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By Katharina Bart and Steve Slater
ZURICH/LONDON, Feb 4 (Reuters) - A jump in bonus payments atSwiss bank UBS AG stoked criticism on Tuesday that aprevious cut was short-lived and banks have not learned lessonsfrom the financial crisis.
Banker bonuses drew intense criticism after the crisis whichpeaked in 2008 and 2009 for creating lucrative short-termincentives, tied to often ill-conceived products, whose failurecost banks and governments billions while leaving the bankersthemselves unscathed.
Yet as conditions in the banking sector improve, UBS andother banks argue they need to keep rewarding top performingstaff in areas such as merger and acquisition advisory, bondtrading or advising rich clients, or risk losing them to rivals.
UBS said it had increased its bonus pool for 2013 by 28percent to 3.2 billion Swiss francs ($3.5 billion), after a cutin 2012 when it was fined for rigging Libor interest rates.
It said it needed to reduce a pay gap between with otherbanks and said the increase was justified after a"transformational" year in which it swung to higher thanexpected net profit and surpassed most of its turnaroundtargets.
Critics said it showed little had changed after thefinancial crisis and argued banks were still paying staff toomuch, often at the expense of shareholders.
"It is offensive when bonuses outpace profits. It isn'treally comprehensible," said Roby Tschopp, head of activistshareholder group Actares.
Actares voted against UBS's pay plan last year and Tschoppsaid he didn't know how he will vote this year.
Thomas Zimmermann, spokesman for SchweizerischerGewerkschaftsbund, an umbrella organization for Swiss labourunions, said: "UBS is carrying on as if nothing happened.
"They have learned nothing from the public debate about theMinder initiative or the 1:12 initiative," Zimmermann said,referring to controls on executive pay introduced in Switzerlandlast year.
The Minder initiative gives shareholders a binding vote oncompensation, though voters rejected a proposal to limitexecutive pay to 12 times that of junior staff.
UBS's decision comes with the bonus season in full swing inEurope and follows payouts already announced at major U.S.banks. Bonuses in investment banking are expected to be mostlyflat to slightly lower, though some firms are raising pay.
BONUS HIKE
Bank of America and Morgan Stanley increasedaverage pay last year by around 7 percent, while pay in theinvestment bank arms of JPMorgan and Deutsche Bank fell.
Goldman Sachs cut average pay by 4 percent last year,although average compensation still topped $380,000 for its32,900 staff.
Top staff continue to receive multi-million-dollar awards,but more cuts could be on the cards for weak and averageperformers, especially in fixed income after a relatively badyear in that sector, bank and recruitment industry sources said.
UBS's bonus hike would lift average personnel costs to249,581 Swiss francs ($276,500) across the bank's 60,200 staff,up 3 percent from the year before. Chief Executive SergioErmotti said the bank had cut its absolute and relative paysubstantially in recent years and the rise for 2013 had "reducedgaps to market pay".
"We feel comfortable that we now have a normalisedcompensation framework for the entire bank that allows us to becompetitive and attract and retain the best talents," Ermottitold reporters on a conference call.
UBS is considering introducing an "allowance" system to helpcomply with European Union rules that will cap 2014 bonuses at100 percent of fixed pay, or double with shareholder approval,for his 5,600 staff in London and others in the EU.
"There are various options and it goes without saying one ofthose is to use allowances that are supplementary, and can beincluded in the fixed compensation framework," Ermotti said.
He said UBS would decide in the next couple of months thebest way to comply with the EU directive.
Rivals including Barclays, Goldman Sachs, HSBC, Bank of America and JPMorgan are also expected tointroduce monthly or quarterly role-based allowances that countas fixed pay but have more flexibility than salaries and are notpensionable.
UBS changed its compensation framework in 2012, which itsaid was to increase focus on long-term performance and wasaligned with creating attractive returns to shareholders.
It said the cost of performance awards in 2013 would be flatfor shareholders at 3 billion francs on an accounting basisafter amortisations and deferrals.
Yet critics of rich banker awards seem unlikely to beappeased by such reassurances. "It sends the wrong signal," saidZimmermann. "This isn't how banks should do business."
