Post Crisis Compensation at Credit Suisse (A)
Brady Dougan 2009 adopted the G-20 guidelines for compensation in the financial industry 1 year ahead of schedule
The goal of this strategy was to have various lines of business in banking work more closely together.
1978- Credit Suisse formed a joint venture with First Boston Inc. One of Wall Street’s earliest and largest investment banks. Credit Suisse owned 60 and First Boston owned 40% was London based and conducted investment banking in Europe.
Compensation in CSFB was determined though in internal management process.
While not without its share of challenges, Credit Suisse navigated through the financial crisis better than most of its rivals.
Compensation at Credit Suisse
In normal years, the CEO would ask the compensation committee of CSG’s board to approve a portion of the firm’s income that would be allocated towards incentive compensation (the bonus pool). They would then distribute this upon three functional divisions. 90% was then allocation to the various business units based on their performance. A) How your performance is ranked by your managers B) Actual financial results C) Rank individuals across their peers
The rules required that deferred or unvested compensation be exposed over time as it was vested or earned. Because of the uncertainty of costs associated with awards that would change in value over time as a function of firm or share price performance, it was preferable if the compensation programs could be designed in such a way to allow for those uncertain costs to be hedged.
Halliday said: “When we are designing our compensation program we do go out to the locations in which we are operating and focus on trying avoid tax pitfalls rather than trying to optimize tax everywhere which is a much greater challenge”
They have recently increased their transparency of its compensation: Suisse provided information that exceeded what was required by the SEC for non-US. Domiciled firms in their 10-L and annual proxy filings
PIP (2004-2005) Performance Incentive Plan
Long-term share-based program designed to incentivize and retain senior managers and executives across the divisions and support groups during 2004 and 2005, when the bank was undergoing fundamental change. There was a conscious decision on Dougan’s part to weed out those senior professionals who were most interesting in their year-to-year compensation, rather than the long term success of the firms and their long terms compensation potential. To cash in PIP awards, employees were required to remain at Credit Suisse for five-years. ***Draw back. It was possible that PIP units could become worthless if the firm failed to meet certain performance or share price targets.
ISU (2006-2008) Incentive Share Unit
For each ISU granted, the employee would receive one additional share (ISU) over a 3 year period.
PAF (2008)
Employees in Credit Suisse’s Asset Management in Private Banking divisions did not participate in PAF because they had no hand in creating the illiquid assets. Employee PAF awards gave them a synthetic interest in the equity, or first loss of the PAG assets. Assuming the assets maintained or improve in value, the holders would begin to receive a payout from PAF after five years, with final payment in eight years.
SISU & APPA (2009-2010)
There were two parts to the new program: adjusting the “model that drove the size of the bonus pool and the new structures for variable compensation awards as they would be delivered to employees. “Instead we sought to align compensation explicitly to returns after allowing for capital usage”
The plan was increasing the ratio of salary to commission. That portion of variable compensation that was not paid in cash would now be split 50/50 between two deferred instruments- Scaled incentive share units (SISUs) and Adjustable performance Plan awards (APPAs)