Credit Suisse said on Tuesday it would make executives wait three-to-four years for their bonuses, as governments press banks to use compensation packages to limit excessive risk taking.
Switzerland's largest bank by market capitalization will increase the base salary of its executives' pay and link deferred bonuses to business performance and share price.
The new pay formula takes effect January 1 and applies to 2009 compensation for just over 7,000 senior staff, or about 15 percent of the bank's workforce, Credit Suisse said.
At a time of strong focus on executive compensation, we are announcing a compensation structure that enables us to strike the right balance between paying our employees competitively, doing what is right for our shareholders, and responding appropriately to regulatory initiatives and political as well as public concerns, Chief Executive Brady Dougan said in a statement.
Credit Suisse said deferred variable compensation will have two components -- cash and stock.
The stock component will vest over four years and may increase depending on Credit Suisse's share price and its return on equity over those years.
The deferred cash component will vest over three years and will be adjusted annually based on Credit Suisse's return on equity and business performance.
The bank said the new pay formula applies to managing directors, directors and members of the executive board, but not to employees at the level of vice president and below.
The bank also introduced minimum share ownership requirements for senior executives.
Credit Suisse introduced deferred compensation programs even before the subprime crisis. It stood out among financial institutions last year when it decided to award toxic assets to bankers as part of their variable compensation.
FOLLOWING G-20 GUIDELINES
Credit Suisse said the new compensation structure is consistent with guidelines recently announced by the Group of 20 major powers. The guidelines included a ban on multiyear bonus guarantees, clawing back pay where performance has slumped, paying more bonuses in shares, and limiting bonuses as a percentage of revenue in cases where banks have low capital.
You have less variability of compensations. Employees will have more certainty about their compensations because their bases are going up and it will be less tied to productivity, said Keith Wirtz, president and chief investment officer at Fifth Third Asset Management.
It is raising the cost structure. You are not paying people based on contribution to profits. There is less discrimination, less distinction on who drives profits versus who doesn't.
Years of multimillion-dollar bonuses awarded to financial executives, even at money-losing firms, have outraged political leaders and become a target for advocates of tighter oversight of banks and capital markets.
Earlier this year a furor erupted over millions of dollars in bonuses paid to executives at taxpayer bailed-out U.S. insurance giant American International Group Inc .
Wall Street titan Goldman Sachs Group Inc , whose lavish compensation has drawn scrutiny, is on a pace to hand out more than $20 billion in bonuses at year-end. That would be equivalent to more than $630,000 per employee and could surpass the record compensation of 2007.
Credit Suisse's actions won't be isolated. You will see others entities adopt similar kind of programs, Wirtz said.
(Reporting by Juan Lagorio in New York and Lisa Jucca in Zurich; editing by John Wallace, Leslie Gevirtz)