Swiss bank UBS is set to make corporate reputation a key factor when determining the bonus paid to its CEO, Bloomberg has reported.

After huge writedowns from subprime mortgage investments, mass job losses and scandals relating to tax evasion and unauthorised trading, UBS has – like many banks around the world – taken a severe reputation hit since the global financial crisis unfolded in 2008.

According to the Bloomberg report, UBS chairman Kaspar Villiger said that the CEO’s performance would not be assessed by profit alone, but will also be based on client and staff satisfaction, media coverage and the achievement of targets for cutting risk-weighted assets. Villiger acknowledged that some of those criteria could not be measured by relying on quantitative data: “There will have to be a discretionary element… It can’t be done just by a computer program.”

It makes a lot of sense for banks to recognise the intangible value of reputation and to begin to focus on managing it properly. But I’m not sure if this is the right way to go about it.

Firstly, we need to realise that it is not just investors and clients who form a concept of a corporation’s reputation. Employees, members of the public, governments, regulators and the media all have their parts to play too. Indeed, their reactions may actually help to frame those of the investors and clients too. In the wake of the global financial crisis, the tide of public and media opinion (and, consequently, political opinion) is decidedly against the bonus culture in the financial sector. Many people don’t see why chief executives at businesses that appear to have failed miserably and caused massive damage to the economy should be rewarded. In other words, bankers’ bonuses per se equal negative reputation. And awarding the CEO a bonus – even one which is calculated, in part, on how much improvement has been made to the bank’s reputation – may attract adverse publicity and further damage the bank’s reputation.

Secondly, UBS needs to ensure that reputation management and awareness is not treated as a temporary issue, but is permanently built into the corporate structure – not just at the higher end, but throughout the organisation. Perhaps there is a parallel here with Twitter’s Innovator’s Patent Agreement, detractors of which speculated that it was more of an opportune branding exercise than an enduring guarantee.

Nir Kossovsky of Steel City Re, who first pointed this story out to IAM, argues that UBS’s commitment is sincere. “I think it comprises an authentic effort to factor a major source of value into the CEO's compensation in order to align his interests with that of other equity holders,” he says. “283 of the S&P500 companies now disclose reputation risk to be material - that's up from only 40 three years ago. I cannot envision any scenario where a company, having taken steps to mitigate reputation risk, would declare ‘mission accomplished’ and unwind the solutions. It is as unlikely as a firm scrapping fire doors and sprinklers only because the building had not (yet) burned down.”

Intentionally giving up on reputation management is one thing. But it doesn’t seem impossible that a company that claims to have a focus on well-managed reputation at one point in time might let things slip further down the line. That looks to be what happened to BP, which extolled the virtues of honing a good reputation, but was later found to have its finger utterly off the pulse after the Deepwater Horizon incident.

Kossovsky points out that that generally speaking businesses still don’t know whether to think about reputation as an outcome of business practices or a perceptual invention of stakeholders. “The answer is that it’s both, but the first drives the latter,” he says. UBS has seen that it needs to make changes to the way it does business, and if they get it right a good outsider perception should follow. But with the banking sector’s reputation already in the pits, it needs to be prepared to play the long game.

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