LONDON (Reuters Breakingviews) - Tidjane Thiam's compensation for 2016 shows up Credit Suisse's tin ear. The Swiss bank's board has granted its chief executive 11.9 million Swiss francs ($12 million) for the year. That looks bad in a period when it made a 2.7 billion Swiss franc loss and was considering a potentially dilutive capital raise.
Thiam’s haul is split equally between fixed pay including a base salary, short-term awards and longer-term payments - the last two of which mean variable compensation of 8.2 million Swiss francs. True, he did exceed expectations on cost-cutting and solvency, and did okay on compliance relative to worst-case scenarios. But he failed on the other metrics against which he is judged: adjusted profitability, shareholder returns, delivering on the bank's strategy, and leadership.
The bank's adjusted measure of profit before taxes fell by 71 percent to 615 million Swiss francs last year, delivering a dismal 1.3 percent adjusted return on equity. Worse, Thiam’s initial strategy of keeping some exposure to volatile positions was undermined by losses from lingering in exactly those areas, being too slow to appreciate the problem, and then rethinking group targets. For the board to see this as a success is just odd. Credit Suisse shares dropped by a third over the year – worse than peers.
So how much of a bonus should the bank have granted? One answer is nothing at all - the same amount that Thiam's counterpart at Deutsche Bank, John Cryan – along with his entire management board - chose to receive after presiding over a lesser loss of 1.4 billion euros ($1.5 billion) in 2016.
Another approach, using Breakingviews’ assumptions and Credit Suisse's own metrics, would award him half of his possible payout on cost-cutting, capital-building and compliance, but nothing for any other performance measure. Instead of 8.2 million Swiss francs in variable compensation, he would have received 6 million Swiss francs.
With an equity hike looming, a more modest bounty might have signalled to shareholders that Credit Suisse is prepared to share in the pain. Shareholders can take partial comfort from recent changes in banks' compensation structures, which means just over half of Thiam's 2016 pay award is deferred and could yet be cancelled. They should still be annoyed.
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.