Credit Suisse has announced its 2010 compensation policy. This is more punitive than its 2009 compensation policy in the following ways:
1) For 2010 bonuses, at least 35% of all payments above 33k will be deferred. Last year, bonuses were only deferred at 65k and above.
2) For 2010, the maximum amount deferred will be 70%; in the 2009 bonus round, MDs received 50% of their bonus in unrestricted cash and only 50% was deferred.
3) Last year, Credit Suisse's 'Incentive Share Units' and 'Adjustable Performance Plan' awards vested over three years. This year, they'll vest over four.
4) Credit Suisse has killed off 'Scaled Incentive Share Units' which were issued last year to managing directors and MDs. These included a multiplier which meant more and more units were awarded the higher the bank's ROE, and were widely seen as a good and lucrative thing by their recipients.
Worse of all, however:
5) Credit Suisse has added a clause stating that if MDs in the investment bank leave voluntarily, they will have to repay the cash component of their bonus for the last two years. This could make leaving punitively expensive. MDs could stay at Credit Suisse forever.
There are also some upsides to the new scheme.
Anyone at director level and above will be eligible for the 'Adjustable Performance Plan Awards.' The value of these awards will be adjusted upwards based on Credit Suisse's cumulative ROE over the period. Given that Credit Suisse achieved ROE of 18% in the first nine months of 2009, it should be possible to nearly double the value of your APPAs over the four year deferral period.
Less promisingly, however, APPAs will be reduced downwards in value (by up to 100%) if the division an individual works for makes a loss.
Meanwhile, at Brevan Howard
While Credit Suisse MDs get to grips with their complicated new compensation policy, things appear far simpler over at Brevan Howard.
The London-based hedge fund released its results for the year ending March 31st 2010 last week. They show the partners at Brevan Howard doing rather well, with no mention of deferrals, clawbacks, or anything at all.
In total, 'transactions with members [AKA partners]' totalled 681m. This included: 66m for 'payment of members' remuneration;' 418m for 'distributions in relation to operating activities' (a vague category which hedge fund accountants say often pertains to the allocation of management and performance fees between partners); and 196m for the 'distribution of divisible profits.'
Given that Brevan Howard is thought to have around 45 partners, this amounts to around 15m per head.
As of January 1st 2011, hedge funds like Brevan fall under the FSA's Revised Remuneration Code, which specifies that 60% of bonuses (paid to risk takers and managers) above 1m must be deferred.
However, Stuart McLaren, hedge fund regulatory leader at Deloitte, says most hedge funds will be able to avoid this under the FSA's proportionality clause.
"Hedge funds will typically fall into the fourth tier of firms categorised by the FSA and will therefore simply have to disclose what they're paying, rather than defer any of it," he says.
This being the case, it's doesn't take X-ray vision to see which is the most appealing employer out of Credit Suisse and Brevan Howard. Alan Howard could about to receive a lot of CVs.