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As Deutsche Bank Cuts More Jobs, New CEO Urges Change In Compensation Model

Executive pay at banks in the U.S. and Europe are under fire, and shareholders on both sides of the Atlantic have been protesting against what they view as unjustified compensation packages.

Deutsche Bank’s new co-CEO, Anshu Jain, said the bank will cut around 1,900 jobs on the shoulders of Europe's spiraling debt crisis which has hurt profits at its investment banking business.

The bank, which has a staff of nearly 101,000 people, said second quarter earnings dropped 46 percent to $813.4 million from $1.5 billion for the same period in 2011. Revenues were down 6 percent to $9.8 billion.

Overall, revenues at Deutsche Bank's corporate banking and securities division dropped by $555 million to $4.3 billion.

In a call with analysts, Anshu Jain, who became the bank’s co-CEO with Juergen Fitschen in May, said the bank was looking to change its ethics policy and compensation practices to meet the stricter expectations of regulators, government and the public. He said the bank would "make sure that the tone at the top is crystal clear."

Last year, Jain himself took a 23 percent cut in his compensation to $7.6 million after the European sovereign debt crisis and shaky financial markets hit the bank’s investment banking division.

The bank’s previous chief executive, Josef Ackermann, saw his 2011 pay fall less than 1 percent, to $7.75 million. But overall, the seven members of Deutsche Bank’s management board received a combined salary and bonus of $32.5 million, compared to $39.8 million when there were 8 board members.

Cuts to the compensation of management at Deutsche Bank came as pay practices at other banks also fell under scrutiny in the U.S. and in Europe and a number of compensation policies were voted down by investors angered by what they view as a poor link between pay and performance.

UBS also reduced its bonus pool for 2011 by 40 percent to $2.8 billion, due to sliding profits. The total bonus handed out to its investment bankers was 60 percent lower than for 2010, according to reports.

Earlier this year, amid what has been called the ‘Shareholders’ Spring’, 37% of shareholder votes at UBS were cast against the Swiss bank’s pay proposals, while 54% voted against life insurer Aviva’s compensation policies.

In April, Citigroup shareholders rejected a board-approved compensation package for chief executive Vikram S. Pandit which boosted his pay to $14.9 million from $1 the previous year. Some 55 percent of votes went against the package. As such, Citigroup instantly became the biggest bank to suffer a no vote on executive compensation. Its shareholders are also suing the bank’s directors for their 2011 compensation on the basis that it was not justified.

Last week, the manager of one of London’s biggest funds, Fidelity Worldwide Investment, wrote to 450 major companies in the UK and Europe calling for a major overhaul of pay polices, including requiring directors to hold shares for the duration of their careers.

He urged these companies, which included major banks, to simplify their bonus schemes and require directors to hold any share awards for five years, rather than the current three, the UK’s Guardian newspaper reported.

Fidelity Worldwide Investment also adopted the idea of "career shares", where part of the awards of shares must be held until retirement. Fidelity previously cited HSBC as a company which has adopted a "career share" approach to executive pay.

Last week, a study commissioned by the UK government advised scrapping executive cash bonuses and the publishing of quarterly results, in a bid to put a stop to “short-termism.”

The report, written by John Kay, a professor at the London School of Economics, was intended as a central pillar of business secretary Vince Cable's efforts to reform Britain's financial industry.

The study actually questioned whether bonuses need to be paid to company directors at all, saying: "Many people doing responsible and demanding jobs – cabinet ministers, judges, surgeons, research scientists – do not receive bonuses, and would be insulted by the suggestion that the prospect of bonuses would encourage them to perform their duties more conscientiously."

Kay also urged firms to reform the pay of asset managers. He suggested that the interests of those running investment funds should be aligned with their customers, by requiring them to hold an interest in the fund, either directly or via the firm, throughout their involvement with it. He argued that this would replace rewards related to short-term performance of the fund or the asset management firm, the Guardian reported.

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio

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