Salz Review - Wall Street Journal

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Salz Review
An Independent Review of Barclays’ Business Practices
term incentive plans, which until very recently used only financial measures
of performance.
11.6 Outside Barclays, we observed with interest alternative approaches to pay which
tended not to emphasise financial reward as the primary motivator of employee
behaviour. Some companies emphasise collective achievement through a firm-wide
profit share scheme; others pay bonuses only for exceptional performance. These
pay models serve to reinforce – as well as being products of – their companies’
distinctive cultures. They explicitly value the performance of the team over the
individual, they tend to balance better the long term objectives of the company, and
they amplify the message that higher pay is not the only form of reward. Personal
responsibility and a sense of purpose can produce superior results and a better
alignment to stated values than purely financial incentives. Taken in the round, these
examples capture the approach to rewards that we would favour for Barclays over
the long term (see Appendix B for further discussion).
Exhibit 8. Examples of Other Pay Models
Common wisdom is that companies perform better by offering staff a financial
incentive for their performance. However, not only has a significant body of academic
research cast doubt on that assumption, but many leading companies have succeeded
while being far less reliant on pay as a performance lever. Prominent examples of
alternative models include:
- Employee profit share schemes at UK department store John Lewis and
European banking group Handelsbanken; 202
- Absence of individual incentives for retail staff at Apple, which nonetheless
achieves the highest sales per retail square foot in the world; 203
- Absence of individual incentives for staff at Southwest Airlines, which is
consistently the cost, productivity and customer service leader in its industry; 204
- Elimination of individual sales goals at GlaxoSmithKline in the United States and
replacement by assessment of three factors: sales competency, customer
evaluation, and overall business unit performance. 205
11.7 Because it is difficult to understand fully the subtleties of the behaviours they
generate, it is hard to use incentive schemes alone to drive appropriate behaviours.
Incentives tend to cause employees to focus narrowly on the outcomes directly
rewarded by the scheme (or what employees believe will be rewarded) – as the
alleged mis-selling of PPI demonstrates. So it may be possible to use incentives to
drive sales of retail bank products; but it is far harder to design incentives which
encourage the sellers at the same time to consider whether the product is suitable.
11.8 As a universal bank embracing many different businesses, Barclays’ approach to pay
must reflect the fact that the skills, attributes and market pay rates of staff in
202 See www.johnlewispartnership.co.uk; Jeremy Hope and Steve Player, Beyond Performance Management, 2012.
203 The New York Times, “Apple’s Retail Army, Long on Loyalty but Short on Pay”, 23 June 2012.
204 Hope and Player, Beyond Performance Management.
205 GlaxoSmithKline, “GlaxoSmithKline implements next phase of new incentive compensation program for
US sales representatives”, press release, 5 July 2011.