Deutsche Bank

A call for modesty in executive pay

christian sewing reuters
Christian Sewing, like many other Deutsche Bank executives, is praying for better days.
  • Why it matters

    Why it matters

    Deutsche Bank needs to cut costs across the board, and executive bonuses should not be taboo.

  • Facts

    Facts

    • Deutsche Bank reported a record loss of €6.8 billion in the last fiscal year.
    • Profits were down 80 percent in the first half of 2016.
    • The decision on whether to eliminate top management bonuses is up to the bank’s supervisory board.
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    Audio

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In light of the difficult situation at Deutsche Bank, a member of the bank’s management board is campaigning for a new freeze on bonuses for top management.

“If we aren’t paying our shareholders a dividend, our own bonuses must be up for debate,” Christian Sewing, head of private, wealth and commercial clients division, told the Bild newspaper. But the decision would be up to the supervisory board, not the management board, he added.

This spring, the bank’s top leadership had already unanimously relinquished claims to variable compensation for 2015. Deutsche Bank had reported a record loss of €6.8 billion ($7.7 billion) and canceled its dividend in the last fiscal year.

Chief Executive Officer John Cryan has also prepared shareholders for a dividend freeze this year, given its sobering start. In the first half of the year, Germany’s largest bank saw its profits decline by 80 percent to €20 million.

That figure doesn’t even include an allowance for pending or foreseeable costs. Traditionally, restructuring costs for rounds of cost-cutting are not posted until the fourth quarter. And if the bank settles one or more legal disputes with government agencies, additional fines are also likely to weigh down the balance sheet.

“If this weak economic environment continues, we will have to be even more ambitious with our restructuring effort than we already are,” Mr. Cryan warned in a letter to employees.

There is certainly reason enough for cutting top management bonuses. But the supervisory board will not reach a decision on the matter until early next year. With a little luck, by then the bank will have revised the bonus system for management board members in a way everyone can agree on. It plans to change its compensation rules for management board members and put a new model up for a vote at this year’s annual meeting.

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But that proposal failed when only 48 percent of shareholders voted for it. Although the vote is not legally binding, Supervisory Board Chairman Paul Achleitner said: “We take the critical remarks very seriously and will examine them in detail.”

Shareholder representatives were especially critical of the lack of transparency in the compensation model.

Deutsche Bank is currently calculating its budgets very carefully, whether it be the bonus cuts for top management, dividend cuts for shareholders or cost cuts for employees. But unlike some other German banks, it has not plans to introduce negative interest rates for private bank customers.

“Not with us,” Mr. Sewing said when asked about negative rates in an interview.

That said, he expects the interest doldrums faced by many other banks will lead to fee increases and the elimination of free checking accounts. “A bank account is a service that costs money,” he said. “That’s why we have not offered our checking accounts for free.”

 

Yasmin Osman is an editor in Handelsblatt’s financial team in Frankfurt. To contact the author: osman@handelsblatt.com

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