Barclays, UBS and Goldman Sachs have announced moves to halt bonus payouts for top executives in 2008, as huge subprime losses and writedowns have placed compensation policies under increased scrutiny.
Barclays said on November 18 that no bonuses will be paid to executive directors for 2008, a decision made as part of its restructuring programme aimed at raising over £7 billion of additional capital. Also, all current members of the board will be required to stand for re-election at the bank's annual general meeting in April 2009 .
In a meeting on Sunday, Goldman Sachs's compensation committee approved a move to suspend bonus payouts for its seven most senior bankers, including the bank's chairman and chief executive, Lloyd Blankfein.
Blankfein was paid a total of $70.3 million last year, which included his $600,000 salary, a $27 million cash bonus, $25.9 million in stock and $16.4 million in options. He told shareholders at the bank's annual meeting in April: "We're very much a performance-related firm. If those results don't come in, I assure you at Goldman Sachs you won't see that compensation."
Goldman has had a turbulent year, in which it converted itself into a bank holding company and took a $10 billion capital injection from the US government.
On November 17, Swiss bank UBS followed suit, unveiling a new compensation model for the board of directors and the group executive board, who will receive only their fixed salaries this year.
As one of the worst-hit financial institutions from the credit crisis, UBS's revision of bonuses had been anticipated for some time. In a report to the Swiss Federal Banking Commission on April 7, the bank acknowledged that bonus payments were "calculated based on short-term results, without sufficient appraisal of the quality or sustainability of those earnings".
"Long-term results, increased risk awareness, and a focus on profitability and value creation for shareholders are the cornerstones on which compensation will be based," UBS chairman Peter Kurer stated on Monday.
UBS has initiated a cash balance plan for the executive board that it hopes will "establish a buffer between the determination and payment of variable compensation". The plan is designed to reward long-term success by linking bonuses to variations in business performance because "it holds top executives accountable for delivering sustained long-term performance".
The bank noted that, particularly in the investment banking division, bonus payments are often based on short-term performance and are not tied to the amount of assumed risk.
The moves to cut bonuses come after repeated criticism from regulators over excessive remuneration among banks. On October 13, the UK Financial Services Authority warned that "in many cases the remuneration structures of firms may have been inconsistent with sound risk management. It is possible that they frequently gave incentives to staff to pursue risky policies, undermining the impact of systems designed to control risk, to the detriment of shareholders and other stakeholders".
Increased supervision of remuneration schemes was one of the preconditions of the UK government's £50 billion recapitalisation of British banks. Upon unveiling the plan on October 8, UK prime minister Gordon Brown warned banks that: "Where there is irresponsible or excessive risk taking, we have to take action."
On October 14, US Treasury secretary Henry Paulson echoed these concerns, saying institutions participating in the Troubled Assets Relief Programme and the $125 billion Capital Purchase Programme "will accept restrictions on executive compensation".
Deutsche Bank confirmed in October it would not pay bonuses to its chief executive and board this year, and was quickly followed by UK firms RBS, HBOS and Lloyds TSB.
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