil details about its pay structure when it releases its remuneration report for 2012.

Headhunters in London are more pessimistic about pay prospects at Deutsche Bank, suggesting a general reduction of 30% and cuts of up to 60-70% for senior executives. Like most investment banks, Deutsche is likely to be weighting bonus payments towards high performers in a bid to stem an exodus of talent to competitors.

The German financial regulator BaFin likely to ensure that "systematically important" banks in the country are implementing stricter remuneration practices, according to reports in Frankfurter Allgemeine Sonntagszeitung.

Deutsche Bank, however, appears comparatively generous. Jon Terry, a partner in the reward and compensation practice of PwC, is predicting a 20-60% decline in the bonus pool of European-headquartered investment banks this year. At US investment banks, meanwhile, compensation is likely to be flat on 2011, or reduced by up to 20%, he says.

“In theory, investment banks will award bonuses based on profitability, which has held up well year-on-year in 2012,” he says. “However, all banks are weighed down by shareholder expectation to reduce compensation, while European and UK banks in particular have been hit by various events – from PPI to Libor – which will impact how much they pay out this year. US investment banks, in general, are more robust.”

UBS, for instance, is expected to slash its bonus pool after the $1bn fine for the bank’s involvement in the scandal surrounding manipulation of Libor. RBS, under pressure from the UK government, is expected to do the same after its £350m Libor-related fine, and Barclays bonuses will be heavily scrutinised by its new head of compliance and former-Financial Services Authority chief, Hector Sants.

Alex Beidas, an employee incentives lawyer at Linklaters, says that European banks are under huge pressure to drive down compensation costs.

“Banks in Europe need to set the bonus pool according to profits, but also need to adjust it for any current or future risks they perceive,” she says. “There’s therefore pressure to both reduce the amount of money paid out and introduce more vigorous clawback provisions.”

AUTHORPaul Clarke
  • Ja
    8 January 2013

    This only tells half the story. The portion of bonus payable straightaway is less in the European banks as they are forced by law to pay no more than a qtr in cash and defer at least half of their variable pay, along with tax increases further reducing take home pay. Deutsche Bank, along with other European banks like Credit Suisse and UBS, were already well-ahead of US investment banks in compensation governance, structuring bonuses on ROE raising base salaries and deferring incentives into restricted incentive awards and restricted equity awards.

    On top of this, Deutsche bank have recently announced the bonuses at the bank will be reduced and instead of being deferred over three years will cliff vest at the end of five years, and subject to clawback if the bank performs badly.

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