Credit Suisse bonus plan may be entangled in UK regulator
Goldman Sachs is said to be deferring bonuses in an attempt to benefit from the reduction in the top UK tax rate in April 2013, but if Credit Suisse's London bonuses aren't paid on time this year, it may be for a very different reason.
Late last week, a rumour circulated Credit Suisse's London trading desks to the effect that this year's bonuses wouldn't be announced on the 23rd January and paid in February as expected. This was apparently because the UK Financial Services Authority was taking a long hard look at the bank's bonus plan and wouldn't have signed it off on time.
It's not clear whether this rumour was substantiated: the FSA declined to comment, as did Credit Suisse. However, regulatory compensation specialists say it's entirely feasible. "Under European CRD3 regulations, the regulator will sign off the bonus arrangements at the largest banks," says one FSA insider who worked with the the UK regulator on the application of the European rules. "There are two critical things that it will look at. - How does the bonus pool fit with the bank's capital position? And is risk being appropriately applied in determining the amount paid?
"It's an individual sign-off process for each institution," he adds.
Jon Terry, a partner in the reward and compensation practice at PWC, says the FSA has been signing off banks' bonus arrangements for three years now, but that this year it's become a lot less willing to compromise: "In the past, the FSA was more willing to be lenient to ensure that bonuses were paid on time. This year, they're effectively saying that if a bonus structure isn't signed off, it will have to be delayed."
Terry says the FSA is more likely to delay signing off a bank's bonuses if the bonus structure contains new or novel elements which it hasn't encountered in the past. Credit Suisse is said to be paying a portion of senior bankers bonuses in the form of 'derivative-bonds' this year. It's also said to be cutting the bonus pool by 20%.