UBS has reduced its bonus pool by 10% for the 2010 financial year compared to 2009.
The bank’s board of directors approved a total bonus pool of Swiss francs (CHF) 4,319 million, down from CHF 4,779 million in 2009.
Of the total bonus pool for 2010, CHF 1,550 million will be deferred to future years. The key factors in determining UBS’s bonus pool were risk-adjusted profits, general market competitiveness and the firm’s performance relative to the industry.
As disclosed in its fourth quarter report, UBS’s performance reflected an improvement of CHF 10 billion.
In a statement, UBS said it is committed to rewarding employees for sustainable performance. In order to align employee incentives with the interests of UBS’s shareholders, significant deferrals of equity bonuses are a central feature of UBS’s compensation model. These awards have strict forfeiture rules that enable UBS to forfeit or reduce unvested awards when employees behave in a way that results in financial, reputational or other harm to the bank. They are also deferred for three to five years, with those awarded to senior management subject to the fulfillment of specific performance conditions.
UBS’s compensation model has also been refined in conjunction with shareholder representatives. High levels of deferred bonuses for group executive board members – 76% of a member’s bonus, including 60% in equity – is deferred and at risk of forfeiture for periods of up to five years. Moreover, the vesting of these awards is subject to the fulfillment of specific performance conditions. A maximum of 24% in cash is paid out immediately, subject to a cap of CHF/USD two million.
Above total compensation (base salary and bonus) of CHF/USD 250,000, all employees will receive at least 60% of their bonus in shares deferred over three years under the Equity Ownership Plan (EOP).
In addition, a number of employees in the bank will be subject to higher levels of deferrals. Like the vesting of equity awards to group executive board members, the vesting of equity awards to certain categories of employees is subject to the fulfillment of specific performance conditions. This group comprises key risk takers and controllers, around 200 individuals who can materially commit, execute or control the bank’s resources and/or exert significant influence over UBS’s risk profile.
Also subject to this requirement are group managing directors and employees with total annual bonuses exceeding CHF/USD 2 million. Deferred awards granted to each employee in one of these groups will only vest in full if the employee’s business division is profitable (for corporate centre employees, the group as a whole needs to be profitable).
The use of leverage in equity awards has been significantly reduced for all group executive board members, and eliminated for all remaining employees. The IPP, a one-time equity plan, has been discontinued.
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