The more cash you get as part of your bonus, the less grateful you are

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They say you should never kick a man when he’s down, so it must have come as a bit of a blow to the staff at Deutsche Bank to be informed that their management was considering vested non-cash bonuses.

They’re not having the best of years, after all. Deutsche paid out Euro 2.5 billion in bonuses last year, of which just over half was paid out immediately in hard cash. Now two of the bank’s biggest investors, Pimco and Algebris have suggested that staff should be paid out in high coupon bonds.

 I’ve always felt that the more cash you get as part of your bonus, the less grateful you are - and the less likely you are to sweat your guts out. I once watched in bemusement through the glass walls of the goldfish bowl office as a colleague at UBS New York got his bonus number. His grin of fake gratitude made me ask him why he was obviously so peeved.

'It was only a mill', he growled, as he picked up his phone to yell at his wife, or mistress. It’s a strange thing, but unless you are held accountable and have skin in the game in the form of vested earnings, you really are not much more than a hired gun. For most of us City pros it doesn’t make a huge difference, since the vast majority are well intentioned and want to put in a good day’s work and simply make the mortgage payments. But it’s a really interesting idea that has been used before by other banks. 

The idea of ultra-high coupon bonds that can have interest payments cancelled if the bank gets into trouble works both ways. In good times the staffer gets well rewarded and the coupons build up a cash pile to be released at a future date, depending on good behaviour, and other factors. In bad times, the bond price drops like a stone and the coupons are suspended. Maybe it would even make potential rogue traders think twice.

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