By Jenny Strasburg and William Wilkes 

FRANKFURT -- Deutsche Bank AG said Wednesday that many managing directors and other senior employees won't receive individual bonuses for 2016, reflecting higher legal costs and other hits on the bank's profits.

The German lender's management board said in a memo to employees that "tough measures are unavoidable" because the bank is cutting thousands of jobs and withholding dividends from shareholders.

Anticipated bonus cuts have fueled concerns in recent weeks about a loss of talent from Deutsche Bank, employees, recruiters and rival bank executives said. Analysts and investors have wanted Deutsche Bank to balance limiting pay while holding on to bankers, traders and other staff who drive profits.

The bonus issue is far from clear-cut, though. Deutsche Bank didn't provide total 2016 pay figures or say how much money the cuts would save the lender. Executives will provide more details when they report year-end financial results including compensation figures. Overall compensation is expected to decline by hundreds of millions of dollars from 2015, according to analyst estimates and people familiar with the matter.

Of more-senior employees, a "limited number" seen as too important to lose will receive other incentives, partly in cash and partly in Deutsche Bank share allotments with performance-based triggers. But these "special long-term incentives" won't pay off until 2020 at the earliest. Around 5,000 employees will receive these incentive awards, people familiar with the matter said.

This week Deutsche Bank agreed to final terms of a $7.2 billion settlement with the U.S. Justice Department to resolve long-running mortgage-securities probes -- its highest-profile legal bill, but not its only one. The bank is also still cutting back businesses and severing clients in a multiyear revamp it started in late 2015.

The bonus cuts will mainly affect about 25% of the bank's workforce, or about 25,000 people, most of them vice president-level or higher, according to the memo to employees that Deutsche Bank made public. It was signed by Chief Executive Officer John Cryan and the management board's 10 other executives, who have waived their own bonuses for 2016 after foregoing bonuses last year.

Last year, Deutsche Bank paid about $2.6 billion in bonuses. That compared with more than $8 billion in fixed pay. Year-to-year comparisons are inexact because portions of cash and share payments are held back to varying degrees, and the bank has made fixed salaries a greater proportion of pay for more employees. Deutsche Bank in past years has been known for generous bonuses, at times a powerful tool for recruiting from rival banks, but also criticized by some current executives for no longer being justifiable considering the bank's performance.

The bulk of Deutsche Bank's massive junior-level workforce isn't much affected by this year's cuts, in part because most of their pay comes from preset salaries rather than variable bonuses. The memo said there are so-called "recognition awards" for junior employees. A limited bonus pool based on overall company performance will still be paid, as will bonuses the bank is obligated to pay by contract, employees were told.

"We have taken this tough decision because it is the right thing to do," the executives told staff in the memo. "We plan to return to our normal compensation programs for the year 2017."

One bank headhunter said some Deutsche Bank employees focused Wednesday on the meager 2016 cash payouts expected this year, a stark change from past years.

The deferred incentives that will go to a minority of vice presidents, directors and managing directors are lost if an employee receiving one leaves the bank voluntarily, people familiar with the terms of the payments said.

Mr. Cryan, who's attending the World Economic Forum in Davos, spoke with managing directors by telephone Wednesday to explain the bonus decisions. One point he emphasized is that deferred compensation from previous years will be paid out as expected this year, according to one person familiar with what was said on the call.

Write to Jenny Strasburg at jenny.strasburg@wsj.com

(END) Dow Jones Newswires

January 18, 2017 12:58 ET (17:58 GMT)