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[ZURICH] UBS Group AG on Friday announced a five- year, US$2.9 billion extension to a bonus plan that rewards top employees with securities that can be wiped out if the bank hits tough times.
Switzerland's biggest bank also said its trading businesses didn't suffer an overall loss in the market turmoil that erupted when the Swiss central bank unexpectedly scrapped its limit on the franc.
UBS said it would pay out about 500 million Swiss francs a year in deferred contingent capital, starting with compensation for 2014. It said the total 2.5 billion francs in deferred compensation (US$2.9 billion) would boost its additional Tier 1 capital.
UBS, along with Credit Suisse Group AG, the second-biggest Swiss bank, is using contingent capital bonds for bonuses to underpin its finances and limit incentives to take risks. The securities can be wiped out if the banks' capital ratio falls below a predefined threshold.
Banker bonuses were cast as one of the root causes of the 2008 global financial crisis, the heart of an incentive system that rewarded greed and excessive risk. Many banks changed the structure of pay to reward longer-term success, deferring more compensation to appease regulators.
UBS, which had to take a government bailout at the height of the financial crisis in 2008, introduced deferred capital compensation for 2012. In 2013, the plan accounted for 30 per cent of bonuses for executive board members and 40 per cent of deferred bonuses for employees earning more than US$300,000. About 5,300 employees received contingent capital awards for 2013, the bank said in its annual report.
Special Dividend The bank hasn't produced a breakdown for 2014. It may provide more details when it reports fourth-quarter earnings, said Anita Greil, a spokeswoman.
The deferred contingent pay "is designed to better align the interests of shareholders, bondholders and employees and to align compensation incentives with the capital strength of the firm," UBS said.
UBS said it would stick to its plan to pay out more than 50 per cent of earnings as regular dividends to shareholders. It also reaffirmed its plan to pay a supplementary dividend of 25 centimes a share, after a reorganization of its legal structure freed up capital. The bank last year asked shareholders to exchange their shares for ownership in a new holding company that will make it easier to break up the company in a crisis.
UBS paid a dividend of 25 centimes a share last year, or about 30 per cent of the bank's full-year net income of 3.17 billion francs.