UBS to Cap Cash Pay for US Bankers

Christopher Owen

12 November 2007

UBS has told investment bankers and traders on Wall Street that their 2007 cash pay will be capped at $750,000, with a much greater portion of total compensation coming from stock, according to the Wall Street Journal. Previously, there was no cash limit. A spokeswoman for UBS told the newspaper: "As we previously announced, a greater portion of compensation this year will be paid out in stock." Some bankers and traders get pay packages totalling $5 million or more, meaning that stock will account for nearly all of the pay they will receive. "If you are getting $750,000 in cash, you are only getting $350,000 after taxes if you are in the top tax bracket," said Michael Karp, chief executive at Options Group, a New York executive search firm. By way of compensation, UBS is to issue two kinds of stock. One kind will vest over three years; the other, a new "special" stock, will vest within a year. Any pay UBS traders or bankers who receive over $2 million will be entirely in the special stock. The move is among the first signs of a clampdown on pay in the financial world amid the credit crunch. The crunch's impact has spread in recent weeks, resulting in more than $40 billion in write-downs tied to mortgage securities. All that has led to an increased push by financial firms to cap expenses. Compensation costs are an obvious target because they total more than half of financial firms' total revenue. But some executive recruiters said the UBS move could damage morale. "I've been in the business since 1978 and have never seen a firmwide cap on cash compensation that low," said Gary Goldstein, president of executive search firm Whitney Group.