The deferrals at Credit Suisse caused consternation earlier this year. While Goldman was said to have paid 80% of MD bonuses in cash, Credit Suisse was said to have paid 70% of its associate bonuses in deferred stock.
Credit Suisse's nasty deferrals were based upon a compensation policy announced in January. Among other things, this said that at least 35% of all bonus payments above 33k would be deferred and that if MDs left the bank they would be made to repay the cash component of their bonus for the previous two years.
Now, however, the bank is making amends.
The New York Times has published a Credit Suisse memo stating that the deferral threshold is being raised to CHF205k (172k), that the deferral period is being reduced from 4 to 3 years and that the bank's complicated 'Adjustable Performance Plans (which were adjusted upward based on Credit Suisse's cumulative ROE over a four year period) is being replaced by simple shares. There's no mention of dropping the bonus repayments for departing MDs, however.
The higher deferral threshold will be welcome to CS bankers, who are faced with the prospect of lower payouts. Accrued compensation per head was down 12% year-on-year in the first nine months at Credit Suisse's investment bank. The option to earn up to 172k in cash may help offset this. The higher threshold puts Credit Suisse towards the top of the league for cash-generosity and marks a significant change in the bank's compensation strategy, which has focused on large deferrals (in 2010 deferrals at CS IB started at 65k), spread over a comparatively long time period.
The cash compensation bug could spread. Higher cash compensation will contribute to Credit Suisse's allure as an employer and may even encourage other banks with punitive deferrals - like Morgan Stanley - to increase the cash component of their pay too. Although regulators have been pushing for bonuses to be deferred, paying a higher proportion of immediate cash makes sense for banks: when compensation costs are spread over several years, it's difficult to cut costs if revenues fall. Higher cash compensation is also a way for banks to increase competitiveness without raising overall pay. Credit Suisse may well have started a trend.