Swiss bank UBS AG will tell its employees on Wednesday what bonus, if any, they will be receiving for 2012, a year in which staff endured a radical restructuring and the conviction of a rogue trader that has left expectations low.
UBS, one of the last major European banks to dish out bonuses for the past year, sank to a net loss of 1.89 billion Swiss francs ($2 billion)in the fourth quarter and has already said it will cap the cash it pays to any individual at 1 million francs from the previous year's 2 million.
Staff in UBS's investment bank waiting to be told by their boss what they have earned expect to be particularly hard hit, given the series of controversies that have affected the unit, such as a $1.5 billion fine for rigging interbank lending rates.
UBS, which declined comment on this year's individual payouts, has cut its overall bonus pool for 2012 by 7 percent to 2.5 billion francs and introduced a scheme under which bankers can be paid in a form of deferred financial instruments which are revoked if the bank's capital targets are not met.
This year's bonus pool will also take into account the fine levied on UBS for its part in the Libor scandal, which resulted in the punishment of a number of top banks.
"The overall 7 percent cut doesn't tell what's going on in the investment bank," said a banker directly concerned by the matter, speaking on condition of anonymity. "Here (in the investment bank), the cut is likely to be 30 to 40 percent as a result of Libor".
UBS investment bank boss Andrea Orcel hosted a "townhall" meeting of his bankers on February 4 at which he told his 16,000 staff that half of them would be paid no bonus for the year.
In fixed income, for instance, where the bank is winding down operations, 65 percent of teams can expect nothing on top of their base salary, a second banker who wished to remain anonymous told Reuters.
Another banker said some calls to clients due this afternoon had been canceled, expecting morale to be so low that the veneer of "business as usual" would be hard to maintain.
"It's like driving a car with no gas. Andrea (Orcel) had his pay check (of awards to staff) withdrawn," said a fourth banker, expecting up to 60 percent of investment bankers working in the advisory team to have zero bonuses, known in the industry as "doughnuts".
The bonus issue may fuel simmering tensions as Orcel attempts to build a profitable advisory arm on a tight budget, and after the bank in October announced 10,000 job cuts, 2,000 of which were in investment banking.
Orcel has also made several hires from his former employer Bank of America Merrill Lynch and has lured big names like Piero Novelli, a prominent European dealmaker recently lured back to UBS.
Some insiders speculated about whether there were any guarantees given to such senior hires which could create disparities within the firm. But others said pay would still hinge on performance.
One banker said: "Andrea very clearly sets himself up on a pay-per-performance basis ... If you're not performing you don't get paid, and he's harshest on the people he expects the most from.
"If you miss deals, you know about it. He absolutely wants to make sure there is no structure where there are big guarantees, haves and have nots."
UBS is not the only bank that has had to reduce compensation in the wake of the 2008 financial crisis.
Deutsche Bank for instance is capping bonus payouts for 2012 at 300,000 euros ($390,800), not including deferred pay, sources told Reuters on Friday.
There are other forces also bearing down on bank pay and executive rewards generally.
Brussels agreed a cap on banker pay last week and countries including the United States and Germany have introduced advisory "say on pay" votes, while Swiss citizens have voted to impose strict controls on executive pay.
Support for the Swiss move was driven partly by the big bonuses blamed for fuelling the risky investments that nearly felled UBS, as well as outrage over a proposed $78 million payment to outgoing Novartis Chairman Daniel Vasella.
Last year, more than a third of UBS shareholders rejected the bank's plans for executive pay, including a 4 million Swiss franc signing-on fee for new Chairman Axel Weber. ($1 = 0.9421 Swiss francs) ($1 = 0.7677 euros)
(Editing by David Holmes)