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Credit Suisse Revises Bonus Scheme

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Want your performance bonus? Then wait. This is what Swiss banking bellwether Credit Suisse Group AG (CS - Free Report) is asking its bankers to do.

In an internal memo issued to its staff, Credit Suisse announced doing away with the earlier bonus pay structure ‘Partner Asset Facility (PAF) 2012’, which was linked to performance of the bank’s derivatives portfolio. As replacement, the company has offered two alternative schemes to nearly 5,500 bankers.

The bankers can opt for Contingent Capital Awards (CCAs), under which bonus will be awarded in bonds of sort that will be eliminated in case Credit Suisse’s core Tier 1 capital ratio drops below 7%. Further, the settlement will be made either by cash payment of fair value of CCAs at that time or physical delivery of an actual contingent capital security. This contingent capital security can be held thereafter or sold in the open market.

The second option that the bankers have is Capital Opportunity Facility (COF). This is a seven-year scheme linked to the performance of a portfolio of risk transfer and capital mitigation transactions. The portfolio will be chosen by the PAF management team. Under the terms, bonus will not be paid before 2021 though the bankers will get yearly payment of 6.5% of the deferred amount as a coupon.

Credit Suisse had to provide an alternative bonus payment scheme as the previous one failed to meet the new capital regulatory requirements. Moreover, other banks including UBS AG (UBS - Free Report) , Barclays PLC (BCS - Free Report) and The Royal Bank of Scotland Group plc (RBS - Free Report) have paid a portion of their bonus using similar ‘bail-inable’ securities.

Credit Suisse has taken a step in the right direction by scrapping the earlier bonus scheme linked to risky assets. By linking bankers’ pay to the overall company’s performance and other specific areas, it will prevent employees from taking undue risk.

Currently, Credit Suisse carries a Zacks Rank #3 (Hold).

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