Salz Review - Wall Street Journal

137
Salz Review
An Independent Review of Barclays’ Business Practices
performance than downward in response to poor performance. Consequently,
compensation at the investment bank as a percentage of pre-compensation profit
before tax increased from 51% to 62% between 2009 and 2011, dropping to 53% in
2012, and compensation as a percentage of net income increased from 41% to 47%,
dropping to 41% again in 2012. 216
11.29 At Barclays, fixed pay as a proportion of total compensation has changed
significantly, increasing on average from 65% in 2010 to 76% in 2012 across the
Group. This shift has been even more pronounced in the investment bank where
average fixed pay has risen from 25% in 2007 to 59% in 2012, and from 6% in 2007
to 32% in 2012 for managing directors only, reflecting both absolute increases in
fixed pay and significant reductions in average bonus.
11.30 EU legislation, currently being finalised, on the ratio of variable to fixed
compensation in banks is likely to reinforce this – particularly in the UK where,
according to a recent Towers Watson estimate, 89% of those likely to be impacted
work. 217 The proposal is to cap bonuses at 100% of salary (200% with shareholder
approval). 218 At the time of writing it is unclear how these regulations will be
formulated, especially given the complexity of the issue (e.g., how non-cash elements
should be considered, and to which staff the legislation should apply). Nonetheless it
is likely that it will result in further increases in fixed pay to offset the cap, reducing
bank flexibility with respect to its cost base and arguably therefore increasing risk.
Additional potentially unintended consequences include less opportunity to reduce
pay for under-performance and a lower proportion of pay being available for malus.
It is also possible that, in order to maintain their competitiveness with US and Asian
banks, European banks will look for ways to lessen the adverse impact of the
restrictions on their US and Asian businesses – which may have the unfortunate
collateral effect of reinforcing the public view that some banks always try to game
the system.
11.31 We now look at Barclays’ three main incentive schemes:
― Formulaic retail schemes, which apply to customer facing staff ineligible for
discretionary bonuses (approximately 38,000 staff in 2012);
― Discretionary bonus schemes, which apply to all other staff (approximately
106,000 staff in 2012);
― Long-Term Incentive Plans, which have historically applied to a group of
approximately 200 senior executives, and from 2013 only apply to Executive
Directors and members of the Group Executive Committee.
216 Both PBT and net income are calculated excluding own credit.
217 Towers Watson, “Update on CRD IV – Remuneration”, 28 February 2013; see:
www.towerswatson.com/DownloadMedia.
218 Recently agreed EU proposals under the EU Capital Requirements Directive IV (CRD IV) which are
expected to be approved by EU member states and the European Parliament plenary in mid-April 2013.
January 2014 has been suggested as the date for implementation.