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UBS Increases Investment-Bank Pay to Match Rivals

UBS, the Swiss bank that said last year it would cut 10,000 jobs to increase profit, is now boosting investment bank salaries to catch up with rivals and retain employees, said three people with knowledge of the plan.

UBS began informing staff of the raises this week, said the people, who asked not to be identified because the plan has not been made public. The average increase for employees in its advisory and trading businesses will be about 9 percent, one person said. Some of the Zurich-based workers may get as much as 25 percent, two of the people said.

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Switzerland's biggest bank expects to keep total compensation, which includes bonuses as well as salary, unchanged if business conditions stay the same, one person said. Average total compensation for senior employees at UBS trailed U.S. competitors including JPMorgan and Morgan Stanley in 2012, according to London-based salary data provider Emolument.

"UBS had frozen salaries for years, and it's trying to bring pay in line with the industry, particularly the U.S. firms" said Lee Thacker,  a partner at executive search firm Silvermine Partners in London.

Banks around the world have been cutting pay and limiting year-end cash bonuses in the wake of the worst financial crisis since the Great Depression.

Bond Payments

A spokesman at UBS in London declined to comment on the salary increases. The bank's 2012 bonus pool was cut 7 percent from a year earlier and some awards were paid in five-year bonds that can be wiped out if the company has a capital shortfall, UBS said in February.

Salary increases are 'one retention tool' according to Michael Karp, chief executive officer of New York-based executive search firm Options Group. "I don't know how much this is going to help, because they have to be competitive across the board," he added.

The salary increases will apply only to employees within UBS's investment bank, which is led from London by Andrea Orcel. There are no immediate plans to provide similar increases to employees of other divisions, such as the asset-management unit that includes the UBS O'Connor hedge fund. O'Connor has suffered defections in part because of the February changes to the company's pay practices.

The investment bank staff dropped to 12,544 at the end of March from 14,435 people a year earlier, according to figures in the firm's quarterly results.

Base Salaries

Banks have increased base salaries as a proportion of total compensation after regulators, including those in the U.K. and France, imposed curbs limiting immediate cash payouts. The firms are also paying a greater proportion of bonuses in deferred stock and other securities that can be clawed back.

The European Union in February agreed to a deal that will outlaw bonuses that are more than twice a banker's salary. While Switzerland is not part of the EU, many of UBS's investment bank employees work in London. Those covered by the EU's cap may get as much as 500 million pounds ($762 million) in base salary as a result, Andrew Bailey, the U.K.'s chief banking supervisor, estimated in March.

After reporting two consecutive quarterly losses in the second half of 2012, UBS posted first-quarter earnings that beat analyst estimates on higher revenues at the investment bank and in wealth management. UBS shares gained 20 percent this year after rising 28 percent in 2012.

"The investment banking part of their business was producing a substantial part of their profits," said Roy Smith, a finance professor at New York University's Stern School of Business. "It's kind of hard to downsize all of this stuff without throwing the baby out with the bathwater."

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