A year ago, Credit Suisse Group AG handed its bankers about $870 million of cash bonuses with the caveat that they had to stay for three years or pay some of it back.
(Bloomberg) — A year ago, Credit Suisse Group AG handed its bankers about $870 million of cash bonuses with the caveat that they had to stay for three years or pay some of it back.
That second part might be trickier than the bank’s leaders hoped.
A handful of former employees based in Europe and Asia are weighing separate legal challenges to the clawbacks, according to people familiar with the situation who spoke on condition of anonymity.
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They argue they had little time to agree to the terms and that a reward for past performance shouldn’t be subject to them sticking around — especially when Credit Suisse is struggling to recover from what Chairman Axel Lehmann has dubbed a “horrifying” 2022.
Some others who were unhappy with the terms have taken the simpler route of jumping ship and getting their new employers to cover their clawback expenses, the people said.
Switzerland’s second-biggest lender said this week that for a second year in a row it would pay up front cash bonuses as it steers the difficult path of retaining top performers while reining in costs after a year marred by scandals and quarterly losses that run into the billions of dollars.
A spokesperson for Credit Suisse declined to comment on the matter.
Read More: Credit Suisse Weighs 50% Cut to Bonus Pool After Tough Year
While bankers fighting the strings attached to a discretionary bonus have historically faced a tough climb, a series of legal fights would be another headache for a bank trying to pull off a complex and costly turnaround.
For staff who stayed at Credit Suisse, the awards allowed them to get immediate cash rather than wait years. But clawbacks are often more fraught than deferred awards that the bank can simply not deliver.
One banker weighing a legal claim said the bank forced employees to choose whether to sign the contract in a matter of days or risk losing the bonus for 2021 performance. Another problem cited by some of the bankers is the challenge of recovering back tax they’d paid on the original cash bonuses before clawbacks, the people familiar with the matter said.
Credit Suisse has said based on feedback from last year, it would now give staff one week to choose whether to sign up to it. The bank also said it requires them to do so before they know the amount of the award.
Clement Dubois, a regional head of the Swiss bank employees association, said Credit Suisse could have avoided the legal pushback by designing the award differently.
“Why didn’t they just make the payments in three annual installments to avoid the issue of clawbacks and tax problems altogether?” he asked.
In 2014, a Swiss cantonal court weighed in on a dispute over banker pay involving an unidentified Zurich-based lender. It ruled that while clawbacks of salaries were allowed, that didn’t apply to discretionary awards such as bonuses. How the country’s top court might treat such contracts is unclear.
Last February’s cash offer, in which the upfront awards were some 40% of the regular bonus pool, didn’t stop a string of departures, as bankers particularly in Asia left for competitors including crosstown rival UBS Group AG.
Read more: Credit Suisse Weighs 50% Cut to Bonus Pool After Tough Year
Advocates of clawbacks will say that bankers chose whether to sign up to the terms of the contract. And in the U.S, anyone planning to contest the clawback clauses will have a tougher time, said Philip Berkowitz, an employment lawyer at Littler Mendelson in New York.
New York’s top court has held that “if the plan language makes clear that the award of the bonus is wholly discretionary, and therefore is not a wage, payment can be conditioned on such factors as the employer’s continued employment on the date of payment,” he said.
–With assistance from Myriam Balezou, Denise Wee and Dale Crofts.
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