UBS gaming UK income tax? Credit Suisse and Deutsche clawing back cash bonuses
Over the past four years, it's become normal for investment banks to 'claw back' the deferred element of bonuses when bankers leave for rival firms. In other words, if bonuses are paid over three years and an individual leaves in year two, the unpaid bonus for year three must be foregone. This unpaid deferred bonus typically takes the form of stock.
However, the rules of the game are changing. Headhunters say a growing number of European banks are clawing back cash bonuses when people leave. In some cases these cash bonuses have already been paid and bankers must therefore pay the money back.
"Credit Suisse have been doing this for some time," says one equities headhunter. "I tried to move someone from there last year, and they wanted him to pay back his cash bonuses. In the end, he managed to negotiate an exit without doing so."
Bloomberg reports that Credit Suisse can recoup cash bonuses for its departing bankers for up to three years after they've been paid. Credit Suisse directors and managing directors who receive cash bonuses this year, will therefore have to repay part of them if they leave before 2015. The amount of the repayment is reduced at a rate of 1/36 for each month they stay on. Credit Suisse had cash bonus clawbacks previously, but they were restricted to two years.
Credit Suisse declined to comment.
Meanwhile, further details are emerging of the new bonus structure at Deutsche Bank. Deutsche Bank chief executive Anshu Jain said in September 2012 that the bank planned to defer bonuses for its managing directors by five years, with nothing becoming available until year five. At the time, Jain was hopeful that other banks would implement similar pay structures. This doesn't appear to have happened.
Bonuses at Deutsche Bank haven't been announced yet, but headhunters say some senior staff have already been informed how this year's bonuses will be structured. Managing directors are said to be receiving as little as €100k in cash (last year Deutsche Bank capped cash bonuses at €200k), with remainder split as 50% deferred cash and 50% deferred stock. The deferred stock element of Deutsche's bonus vests entirely in year five. The deferred cash is said to vest in equal tranches over years three, four and five and will be lost if a banker leaves for a rival firm before the fifth year. This structure is said to apply globally.
Deutsche didn't return a request for comment.
Jane Mann, head of employment law at Fox Williams in London said, clawbacks are becoming increasingly contentious. "We have a lot of bankers contending claw backs on their deferred bonuses," she says. "We've also had conversations about situations where banks have clawed back cash bonuses that have already been paid, and individuals are in a dispute with the revenue as they attempt to recoup income tax."
Jefferies reserves the right to clawback cash bonuses from individuals who leave for competitors within a year. Headhunters say SocGen, Berenberg and Exane have similar policies. "This is becoming common at European banks," says one.
Tax-efficient bonuses at UBS?
Meanwhile, following Goldman Sachs' admission that it was thinking of deferring its UK bonuses until April 2013 in order to make the most of the reduction in the top rate of UK income tax from 50% to 45%, it's now alleged that UBS is thinking of doing the same thing.
Financial News says UBS will delay announcing its bonuses until early March. Three different headhunters, all of whom spoke on condition of anonymity, confirmed the delay in UBS's bonuses and told us payments are typically paid a month after announcement dates, implying that UBS's bankers will receive their money in April - when UK income taxes are lower.
UBS declined to comment. However, one insider said nothing has been officially announced regarding bonus payment dates and that bonuses would be paid in March as usual.