UBS' move to slash bonuses for senior investment bankers addressed political pressure to curtail executive pay at a time of massive government bailouts. But it also created a problem for UBS: addressing concern among both clients and employees about the future viability of its investment-banking operations.

UBS last week decided to eliminate cash bonuses for executive directors and managing directors of its investment bank as part of a larger plan to reduce bonuses at UBS overall from about 10 billion Swiss francs ($8.63 billion) in 2007 to about two billion francs for last year. The move came under heavy pressure from the Swiss government, which reviewed a proposed bonus of three billion francs and lopped off one billion francs, according to people familiar with the situation.