The hair shirt was always more comfortable than it appeared. Bonuses were split into a "group" component - which depends on how well the bank does - and a part linked to individual performance. The latter was limited in a way which meant that three-quarters of staff were not or hardly affected by the freeze. Deutsche's full-time workforce shrunk by almost 3,000 in the first nine months of 2017 and it paid out 3 percent less to employees in the third quarter than in the same period of 2016. Yet the bank's top line is shrinking even faster: as a proportion of net revenue, pay has risen by 1.7 percentage points since the end of 2015, reaching 41.4 percent in the third quarter.
Resuming bonus payments hardly amounts to a bonanza. Yet it also implies that the bank is back on track. Shareholders understand that Deutsche must compete with healthier investment banks for staff. The problem is that any increase in compensation that is not matched by higher revenue eats into their returns.
After two years of painful restructuring, Deutsche aspires to return to paying meaningful dividends. But it is hamstrung by low volatility in financial markets and subdued investment banking revenue. A successful initial public offering of Deutsche Asset Management, to be rebranded DWS, could enable the bank to return some of those proceeds to shareholders. Then again, selling part of the bank's best-performing business to provide a cash sop hardly smacks of the kind of long-term thinking that Cryan is supposed to embody.
A return to bonuses is meant to signal a return to normality for Deutsche Bank employees. Investors, however, are entitled to ask what has changed.
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CONTEXT NEWS
- Deutsche Bank intends to resume the payment of normal bonuses for 2017 and some employees will get raises, according to comments from Chief Executive John Cryan reported by German newspaper Boersen-Zeitung on Dec. 30.
- Deutsche Bank's bonus pool for 2016 was 500 million euros - almost 80 percent lower than in 2015, according to the bank's compensation report released on March 20, 2017. At the time, members of Deutsche's management board also agreed to waive their bonuses for 2016.
- Announcing the cuts in a message to employees in January 2017, the bank said it planned to return to "normal" compensation programmes for the coming year.