From offsetting bonus taxes to saving face with the public, finance firms are trimming and readjusting bonus packages this year. On the eve of the 2010 bonus season, it appears the "too big to fail" theme during the finance crisis has evolved into avoiding bonus payments that may be too big to justify to a prickly public and retaliatory regulators. Firms both profitable and those still wading in troubled waters are taking steps to realign bonus packages in an effort to meet short-term realities (read: the U.K.'s one time bonus supertax) and longer-term interests (read: dissuade risk-taking moves).
Here is a breakdown of some of the players who are changing the way bonuses are being doled out this year, cut by cut:
1. Credit Suisse
In reponse to the U.K's supertax, the Swiss bank has picked up the biggest pair of bonus-cutting shears. It is the first bank to actually trim pay for top bankers instead of spreading the pain among its employees worldwide. The bank said it will reduce its global bonus pool by 5% and some 400 managing directors located in London will take home an additional 30% less this year to compensate for the heavy levy.
2. American International Group, total compensation = $195 million for the financial products division
The last time the insurance firm awarded bonuses, its financial products employees received death threats and pledged to return about $45 million of the $168 million year-end pot. This year, the bailed out firm is proceeding with caution. A potential plan in the works proposes to make the payment several weeks early if employees agree to have it reduced by 10% to 15%, people familiar with the matter said, reported The Wall Street Journal earlier this week.
3. Goldman Sachs, total compensation = $23 billion
Despite turning in one of the most profitable years in its history, chief executive Lloyd Blankfein and his top 30 executives will be taking home zero dollars in cold hard bonus cash this year. The executives will instead receive stock that must be held for at least five years. Moreover, Goldman reserves the right to take back those shares in the event the employee failed to properly account for risk. The bank delayed releasing the juicy details of its some $23 billion bonus pool until next week. Blankfein's worker bees are on pace to earn about $717,000 apiece for 2009.
[UPDATE: In its fourth-quarter earnings reports, Goldman announced Thursday it set aside $16.19 billion in compensation for the year. It did not allocate any revenue towards compensation in the fourth quarter, directing $500 million of the revenue to charity instead.]
4. Deutsche Bank
Employees of the German bank will be compensated somehow, tax or no tax. Deutsche Bank announced Tuesday it will raise the fixed salary for staff by as much as 30% and cut variable pay to sidestep the one-time U.K. tax and other similar regulatory measures in the pipeline. The decision followed a review of current practices to ensure pay "remains competitive."
5. Morgan Stanley, total compensation = $14.4 billion
In May 2009, the bank said it will increase the salary of its top officers to ease the weight placed on the annual bonus check. Co-Presidents James Gorman and Walid Chammah's pay will rise by one-third to $800,000 and the bank's heads of finance, legal and administration will get a base salary up to $750,000 each, up from approximately $300,000. Gorman, who replaced outgoing CEO John Mack this month, will not receive a cash bonus this year. Morgan's 1,000 managing directors were also invited to the pay party and will see a base salary increase of about 25% to 30%.
There has since been chatter the bank will revamp its bonus structure, imitating the Goldman mold. The bank announced today that members of its operating committee will earn 75% of bonuses in stock, with such payments subject to clawback provisions and a portion to be tethered to the company's stock performance.
6. JPMorgan Chase, total compensation = $26.92 billion
A princely $26.92 billion in total compensation has been earmarked to award its employees this year, an 18% increase from $22.74 billion in 2008, according to company filings. Though there hasn't been much activity in capping pay, the bank has reduced the share of revenue allocated to compensation for its investment banking unit from 40% in the first quarter to 11% in the fourth quarter due to the British supertax and opting to make more use of stock awards. Despite the move, investment bankers are still set to receive a record $9.3 billion in pay.
7. Citigroup, total compensation = $24.98 billion
The bank is reportedly capping cash payments to under $100,000 and compensating a larger portion of bonuses in long-term stock awards. Chief executive Vikram Pandit already passed on a bonus payout for the second year running.
For workers who stuck around the bank-still-on-standby-for-a-comeback, they will receive about the same bonus pay as the previous year, a relatively low level compared to its glory days. Though the bonus pool actually shrunk by a fifth to $25 billion from $31 billion in 2008, falling staff numbers will help spread the love around. Headcount at Citi thinned to 265,000 at the end of the fourth quarter, an 18% drop compared to the same period in 2008.
As a recent alumni of TARP, U.S. compensation czar Ken Feinberg's pay cuts to Citi's top 100 executives will stick for bonuses being doled out for 2009. Taxpayers still own a 27% stake in the company. In October, Feinberg slashed cash compensation by 96% for its top 25 earners and overall compensation by 70%. His cutting crusade continued in December, ordering bonuses for the next 75 executives at Citi and other firms come from a fixed pool and annual cash salaries limited to $500,000.
8. ABN Amro
The Dutch government took a hard line with state-owned bank ABN Amro board members on Tuesday, saying executive bonuses will be reduced by 65% and that annual salaries will be fixed at EUR600,000. Moreover, bonuses cannot exceed 60% of the salaries and executives risk losing out on year-end payouts until the bank turns a profit. The government's move is far more harsh than the restrictive measures the bankers' code of conduct started by the Netherlands Bankers' Association last year. By those guidelines, bonuses cannot go beyond 100% of base salaries and will be contingent on meeting certain targets.