Pay for Failure: Tidjane Thiam’s Credit Suisse CEO compensation for 2016, 11.9 Mio CHF

Dominic Elliott - New York Times 28. March 2017

Tidjane Thiam’s compensation for 2016 shows Credit Suisse’s tin ear.

The Swiss bank’s board has granted Mr. Thiam, its chief executive, 11.9 million Swiss francs ($12 million) for the year. That looks bad in a period when the bank reported a loss of 2.7 billion Swiss francs and was considering a potentially dilutive capital raise.

Mr. Thiam’s haul is split equally among 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 he did O.K. on compliance relative to worst-case possibilities. 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, Mr. Thiam’s initial strategy of keeping some exposure to volatile positions was undermined by losses from lingering in those areas, being too slow to appreciate the problem and then rethinking company 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 Mr. 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 Reuters Breakingviews’ assumptions and Credit Suisse’s own metrics, would award Mr. Thiam 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 increase looming, a more modest bounty might have signaled 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 Mr. Thiam’s 2016 pay award is deferred and could yet be canceled. They should still be annoyed.