UBS cuts bonuses after missing profit targets

UBS cuts bonuses after missing profit targets
By Haig Simonian in Zurich and Megan Murphy in London
Copyright The Financial Times Limited
Published: February 10 2010 18:47 | Last updated: February 10 2010 18:47
http://www.ft.com/cms/s/0/4c919aae-1673-11df-bf44-00144feab49a.html


UBS, one of the banks hardest hit by the financial crisis, will not award senior staff SFr300m ($281m) in cash bonuses after failing to hit internal profit targets – a stark sign of how pay reforms are hitting bankers’ wallets.

Like many big banks, UBS has overhauled its bonus structure to more closely align pay with long-term performance. This includes the introduction of a novel “malus” [opposite of bonus] system and allowing the bank to claw back payments if results fall short of targets.

It emerged on Wednesday that UBS will not disburse about SFr300m – nearly 10 per cent of its total bonus pool – to senior staff because the bank failed to make a net profit for 2009, a condition of its so-called “Conditional Variable Compensation Plan”.

Oswald Grübel, chief executive, said he expected affected executives, including many of the bank’s top earners, to be “realistic” about pay given the highly charged climate.

“Bank salaries and bonuses are politically influenced and have become a controversial public topic as never before,” Mr Grübel told employees.

UBS insiders said the fact that the plan would not pay out this year did not come as a huge surprise, given the bank’s ongoing struggle to recover from record outflows at its once-powerhouse private bank and more than $50bn of subprime mortgage-related writedowns.

About SFr2bn of UBS’s net loss for 2009 is also attributable to an accounting charge on the rising value of its own debt.

The CVCP plan, announced last February, set aside SFr900m in cash to be paid out in three equal tranches in 2010, 2011 and 2012, on condition that the group returned to profitability under European accounting standards and received no further bail-outs from the Swiss government.

The bank said the decision not to pay out this year would not prejudice prospects for 2011, but stressed the sums allocated would not be carried forward.