"Credit Suisse hands CEO $93.3m bonus - Thu, Apr 01, 2010 Reuters
ZURICH - Credit Suisse Group stoked debate on executive pay in Switzerland on Wednesday by awarding Chief Executive Brady Dougan shares worth around 71 million Swiss francs ($93.3 million) under a five-year bonus plan.
Almost 400 of its executives and other managers would receive shares worth a total of over 3 billion francs under the incentive plan, Switzerland's second-biggest bank by assets said."
Interestingly Credit Suisse did not get any state aid unlike its cross-town rival, UBS. So does it justify the obscene, in my opinion, bonuses? It will be hotly debated in Switzerland I am sure as there is a clamour to limit the size of bonuses to financial institutions' executives regardless of it they received state aid or not. It seems like people realized that using it as a % of turnover or profit to reward executives are still not sensible when bonuses run into multimillion. Enough to hire 10 persons in some cases!!
Lessons for me are:
1. financial institutions that made lots of money basically are into proprietary trading of some sorts. It is not the traditional and conventional banking activities that bring in the big bucks. It means whoever has the highest risk appetite and the biggest capital (to gamble!) win most of the time as long as there are market participants. The real physical economic benefits derived from such trades are minimal;
2. when these trades are limited or eliminated, the risks of a 'counter-party collapsing' thereby bringing down the whole system will be eliminated as there will not be that much risky bets. This also means that the extra size bonuses will disappear as the banks no longer make or lose outside amount of money too! That perhaps is the cure to the root causes of seemingly absurd bonuses;
3. for some banks, even when they made big losses, they still reward their executives handsomely. These cases obviously showed the poor judgment of whoever approved the compensation package or the lack of backbones to stand firm and capitulated to the so-called 'star executive'! These board members should be brought to task while the executives concerned should do some soul searching on if this is the ethical thing to do or not though legally the contracts thus negotiated are legal and binding.
Should we pay executives outsize bonuses that ordinary rank and file of their companies will take years to accumulate, if they are lucky to be gainfully employed? I think there must be a limit to it and a US$2m bonus will be what I go for while any excess should be split with ALL employee of the companies as they are the ones who executed the 'brilliant' strategies or innovations of the executives!
p/s: Unusual incidents in Tokyo on 1st Day - witnessed 1 who littered his cigarette butt while 1 spit on the road! Unusual for Japanese.