(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own)
By George Hay
LONDON, Aug 14 (Reuters Breakingviews) - David Walker has a
golden opportunity. Barclays’ (BARC.L) incoming chairman wants
to reform the UK bank’s freewheeling bonus culture, epitomised
by the king-sized pay packets of former chief executive Bob
Diamond. Often, the mere talk of pay restraint prompts an exodus
of traders heading for more spendthrift competitors. But Walker
has key advantages.
Following the furore over Diamond’s intended 2011 bonus,
Barclays found itself in investors’ bad books. But many other
investment banks found themselves in a similar place. UBS
UBSN.VX and Credit Suisse CSGN.VX both suffered hefty
protest votes, while Citigroup (C.N) shareholders voted against
its remuneration report. With the investment banking slowdown
looking structural, it’s unlikely that disgruntled Barclays
investment bankers would have too many places to go should they
dislike Walker’s proposals.
Besides, Barclays currently appears more generous than
peers. In 2011, total compensation was 47 percent of income in
its investment bank, Barclays Capital, above the average 41
percent for big peers like JPMorgan (JPM.N), Goldman Sachs
(GS.N) and Morgan Stanley (MS.N). Barclays’ compensation ratio
could at least fall into line with rivals.
The Long-Term Incentive Plans (LTIPs) of Barclays’
executives are also ripe for reform. As things stand, Barclays
bosses’ LTIPs give share grants of up to five times salary –
though they are deferred for a three year period and can be
clawed back if things turn sour. HSBC’s (HSBA.L) clawback period
is five years, and its bosses cannot sell the shares unless they
retire or leave. Another way to encourage prudence might be for
Barclays to grant debt as well as equity instruments as part of
the overall pay package.
Barclays could take a further step. Back in May investor
anger pushed the bank into making half of Diamond’s annual bonus
contingent on the bank at least exceeding its 11.5 percent cost
of equity by the end of 2015. Walker could argue that all awards
should be contingent on economic returns. Walker himself
suggested in his 2009 review of UK corporate governance that
executive rewards be based on an ability to generate economic
profit. He can now practice what he preached.
Investors, regulators and politicians – to say nothing of
public opinion – expect Walker to adopt a progressive position
on bankers’ pay. Judging by the comments he has made since
accepting the Barclays post he has just those intentions. He now
has the opportunity to strike while the iron is hot.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- Reform of Barclays’ remuneration culture is “partly a
question of level and partly of structure”, the UK lender’s new
chairman told the Sunday Telegraph. on Aug. 12.
- David Walker’s review into banks’ corporate governance in
2009 said that bonus pools should be determined by reference to
economic profit rather than revenue.
- Reuters: Barclays shares rise as Walker comes in to clean
- For previous columns by the author, Reuters customers can
click on [HAY/]
(Editing by Robert Cole and David Evans)
Keywords: BREAKINGVIEWS BARCLAYS/
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