International Financing Review, September 2012 – Stephen Gilchrist comments on Deutsche Bank’s retro-clawbacks
By Sandrine Bradley
Recruitment consultants have voiced scepticism over Deutsche Bank's radical new policy to claw back bonuses earned by new hires from their previous employers.
Insiders at the bank confirmed the policy came into being in January and covers all new employees who are "regulated staff" - namely, those considered by the bank and its regulators to be involved in risk-taking.
The plan covers a wide range of employees, from managing directors in the investment bank, to members of the management committees of other business areas such as retail banking, asset and wealth management and transaction banking.
Deutsche Bank declined to offer details as to how the retro-clawbacks are enacted.
"This must be a contractual agreement between the new staff and Deutsche," said Stephen Gilchrist, head of regulatory law at Saunders Law. "It can only happen if the employee has agreed to it."
According to one person at an industry association, Deutsche in effect would buy a new employee out of their bonus from their previous employer.
"If a star banker is recruited from bank A to bank B, bank A basically sells the benefits to bank B which are then written into the employee's new contract," he said. "However, bank B can only take a view on how the employee has performed in his previous employment. Bank A is not going to tell bank B how profitable deals the employee has worked on have been."
It is the latest trend in persuading bankers to jump shop - while protecting the hiring bank. Many banks, under pressure from regulators to better link pay to performance over the long term, have deferred pay over recent years.
Although designed to protect Deutsche, critics say the scheme is not without risks - not least because the new hire's previous bank may not be willing to provide information.
Still, recruitment consultants are perplexed as to why potential employees would agree to this: "When an employee comes from one institution to another they would normally get compensation for the bonus they are walking away from," said one head of corporate banking at a major London-based recruitment firm.
Half a promise
"Why would a new employee walk away from a guaranteed bonus to a non-guaranteed one? If they think they have done well they don't want half a promise, they want a guarantee. Maybe Deutsche is doing it just to please some bureaucratic initiative from Germany," he added.
Gilchrist agreed: "It is a bit odd, if Deutsche wants a particular employee to join, and is willing to go the extra mile of buying out the bonus from the existing employer, then they obviously think the person is very good. Why would they assume they might need to clawback some of the bonus?"
However, the banking association insider argued that with the public negativity surrounding the issue of bankers remuneration other firms will follow Deutsche's lead.
"I think other firms will do it. There has been such an outcry around bonuses and pay that bank management teams and shareholders have got the upper hand at the moment. But it will only apply to those earning lb150k+, decent traders and managing directors," he said.