[ by Howard Haykin ] Deutsche Bank adopted an unusual and unique compensation plan involving clawbacks, but with an interesting twist.  Not surprisingly, Deutsche is the first global bank to introduce rules allowing it to strip staff of bonuses they earned at previous employers. In this latest crackdown on pay, Europe's largest lender (in terms of assets) has significantly tightened its bonus rules this year.  The plan further enables Deutsche Bank to take back unvested shares that newly hired senior staff received in exchange for stock earned at another bank. What The Consultants Say. The plan or rule is unusual as well as unique to the banking world.  Yet, it has the potential to become a blueprint for rivals - after all, European banks are under pressure from investors, politicians and regulators to hold employees accountable for illicit or loss-creating behavior by clawing back their bonuses more frequently. UK banks - including HSBC , RBS, Lloyds - have been among the most active users of clawback rules, which came into force in 2009.  RBS, which is 82% owned by the U.K government, has taken back bonuses from about 35 individuals, while HSBC has done so in more than 10 cases. Meanwhile, Swiss bank UBS, the first global bank to introduce clawbacks in late 2008, said it withheld SFr204mn of deferred awards in 2011, alone. Pay experts expect the use of clawbacks to rise sharply this year following a string of recent banking scandals, including the manipulation of Libor and AML violations.  One big European bank told FT it was reviewing hundreds of new cases that were likely to result in bonus cuts. Clawback rules allow banks to ... reduce or eliminate the deferred parts of bonuses that have not yet paid out.  They can do so if the profits generated by an individual or division fail to measure up to expectations held when the award was made.  Recent high profile examples include JPMorgan Chase, which clawed back bonuses from employees at the center of a $5.8 billion trading loss in the London trading office.  Lloyds also cut awards for former executives in light of violations associated with forced selling of payment protection insurance. Deutsche Bank's new Co-CEO Anshu Jain recently said he wanted to position the lender “at the forefront” of a cultural change that includes reforms to investment bankers’ pay.  “We firmly believe that the industry as a whole will have to change its compensation model,” the former head of Deutsche’s investment bank said last month. The German banks’ stricter bonus rules, which became effective in January, apply to all new senior hires considered to be involved in the bank’s risk-taking, a spokesman said.  All told, the rule impacts over 1,300 “regulated employees“ - including MD's in the corporate and investment bank, and members of the management committees of all other units. Difficulty in Attracting Senior Talent. The biggest for banks with adopting such a clawback plan is that it could make it harder for Deutsche Bank to attract senior talent as the potential job candidates might not be willing to put at risk stock earned at a previous  bank.

[C-I Note: And, therein lies the reason for all banks to align their policies and procedures with regard to compensation.  They must adopt a united stand on clawbacks.  One would think that, with all the great minds in the business, investment banks could surely devise compensation arrangements that stand apart from rival banks - while still allowing for clawbacks.]

For further details, go to:   [Financial Times, via CNBC, 8/26/12].