UBS AG (NYSE:UBS) has announced that 6,500 of its senior bankers will receive their bonuses in bonds, which could be wiped out if the bank fails to meet capital standards. The Financial Times reports that this new structure makes UBS the first bank to use European Union Commission recommendations in setting its bonuses. UBS has made sweeping changes in recent months in the wake of the Libor scandal.

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Last year, the union called for bonuses to be based on debt that could be either wiped out or converted to equity if the bank gets into trouble. Other banks like Credit Suisse Group AG (NYSE:CS) and Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) (AMS:RBS) have used debt instruments for their bonuses in recent years, although those cases were usually in connection with problem assets.

UBS AG (NYSE:UBS)’s bonuses will be different because they could be written all the way down to zero if the company’s regulatory capital fell under 7 percent, or if there was a non-viability loss. The Financial Times cites an anonymous source who said the bonuses will carry an interest rate based on the market at that time and will become completely vested in five years.

UBS could be the first of many European banks to switch to this type of bonus in an attempt to please regulators, employees and investors. The first set of bonuses to follow this plan will be handed out this year. Those bonuses are also going to be reduced by 5 percent or more and will reflect the $1.5 billion Libor manipulation fine the bank has to pay. This comes after last year’s 40 percent decrease in bonuses.

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