As we’ve noted before, BNP Paribas has some nasty clawbacks for its corporate and investment banking staff.
Clawbacks are now a hot topic. Eric Daniels has had 40% of his 2010 bonus removed; other ex-Lloyds directors are losing 25% of theirs. UBS has also done a little clawing back: it’s retrieving 50% of the stock bonuses awarded last year to its investment bankers whose bonuses exceeded $2m.
This is nasty, but things at BNP Paribas could be nastier still.
The bank gave a little more detail on the dynamics of its various clawback mechanisms when it produced its fourth quarter results last week.
Specifically, it said that the options it issues to the “Group’s best talent” will start to be clawed back if the bank’s share price underperforms the Dow Jones Euro Stoxx Bank index over each ‘compulsory holding year.’ 100% of the options issues to senior managers and group executive committee members are eligible for clawback; 20% of everyone else's are.
It’s not clear when the ‘compulsory holding year’ begins and ends. However, from the 14th of February 2011 to the 14th of February 2012 (BNP’s results day), the Euro Stoxx Bank index fell around 38% whilst BNP’s stock fell around 40%. Some form of option clawback therefore appears to be in order, although BNP’s bankers may not be overly bothered as the average exercise price of their options is €58, while BNP’s share price is currently languishing at €37.
More concerning, is what’s going on with BNP’s deferred stock and cash schemes. BNP indicates that: “Sums are paid mostly in cash and are linked to the negative or positive change in the BNP Paribas share price.” In this case, the 40% annual decline in BNP’s share price does not bode well.
Equally, we understand that BNP's deferred stock bonuses are withdrawn in chunks of 33% if the bank as a whole makes a loss, if the corporate and investment bank makes a loss, or if an individual’s own business area either makes a loss or fails to meet an ROE target. Neither BNP as a whole, nor the corporate and investment bank specifically, made a loss in 2011. However, ROE at the corporate and investment bank declined 26% last year.
At worse, therefore, it looks like BNP’s investment bankers will see their deferred cash and stock bonuses decline in value by 40% and have 33% of the remainder clawed back, suggesting they could end up with only 40% of what they were expecting.
Separately, and unsurprisingly given the performance of its share price, BNP says its staff haven’t been massively keen on a plan allowing them to buy the group’s shares: in 2011, 36% accepted the offer and 64% turned it down.