Deutsche Bank scrapped the bonuses of its top executives for a second straight year and slashed them for other senior employees, as Germany’s largest lender tries to shore up capital that’s been eroded by low interest rates and legal expenses.
The measures, announced in a memo to employees on Wednesday that was signed by the members of the management board, will affect about a quarter of employees, including vice presidents, directors and managing directors. A “limited number” of employees in crucial positions will receive a special long-term incentive, partly in stock, that will be deferred for as long as six years, according to the memo.
Deutsche Bank was rocked last year by concern about its capital adequacy, a 23 per cent slump in its share price and rising litigation bills from Europe to the US, chief executive John Cryan, 56, has eliminated jobs, suspended dividends and sold risky assets to shore up profitability and capital buffers.
The bank on Tuesday reached a $7.2bn (£5.8bn) final settlement with the US Justice Department over its sales of mortgage securities before the financial crisis. It’s still seeking to end an investigation related to its Russian unit.
“Now that we have a clearer idea of the financial impact of the settlement with the US Department of Justice and our performance for the year, we feel that tough measures are unavoidable,” the bank said in the memo. “This is especially true at a time when thousands of jobs are being cut and our shareholders are not receiving an annual dividend.”
The widespread bonus cuts, unprecedented in the bank’s recent history, highlight the severity of its troubles, and come as fixed-income traders around the world are about to see their annual pay grow for the first time since 2012 amid a surge in bond trading, according to a November report from recruitment firm Options Group.
Last year, the lender reduced bonuses by 17 per cent, saying “a more significant reduction would have jeopardised the implementation” of its strategy and “compromised the bank’s ability to attract and retain talent.”
“Employees interested in the long-term development of Deutsche Bank will understand the bonus cut and stay,” said Alexander von Preen, a consultant with executive search company Kienbaum. “But some of those taking a more short-term view on their career may be tempted to look around for new opportunities.”
Top executives at Wall Street banks including Goldman Sachs and UBS agreed to forgo their bonuses immediately after the financial crisis. Deutsche Bank’s then-chief executive Josef Ackermann also waived his bonus at the time, along with other members of the bank’s management and supervisory boards.
“Other companies have taken similar steps in the past and have come back stronger than before,” Frankfurt-based Deutsche Bank said in the memo. “We are convinced that we will, too.”
The bank said it plans to return to its regular compensation program for 2017.
For 2016, senior employees will still receive a group variable compensation component, according to the memo. About 75 per cent of employees will not be affected by the bonus decision, or only to a small extent, the bank said. Most junior Deutsche Bank employees have already been shifted into fixed salaries, so the decision to scrap bonuses won’t affect them, a person familiar with the matter has said.
Last year, Deutsche Bank awarded €2.4bn (£2.08bn) of bonuses for 2015, €1.45bn of which was for the combined investment banking and trading unit, according to the bank’s annual report. Of the €2.4bn, 49 per cent was deferred stock and cash while the remainder was paid out immediately.
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