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Credit Suisse announces its compensation structure

Credit Suisse today announced its compensation structure for 2010, which determines how discretionary variable incentive awards are made to the Bank’s employees. Notable features of the 2010 compensation structure include a lower threshold for compulsory participation in the Bank’s deferred variable compensation programs and higher rates of deferral. The two instruments for deferred variable awards have been simplified and are share awards with no leverage and cash-based Adjustable Performance Plan Awards (APPA).

Long-term approach
Credit Suisse is committed to fair, balanced and performance-oriented compensation policies that align long-term employee and shareholder interests. Credit Suisse’s compensation practices make use of long-term vesting periods and deferred awards – including share-based awards – reflecting the Bank’s commitment to rewarding its employees for performing in a way that creates sustainable value for the Bank and its shareholders over time.

Dialog with regulators and shareholders
In light of the increased focus on compensation practices within the financial services industry since 2008, Credit Suisse has been in regular dialog on this matter with regulators globally and with its shareholders. In 2008, Credit Suisse began to critically review its compensation practices and fundamentally changed elements of its compensation instruments and processes for 2009. These changes were designed to ensure adequate consideration of risk in compensation decisions and to better align the interests of employees with the long-term success of the Bank. Against the backdrop of emerging regulation and market practices and in continuing dialog with regulators and shareholders, Credit Suisse has further modified its compensation structure for 2010.

The 2010 compensation structure
The structure for 2010 is based on Credit Suisse’s existing compensation principles and responds to shareholders’ feedback, regulatory initiatives and political as well as public concerns. The threshold for participation in the Bank’s deferred compensation programs is significantly lower than in the past, which means that more employees will have parts of their variable awards deferred. In addition, deferral rates have been increased, which means that a lower portion of employees’ variable awards will be made in cash. The two instruments for deferred variable awards are simpler than those used in the past, which means that there is greater transparency for all stakeholders.

Overview of key features
The changes announced today apply to variable awards made for the year 2010. The most important features of the compensation structure for 2010 are:

A. Eligibility and structure for deferred variable incentive awards
The threshold for participation in deferred compensation programs has been lowered significantly from CHF 125,000 to CHF 50,000 in variable awards. This means that more employees than before will be subject to restrictions in their variable awards. Deferral rates have been increased to a range of 35% to 70%, which means that a lower portion of employees’ variable awards will be in cash.

B. Deferred variable awards
Deferred variable awards granted to members of the Executive Board, Managing Directors and Directors will be in the form of (1) share awards and (2) Adjustable Performance Plan Awards (APPA), as explained below. 50% of the deferred variable awards for this population will be in each form. Employees below the level of Director whose variable awards are deferred will have 100% of the deferred amount granted in shares.

1) Shares granted as part of 2010 variable awards will vest and be delivered over four years on a pro-rata basis between 2012 and 2015. The upside and downside potential is based solely on changes in the Group’s share price over four years. In contrast to the share-based instruments used in previous years (Incentive Share Units, ISU, and Scaled Incentive Share Units, SISU), the share awards for 2010 have no leverage features based on future performance of the Bank.

2) APPA are cash-based awards that will vest and be delivered over four years on a pro-rata basis. Outstanding awards will be adjusted upwards or downwards based on Credit Suisse’s return on equity (ROE) each year from 2011 to 2014. However, should a division be loss-making in one or more years between 2011 and 2014 outstanding awards for employees of that division will be adjusted downwards even if Credit Suisse's ROE is positive. The maximum upside of the proportion of variable awards granted in APPA will be the cumulative return on equity over the vesting period. The maximum downside is 100%.

Consistent with prior practice, Credit Suisse deferred variable awards contain a general provision that enables the Bank to cancel outstanding awards made to employees in the event they engage in activities that result in, or have the potential to result in, material harm – financial, reputational or other – to the Bank. Additionally, the cash component of awards granted to Managing Directors in the Investment Banking division is subject to full or partial repayment on the occurrence of certain events such as voluntary termination of employment within two years.

While Credit Suisse applies its compensation structure on a global basis, some variations to the terms of variable awards do exist to adhere with local requirements. A detailed description of the 2010 compensation structure will be included in the Annual Report 2010.