Salz Review - Wall Street Journal

Salz Review
An Independent Review of Barclays’ Business Practices
140
11.40 Managers told us that, in practice, bonus allocations were determined by individual
financial performance. This was largely because there appeared to be no explicit
criteria for bonus decisions: they were truly ‘discretionary. ’ This view was reflected
in our interviews with Barclays’ employees and in our survey of Barclays’ staff.
Only 41% of respondents (and only 32% of respondents from the investment bank)
agreed that pay is clearly tied to performance. It seemed to us that a number of
managers appreciated the opaqueness; it enabled them to avoid having difficult
conversations with staff about relative and absolute performance.
11.41 Bonus decisions also appear to have been highly dependent on the judgment of
individual line managers. We were told that this created a culture which encouraged
individuals to follow their manager – resulting in complex dynamics around loyalty
and willingness to offer challenge. While relying on judgment can be appropriate, it
requires careful calibrations across managers, clear and role-specific guidelines on
how to make appropriate decisions, and significant support for managers to ensure
they perform this role effectively. It also serves to give individual managers
significant power.
11.42 Even where a balanced scorecard was used, for example in the Wealth business,
in practice the awards still remained overly linked to financial performance with
adherence to the right values consistently under-weighted. In our survey of
employees only 35% of staff agreed that the right behaviours are rewarded.
11.43 We are encouraged by proposals emerging from the Transform Programme.
We understand Barclays intends to improve its discretionary bonus arrangements by
emphasising desired behaviours through the introduction of a balanced scorecard
and behavioural assessment for all employees. Specificity around the elements
underpinning bonus decisions should improve the transparency of the process.
Although Barclays plans to base individual discretionary bonus decisions on the new
scorecard and behavioural assessment, it must work hard to articulate clearly the link
between the holistic assessment of performance and rewards. It will be challenging to
train line managers to make nuanced, rigorous and consistent judgments on
behaviours (see Section 10). We are encouraged by the bank’s intention to audit how
well the scorecard is implemented.
11.44 In order better to align employees’ interests with those of shareholders, banks
increasingly pay part of discretionary bonuses in shares and some are imposing
significant minimum holding periods. In 2011, Barclays paid around 40% of the
investment bank bonus pool in shares (approximately 25% in 2010). It is far from
clear how differently cash or share awards affect behaviour. Greater employee share
ownership seems desirable and may help to increase sensitivity to risk – important
given the intent to align more closely the long-term interests of the employee with
those of the bank. Yet many staff will consider that they have limited ability to
influence the share price and are already sufficiently exposed to the company. They
will therefore discount the value of share awards (more so where required holding
periods are longer). Moreover, shareholders are sensitive to the risk that share awards
result in over-emphasis on short-term performance to drive the share price.