Phantom solution

20 August 2008 By Hugo Dixon Follow @hugodixon

Giving investment bankers phantom equity in their business and doing the same for the private wealth managers and fund managers should, in theory, improve incentives. But how will the phantom stock be valued? Unless that can be answered, the scheme won t fly.

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UBS is considering giving phantom equity to its employees allowing them to participate in the value creation of their business units, breakingviews has learned. A working group led by Juerg Haller, Chairman and CEO UBS Latin America, has been tasked with determining whether to initiate such a scheme and how exactly it would work by the fourth quarter of this year.

UBS said earlier this month that it would separate its wealth management unit, investment bank and asset management arm into three autonomous divisions. This separation would give UBS the flexibility to sell or spinoff the investment bank when markets recover, breakingviews has learned.

At present, many employees receive stock in UBS as part of their compensation. But the bank is now considering giving them phantom equity a currency that is linked to the performance of the business they work in – perhaps in addition to UBS stock.

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