CLSA's new deal

Difficult markets produce tough choices. CLSA has come up with an innovative new salary structure for its staff.

Rumours began to circulate at the weekend about a massive staff meeting at CLSA on Friday afternoon. At this meeting, the investment bank's management presented a new pay formula. The exact nature of the pay formula began leaking out, but suffered from a classic case of Chinese whispers; changing slightly with every mouth the rumour passed through.

However, FinanceAsia has pieced together the details of the new package; which from the perspective of running a business and trying to preserve jobs is at the very least, creative and innovative.

Staff were given five options:

  1. A 10% salary cut, but in return you get a one year contract. The advantage of this is it offers job security to those that are currently on a standard one month's notice contract.
  2. A 15% salary cut, but in return you get a one year contract and provided the company "breaks even" in each month of the one year contract you get the salary cut back in that month and you get an extra 8% on top. In other words, if the company "breaks even" in the month you get 108% of your current salary. If it doesn't, then you get 85% of your current salary
  3. The same as above, but the cut is 20% and the upside is 117%.
  4. The same as above, but the cut is 25% and the upside is 125%.
  5. Do nothing. Simply keep your existing salary and contract.

All the options are voluntary. Option five is obviously the one that would leave a CLSA staffer most vulnerable to losing their job in the event that markets don't pick up.

How exactly would the other options work. If you take the fifth option, provided CLSA "breaks even" in six of the 12 months for which the scheme runs, you get 125% of your salary for those six months and 75% for the other six months, so effectively you take no salary cut at all, but you do get a one year contract (ie job security). The "break even" in question means the bank is breaking even after the upside payments are made to everyone in the scheme.

What must be said about the scheme is that it is a sensible way of aligning interests, much as partnership structures historically did in investment banks. It is predicated on a similarly sensible view that market conditions are tough and may not improve as quickly as many thought and thus control of employment costs will be vital. Yet it also recognises that simply cutting staff is not the solution, since it reduces the quality of what can be offered to clients. The move therefore endeavours to keep the firm at the same fighting weight at a lower cost; and in exchange offering staff the upside, if there is any.
Whether any other bank follows suit remains to be seen. It is certainly innovative.

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