Wall Street's Brutal Compensation Crunch Has Hit Deutsche Bank
This time around, the bank's bonus pool is $4.3 billion.
This was to be expected, but it still hurts. In July, when the bank announced that it would lay off up to 1900 people, it also said that it would be reviewing compensation practices in order to "address... relative balance between rewards for shareholders and those for employees."
As if on cue, right before Deutsche made that announcement, bank analyst Meredith Whitney said Wall Street should expect more job cuts and lower compensation across the board.
And in today's Q4 earnings release, the bank used the exact same language to address the compensation cuts that have no been brought to fruition. Deutsche talked about a "deep cultural change" and how the bonus pool has been significantly reduced.
Here's an excerpt from the release:
The management is determined to bring about deep cultural change at Deutsche Bank. Short term measures are an overhaul of the compensation practices and the continued tightening of the control environment. The Bank significantly reduced the bonus pool. Full year variable compensation is down to 9% of revenues – the lowest level for many years. Additionally, the Compensation Panel, chaired by Jürgen Hambrecht, made a series of recommendations which played a part already in the 2012 compensation. The Panel recommended, for example, that the Bank reduces deferrals, thus reducing the compensation cost for future years. It also advised that measures of performance for clients play a greater role in performance management assessments. Longer term measures towards achieving deep cultural change include issues like client integrity, operational discipline and cross-silo cooperation. These areas of focus were identified by conducting the most comprehensive dialogue with employees in recent years.
It sounds like Deutsche Bank is taking a similar route to Morgan Stanley, where CEO James Gorman has said that bankers are "overpaid" and used compensation to cut costs overall.
However, Deutsche didn't mention reducing its headcount or anything. So perhaps bankers there don't have to worry about layoffs as they do at Morgan Stanley (or as Goldman Sachs COO Gary Cohn has said his bankers should do every day).
Deutsche Bank also announced a surprise loss of $3 billion today for the fourth quarter.