Banker bonus of 1 million USD is no longer what it was
How exactly equal bank bonuses? New European Union rules require that only part of bankers bonuses, retention of another, and others may even need to be returned. Therefore, according to calculations of Reuters Breakingviews, the present value of the bonus of $ 1 million may be less than 800 thousand dollars, write a blog published by Reuters Hugo Dixon and George Hay. The starting point must be how much money it will take a banker in the cache. The new rules require 40 to 60% bonus to postpone the payment within 3 to 5 years. Moreover, half of the bonus paid immediately should not be in the form of cash. This means that you can get at most 30% of the amount in cash. For bankers with big bonuses, however – those over $ 1 million, you should have deferred consideration of over 60 per cent. Therefore, a maximum of 20% or 200 thousand dollars from $ 1 million bonus will be received immediately in cash. The next step is to calculate how much you can get a banker in the future. In the above case this means deferred bonus of 600 thousand dollars, half of which can be paid in cash. This amount, of course, must be discounted considering the risk of withdrawal of bonus due to poor performance, and postpone payment. Assuming a 5 percent risk of withdrawal of bonus each year and if you put a discount rate of 4 percent over the present value of money over a period of five years bonus declined from 300 to 213 thousand dollars.
Now look at the part of the bonus is not paid in cash. Some immediate, or 200 thousand dollars may be paid in conditional capital – a financial instrument similar to debt instruments, which turns into shares in times of crisis. It can not be cached for a certain period of time. This means that it is likely that deferred 300 thousand dollars to come in the form of ordinary shares. Bankers will hardly find a way to escape the risks. The risk of loss is far greater even than that of cache. Therefore, assuming that there are two discount factor of 5% per annum. If this conditional capital is held two years, then its value would be 165 thousand dollars. Shares that are retained for four years then, would cost 205 thousand dollars. When we all will see that the value of bankers’ bonus of $ 1 million declined to only 783 thousand dollars. While many people might think that it’s much the bankers it will inevitably be hit very hard material ends.
Tags: Banker bonus, bonus, conditional capital, debt instruments, financial instrument, money, Money USD, USD