ABN Amro is overhauling its bonus system for investment banking employees, including those in its Hoare Govett broking operation in London, by linking payments closer to performance and withholding the funds for three years.
The bank's top management in Amsterdam hopes the changes will put a brake on spiralling City bonuses and reduce staff defections at the same time.
The Dutch bank has been on a global shopping spree for the last couple of years and now has nearly 6,000 employees in its various investment banking operations. It has made acquisitions in Paris, Milan and Chicago in the last two years alone, having bought London-based Hoare Govett in 1992.
The bonus overhaul was announced at a meeting of 400 top executives from ABN Amro's investment banking division and is set to come into force in January.
Bonuses are to be linked much more closely to performance, with a part of the bonuses pooled in a fund, which will be withheld from executives for three years. The payments will also be more closely linked to the performance of each business unit.
A sharp rise in bonus payments was partly responsible for the 9 per cent fall in investment banking profits in the first half of this year, ABN Amro said.
A spokesman for the bank said yesterday: "We held a board meeting last week at which we decided that we needed a new system. We have made so many acquisitions that we have a whole patchwork of bonus payment systems, which we now must bring into line with each other."
The bonus pool will be used mainly for top management, "to stimulate them to fight for the business as a whole and and to remain with the bank for a longer period", said the spokesman.
The huge rise in City bonuses in the latest bull market has prompted criticisms from the Bank of England and politicians alike. But attempts to limit rises by self regulation have wilted in the face of intense competition between investment banks to lure the best staff.
The acquisition of a number of old British merchant banks by giant foreign institutions with strong balance sheets has fuelled a bidding war for city talent.
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