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Jefferies Vows Immediate Cash Bonuses as Big Banks Defer

December 12, 2012

Jefferies Vows Immediate All-Cash Bonuses as Bigger Banks Defer

Jefferies Group Inc., which had $34.4 billion in assets as of Aug. 31, isn’t subject to the same Federal Reserve oversight as larger rivals, some with more than $1 trillion in assets that must comply with stricter capital requirements and risk-curbing rules. Source: Jefferies Group via Bloomberg

Jefferies Group Inc. (JEF:US), the investment bank selling itself to Leucadia National Corp. (LUK:US), will pay employees year-end bonuses in immediately available cash.

Jefferies also is extending so-called garden leave, the period workers must wait before joining competitors, Chief Executive Officer Richard Handler and executive committee Chairman Brian Friedman said in a Dec. 7 staff memo.

Paying immediate cash sets Jefferies apart from some competitors as Wall Street seeks to curb compensation costs. Morgan Stanley capped 2011 cash bonuses at $125,000 and deferred an average of 75 percent of payouts, up from 40 percent two years earlier. Zurich-based Credit Suisse Group AG awarded a portion of 2011 bonuses for more than 6,000 bankers in bonds backed by derivatives that will pay out over several years.

“It is no secret that virtually every one of our bank holding company competitors is forcing onto their employees extremely high levels of non-cash compensation with long vesting periods or compensation in the form of cash to be received well into the future,” Handler and Friedman wrote. “You can’t spend non-cash compensation or unpaid cash to buy a home, purchase groceries, invest in your life or help out friends and family.”

Richard Khaleel, a spokesman for New York-based Jefferies, said the company had no comment on the memo.

Risk Rules

Jefferies, which had $34.4 billion in assets (JEF:US) as of Aug. 31, isn’t subject to the same Federal Reserve oversight as larger rivals, some with more than $1 trillion in assets that must comply with stricter capital requirements and risk-curbing rules. Regulators have urged banks to defer more compensation, arguing that it will discourage employees from taking risks that pump up their current pay while hurting the company later.

“We cannot commit to do this every year, but we will attempt to continue this new practice going forward,” Handler and Friedman wrote.

Jefferies drew investor scrutiny last year when its stock lost almost half its value, as the failure of MF Global Holdings Ltd. amid Europe’s debt crisis fueled speculation that Jefferies also might topple. Last month, the company agreed to be acquired by New York-based Leucadia, its biggest shareholder, in a $2.8 billion deal that both firms said would make the investment bank better able to weather market turmoil.

Handler, Friedman and other senior managers at Jefferies declined bonuses for fiscal 2011.

Jefferies climbed 1.4 percent to close at $18.35 in New York. The stock has gained (JEF:US) 33 percent this year.

Clawback Policies

Bank of America Corp. (BAC:US) limited some cash bonuses for 2011 to $150,000 and London-based Barclays Plc (BARC) capped some at 65,000 pounds ($105,000). Deutsche Bank AG (DBK) said in September it would increase the deferral period for senior managers’ stock bonuses to five years from three, and would let all shares vest at the end of that period, instead of in pieces earlier. Co-CEO Anshu Jain called on shareholders to push other banks to do the same.

Jefferies allowed employees to choose between receiving last year’s bonuses in stock, or in cash at a 25 percent discount. The memo didn’t say that cash bonus payments for 2012 would be discounted. The firm will maintain clawback policies on year-end compensation if an employee leaves for a competitor, a provision established for 2011, according to the memo.

While last year’s clawbacks were limited to employees who left for a competitor a year or less after payment, this year’s policy allows the firm to reclaim a portion of the bonus for as many as four years.

‘More Dilution’

Jefferies may be the only bank that pays this year’s bonuses all in cash, Rose Marie Orens, a senior partner at Compensation Advisory Partners, said today in an interview on Bloomberg Television’s “Market Makers.”

“When you do the deferrals, beside putting off the compensation to a future period, the fact that you’ve put them into equity means that you are placing more equity and more dilution outside of the company,” she said. “You’re going into an acquisition, you want to clear off as much of that is possible.”

Compensation costs for the 12 months ended Nov. 30, 2011, were $1.48 billion and costs associated with restricted stock as part of year-end pay were $64 million, according to the company’s annual regulatory filing.

Jefferies set $1 million salaries for Friedman and Handler, 51, who has led the firm since 2001, along with annual bonuses of as much as $12 million apiece, according to a September filing. The sums apply for 2013 through 2015, and the executives also will receive as many as 830,140 shares each of restricted stock annually in that span.

To contact the reporters on this story: Lisa Abramowicz in New York at labramowicz@bloomberg.net; Laura Marcinek in New York at lmarcinek3@bloomberg.net

To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net; Rick Green at rgreen18@bloomberg.net


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Companies Mentioned

  • LUK
    (Leucadia National Corp)
    • $23.84 USD
    • -0.28
    • -1.17%
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