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The Swiss bank will reportedly announce today that it’s going to be doing things a little differently around here re: compensation. One, deferrals will start at $250,000 and two, rather than being paid in UBS stock, the non-cash portion of 6,500 senior employees’ bonuses will come in the form of subordinated debt that can and will be wiped out in the event the amount of capital on hand falls below the level required by EU regulators, putting the onus on everyone to make sure no one pulls an Adoboli (and avoids multi-billion dollar fuck-ups in general). Half-Adobolis only moving forward, please.
The new bonus structure for 6,500 of UBS’s highest earners will make Switzerland’s largest lender by assets the first to follow recommendations by an EU commission led by Finnish central banker Erkki Liikanen, paving the way for others in the industry to follow its lead. The commission last year called for bonuses to be partly based on “bail-inable” debt that can be converted to equity or wiped out in the case of trouble. Debt instruments have been used for bonuses by several banks including Royal Bank of Scotland and Credit Suisse in the past few years but were mostly linked to specific and troubled legacy assets. By contrast, UBS’s debt bonus will be written down to zero should the bank’s regulatory capital fall below 7 per cent or in the case of a “non-viability” loss. It will pay a market-based interest rate and will fully vest after five years, people close to the situation said. Analysts said UBS might become a trailblazer for other banks under pressure from investors and regulators to more closely align pay with all stakeholders, including creditors. Such debt instruments increase a bank’s regulatory capital while squaring the circle to align seemingly conflicting demands of investors, regulators and employees.