<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Credit Suisse using risky assets to pay exec bonuses
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<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->Zurich - Credit Suisse will pay its senior executives bonuses in the form of troublesome, illiquid assets, forcing its employees to take on the risk that at least some of them have put on the Swiss bank's books.
The new plan will share the bank's risk exposure by linking most of its top executives' bonuses to some US$5 billion (S$7.2 billion) in illiquid and often opaque assets, which have tumbled in value.
'While the solution...may not be ideal for everyone, we believe it strikes the appropriate balance among the interests of our employees, shareholders and regulators and helps position us well for 2009,' said a memo from chief executive Brady Dougan and investment bank boss Paul Calello.
The plan has been given the thumbs up by investors, who have criticised an excessive bonus culture that encourages the reckless risk taking that sparked the world's worst financial crisis in decades.
'This scheme is definitely better than giving executives cash,' a corporate governance head at a large British fund house said.
'You are giving executives bonuses in products they are selling, so what you get over the long term is based on the rise or fall of what you are peddling,' he said.
In theory, the approach should make bankers more conscious of the risks in complicated and often illiquid instruments they sell, while also allowing Credit Suisse to take risks off its balance sheet.
There is heavy pressure to change compensation structures of banks around the world.
The British government has said it expects the three banks it has refinanced to pay no cash bonuses to board members this year, and to review incentive schemes to avoid 'rewards for failure' in the future.
Similar curbs are being made by other countries bailing out their own financial institutions.
Credit Suisse appears to be the first to use tarnished assets to pay employees, linking their rewards to the performance of risky assets.
As selling the assets in the open market will further depress their value, giving them to employees will allow executives to benefit if the assets perform better than current market prices will imply.
The bank is considering allowing outside investors to invest in the pool, a person familiar with the matter said.
The memo, seen by Reuters, said investment bank managing directors and directors will receive 70 per cent to 80 per cent of their deferred equity compensation in so-called partner asset facility units that 'will be linked to the performance of a pool of illiquid assets'.
The rest of their bonus will be in cash that must be returned under some circumstances.
Directors in the investment banking division may also have to hand back part of any cash bonus in subsequent years.
The memo said the cash retention award 'will be subject to repayment of the award in the event that a claw-back event occurs, such as voluntary termination of employment'.
Credit Suisse has also said that, given its performance to date, 'it would not be appropriate' for its chairman, chief executive and the head of its investment bank to receive bonuses this year. Reuters, Bloomberg
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<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->Zurich - Credit Suisse will pay its senior executives bonuses in the form of troublesome, illiquid assets, forcing its employees to take on the risk that at least some of them have put on the Swiss bank's books.
The new plan will share the bank's risk exposure by linking most of its top executives' bonuses to some US$5 billion (S$7.2 billion) in illiquid and often opaque assets, which have tumbled in value.
'While the solution...may not be ideal for everyone, we believe it strikes the appropriate balance among the interests of our employees, shareholders and regulators and helps position us well for 2009,' said a memo from chief executive Brady Dougan and investment bank boss Paul Calello.
The plan has been given the thumbs up by investors, who have criticised an excessive bonus culture that encourages the reckless risk taking that sparked the world's worst financial crisis in decades.
'This scheme is definitely better than giving executives cash,' a corporate governance head at a large British fund house said.
'You are giving executives bonuses in products they are selling, so what you get over the long term is based on the rise or fall of what you are peddling,' he said.
In theory, the approach should make bankers more conscious of the risks in complicated and often illiquid instruments they sell, while also allowing Credit Suisse to take risks off its balance sheet.
There is heavy pressure to change compensation structures of banks around the world.
The British government has said it expects the three banks it has refinanced to pay no cash bonuses to board members this year, and to review incentive schemes to avoid 'rewards for failure' in the future.
Similar curbs are being made by other countries bailing out their own financial institutions.
Credit Suisse appears to be the first to use tarnished assets to pay employees, linking their rewards to the performance of risky assets.
As selling the assets in the open market will further depress their value, giving them to employees will allow executives to benefit if the assets perform better than current market prices will imply.
The bank is considering allowing outside investors to invest in the pool, a person familiar with the matter said.
The memo, seen by Reuters, said investment bank managing directors and directors will receive 70 per cent to 80 per cent of their deferred equity compensation in so-called partner asset facility units that 'will be linked to the performance of a pool of illiquid assets'.
The rest of their bonus will be in cash that must be returned under some circumstances.
Directors in the investment banking division may also have to hand back part of any cash bonus in subsequent years.
The memo said the cash retention award 'will be subject to repayment of the award in the event that a claw-back event occurs, such as voluntary termination of employment'.
Credit Suisse has also said that, given its performance to date, 'it would not be appropriate' for its chairman, chief executive and the head of its investment bank to receive bonuses this year. Reuters, Bloomberg
