Search

Credit Suisse Incentive Share Unit (ISU)

Following the integration of Credit Suisse’s banking business in 2005 and the launch of the integrated bank in 2006, we aligned our share-based compensation plans and introduced the ISU. This replaced compensation programs that existed in specific businesses and countries with a new Group-wide approach to compensation for all award grants for 2006 and 2007. ISUs, which represent the majority of awards granted subsequent to 2005, ensure a unified approach to sharebased compensation as it applies to all employees who receive a bonus above a certain threshold. Previously granted awards will continue to settle under their original terms and are not affected by the ISU.

An ISU is a unit that is similar to shares, but offers additional upside depending on the development of the Credit Suisse Group share price.

The ISUs granted in January 2008 and 2007 were based on 2007 and 2006 performance, respectively, and approximately 9,800 employees with an annual incentive bonus of at least CHF 125,000 were awarded ISUs each year with a mandatory deferral rate that ranged from 16% to 65% of the annual incentive performance bonus. In 2007, we increased the percentage of share-based annual incentive performance bonus, and any incentive performance bonus in excess of CHF 4 million was subject to 100% mandatory deferral.

For each ISU granted, the employee will receive at least one Credit Suisse Group share (“ISU Base Unit”) and could receive additional shares (“ISU Leverage Unit”) if the monthly average Credit Suisse Group share price increases during the three-year contractual term of the award as compared to the baseline Credit Suisse Group share price determined on the grant date. The final value of each ISU is paid in registered shares of Credit Suisse Group. The total number of shares received for each ISU will equal the final value divided by the share price at maturity (i.e., three years), however, holders will always receive at least one Credit Suisse Group share per ISU.

The total payout for each ISU granted in January 2007 is subject to a cap of three times the value of a Credit Suisse Group share at grant date (CHF 86.24 per share), which is reached at an average share price of CHF 132 for 2007 awards. For the ISUs granted in January 2008, there is no cap on the total payout of additional shares, however, the number of additional shares per ISU Base Unit is limited to a maximum of ten shares.

The ability to deliver the leverage component is achieved by spending 25% of the value of a share in respect of each ISU on a derivative instrument comprising a number of options. Any gains on these options will be paid to us in the form of Credit Suisse Group shares which will be used to settle the upside component of the ISU.

For the ISUs granted in January 2008 for 2007 performance and in January 2007 for 2006 performance, employees participating in the program received a number of ISUs equal to the amount of their deferred bonus divided by CHF 58.45 and CHF 86.24, respectively, which represents the daily volume weighted-average price for Credit Suisse Group registered shares for the five consecutive trading days on the SWX that ended on the grant date of January 22, 2008 and January 23, 2007, respectively.

Each ISU will vest at a rate of one third of a share per year over three years, with the potential additional shares vesting on the third anniversary of the grant date, depending on the development of the leverage component. Shares will be delivered for vested ISUs within 120 days of each vesting date. Settlement of ISUs is subject to continued employment at the Group and certain retirement arrangements.

The ISU programs for 2006 and 2007 performance include a provision that does not permit early retirement eligibility for employees that would otherwise qualify until two years from grant (the "two-year moratorium period").

On January 23, 2007, we granted ISUs of 26.7 million. The fair value of the ISU Base Unit was CHF 87.30 and the fair value of the 2007 ISU Leverage Unit was CHF 20.85. The compensation expense recognized in 2007 for these awards was CHF 1,159 million. The estimated unrecognized compensation expense related to these awards as of December 31, 2007, was CHF 1,530 million and will be recognized over a period of two years. None of the ISUs were vested as of December 31, 2007.

On January 22, 2008, we granted 46.4 million ISUs. The fair value of the ISU Base Unit was CHF 54.90, and the fair value of the ISU Leverage Unit was CHF 10.69. The fair value of the ISU Leverage Unit was based on a valuation using an expected volatility of 32.04%, an expected dividend yield of 5.46%, an expected risk-free rate of 2.45% and an expected term of three years. The recognition of accounting expense for the ISUs granted on January 22, 2008 began in 2008 and, thus, had no impact on the 2007 financial statements. The expected unrecognized compensation expense of CHF 2,839 million will be recognized over a period of three years, subject to early retirement rules.

Incentive Share Unit activities

2007ISU Base
Number of awards (million)  
Balance at beginning of period 0.0
Granted 27.2
Settled (0.4)
Forfeited (1.4)
Balance at end of period 25.4