Salz Review - Wall Street Journal

143
Salz Review
An Independent Review of Barclays’ Business Practices
participated in an LTIP based on Group-wide performance. The majority of
executives participated in individual business LTIPs, based on divisional financial
performance.
11.51 We found that Barclays’ LTIPs suffered a number of design issues. In particular,
other than for the Group LTIP, the link to divisional performance (such as the
performance of the investment bank) would not necessarily be reflected in equivalent
value to shareholders based on their interests in the Group as a whole. As one might
expect, this also did not necessarily help to embed Group-wide thinking and
behaviour. While the outcome of the schemes was highly variable (in some years
some individual business schemes paid out nothing), many interviewees suggested
that some KPIs were too easily achievable and were insufficiently effective in
promoting long-term value creation. The target payouts were linked to achievements
against medium-term plan, with the size of the potential pool at the discretion of the
Remuneration Committee. With hindsight it appears that certain of Barclays’ LTIPs
were overly generous. This was particularly the case in the investment bank, where
Barclays Capital’s LTIPs between 2002 and 2009 paid out an average of £170 million
each year to a changing group of approximately 60 people (in addition to salary and
bonus.)
11.52 There is a significant difference between the likely value assigned to these long-term
awards when first awarded and the actual payouts commencing three years later at
the conclusion of the performance period. Long-term incentive awards were given
a value at award of approximately 20% of the target maximum which an individual
could achieve. Between 2002 and 2009 the Barclays Capital LTIPs paid out
approximately 80% of the total possible maximum. This does not appear to have
been completely unexpected. In 2004 Barclays’ remuneration advisers showed that,
if Barclays Capital delivered its expected financial projections, then the LTIP would
pay out at close to maximum. And in 2007 analysis from an external adviser
suggested that, on different assumptions, the value at award figure could be over
three times higher at 67.5%. In future, the Remuneration Committee should give
careful consideration to ‘value at award’ to ensure that it does not distort pay awards
and disclosures.
11.53 The Kay Review (2012) 230 , spoke of the need better to align senior executives’
rewards with long-term value creation by paying performance incentives mostly in
the form of company shares. It argues for long retention periods. Up until the end
of 2012, half of Barclays’ investment bank LTIP awards were paid out in cash
immediately at the conclusion of the three-year performance period. 231 The other half
was paid in shares at the same time, with executives only required to retain the shares
for a twelve-month period after they vested. 232 Even after Barclays increased the 2013
vesting period to two years, it remains shorter than that of some of its peers:
Deutsche Bank’s deferred portion (minimum 60%) of LTIPs vests over four and
a half years; Goldman Sachs requires their managing directors to retain 25% of all
230 John Kay, The Kay Review of UK Equity Markets and Long-Term Decision Making, 2012.
231 In other words, the cash component of an award made at the start of 2009 would be available for pay out
in cash by early 2012
232 Barclays Group LTIP pays out 100% in shares, with 50% vesting immediately and 50% subject to a one
year retention period.