Deutsche Bank To Scrap Bonuses For 2016: As Many As 90% Of Bankers Affected
So what are people hearing at DB? Is this really going to impact VP and below pay as well?
Per NY Post and Bloomberg
First, it was a report by the NY post, according to which Deutsche Bank may hold back on giving out bonuses to as many as 90% of bankers and traders, noting that only the top 10% of revenue generators may get a bonus for 2016, and even that would be paid out over the next five years, according to a source briefed on internal discussions.
The bank was rocked last year by concern about its capital adequacy, a 23% in its share price and rising litigation bills from Europe to the U.S. Chief Executive Officer 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 $7.2 billion final settlement with the U.S. 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. While reports have suggested that the settlement could affect the bank’s ability to pay bonuses, it couldn’t be confirmed if the bank had used incentive compensation for the settlement.
The post added that this wouldn’t be the first time that John Cryan, Deutsche’s CEO, has cut bonuses since taking over in 2014: last year, the bank cut the bonus pool by 11 percent and delayed paying its employees until March.
Then earlier today, Bloomberg confirmed the news when it reported that Deutsche will tell senior employees as soon as this week that they probably won’t get a bonus for 2016 because of the lender’s performance last year.
Heard that An/As pay will be competitive with street
If the market stays even remotely stable I would have to imagine that senior bankers will be leaving in droves. If I'm an MD bringing in money for the firm, why should I stick around for some "retention package" that probably won't even actually be paid out?
IMO this move could ultimately hurt DB substantially in the long-run
If you were an MD you would probably have several million in unvested compensation that you'd be walking out on if you left. Not to mention the internal network you've built to get shit done and establish your worth to your bank... Or so I would assume.
If you have a legitimate client list that makes you a desirable option to poach, you'll get made whole when you get poached. Then what happens is the legitimately good MDs leave, leaving DB with the bottom tier MDs, and thus continuing their spiral downward. High variable compensation, despite looking insane to non finance people and shareholders, is the cost of of doing business if you want to keep a competitive platform.
Deutsche's situation is turning from comic to miserable
I'm actually somewhat shocked that a bank is acting more in the interests of shareholders than its employees. In a "normal" company, if the company posts absolute dogshit results (as DB has done), no one gets bonuses and it's considered a natural consequence of said performance. Only in banking do people consider themselves entitled to a bonus in the face of miserable performance.
Banking is a service business not a product business, so I don't think it fits what I assume you view as a "normal" company. But also it's not even the banker's performance that hurt the bank overall. It's fines for shit the bank did 9 years ago that are hurting the bank's performance. The current employees are literally paying for the transgressions their employer committed when those employees most likely didn't even work there.
Let's change the scenario to a company that sells shower curtain rings. Pretend you're a salesman who makes a small base salary and get commission of the rings you sell. You proceed to sell a shitton of shower curtain rings, but then are told you aren't being paid your commission this year to "improve shareholder value." Whatr you gonna do? You're gonna bitch and then go somewhere else because you're only selling fucking shower curtain rings.
4 points:
If you look at DB's business performance ex-fines, it has still been terrible. It's not like the current employees are creating a lot of value which is being swamped by fines.
Bankers don't make a "small" base salary by any standard except the finance industry's.
Most bonus structures I've seen at non-banking companies feature overall company performance as a large % of bonus calculation. At my company for instance ~65% of your bonus is determined by the North America sub's performance. The particular P&L I'm on could be up 30% this year but that only affects the individual portion of my bonus formula. It fosters a team-oriented culture, not an individual-focused culture. FYI, our sales people are compensated on a very similar formula (overall company performance far outweighs individual contribution).
Your second example is not really accurate. A commission-based salesman almost always has that commission legally written into his employment contract. It's not a discretionary commission, it's a set % of his sales. Banking is not a commission-based system. Yes, bonuses are tied to individual sales/performance but they are entirely at the discretion of the company. They could pay you based on the length of your mustache if they felt like it.
EDIT:
welcome to the wonderful world of reality. everyone left after the music stops is in this situation. government, banking, volkswagen emissions scandal...it's the way it is. if you're the poor sap left holding the bag, well then, sucks to be you.
VP bonuses down ~40% YoY for same year of seniority (ie VP2 this year vs VP2 last year).
100% deferred with portion of the deferred being a "retention" bonus, which is structured as quasi-option where the value, if any, will be determined in four years.
100% deferred? How do you stay motivated after that
You don't. You find a new gig or throw your name in the hat to be laid off (which allows you to keep all your deferred comp and get a severance package).
Hurts all of us. Only a handful of top banks. The more that pay poorly like DB, the more it just drags the industry down. Everyone looks to street as a standard. Again, nobody's starving and we should all be grateful. But the trajectory is pretty clear, has been clear for years, and doesn't seem to be changing anytime soon unfortunately.
22.7% of the bonuses that ARE being paid out are being given as various forms of liquor such as canadian club or canadian hunter. which actually is a better store of value given that peter schiff announced for the 3478579th time yesterday that the US debt bomb would explode on trump rendering the dollar useless. one has to wonder why DB is not opting to pay ALL of its bonus in liquor, especially given that since the election DB has heavily enganged in repo-ing cash for liquor instead of bonds (and bonds for liquor instead of cash). in the event of a debt shitbomb DB will be liquor rich and it appears that the DB top 1% is hoarding it for themselves at the expense of the lower and middle-class revenue generators. if this scenario is any indication, financial assets are rapidly losing value and mr. schiff is correct. the debt shitbomb is going to explode. soon.
god that's funny mr. Lahey!
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