Salz Review - Wall Street Journal

Salz Review
An Independent Review of Barclays’ Business Practices
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awarded stock until retirement; while HSBC – with only a one-year performance
period – applies a five-year vesting period and a requirement to hold shares net of
tax until the participant retires. 233
11.54 In terms of the measures of performance, Barclays’ business level LTIPs have been
based primarily on a single business performance metric: variously return on riskweighted
assets (RoRWA), economic profit (EP) and return on regulatory capital
(RoRC). Any other adjustments (e.g., for behaviours) were entirely discretionary.
The exceptions to this (since 2011) are the RBB, Wealth and Group LTIPs. There
are practical difficulties with any individual metric, however. For example, with
RoRWA, the true extent of the risk involved is often not evident for a number of
years. Therefore we believe it important that any long-term incentives embrace a
small number of financial and non-financial measures, making adjustments for
broader behaviours as well as for the risks taken by the business, including conduct,
reputational and operational risks.
11.55 Barclays has announced some changes to its LTIPs through the Transform
Programme. We are encouraged by a number of these changes. From 2013 the
relevant business reference point will be Group-wide, the bank will introduce a more
balanced set of measures, and LTIPs will only be awarded to the Executive Directors
and members of the Group Executive Committee. However, we remain concerned
about the complexity of LTIPs; like any target based scheme they are susceptible to a
focus on particular targets which may not be sufficiently aligned with the building of
sustainable success. We hope that this will be taken into account by Barclays as it
conducts a more fundamental review of its LTIPs during the year ahead. At a
minimum, the scheme arrangements should allow the Remuneration Committee to
have the discretion to adjust award if they feel that payouts are inappropriate or
excessive relative to what was intended. We also note that the industry is increasingly
moving away from LTIPs, towards simpler and more transparent grants of equity.
Recommendation 24: Long-term awards
Long-term award structures should be simple and transparent, reflect financial
performance adjusted for risk, be linked to Group not individual business unit
performance, and apply to a small group of the most senior executives. The
Remuneration Committee should give careful consideration to ‘value at award’
to ensure that it does not distort pay awards and disclosures. The Board should
agree and apply principles for making adjustments for circumstances not
anticipated at award.
Control Function Pay
11.56 The independence of the functions responsible for the risk and control environment
(Risk, Compliance and Legal) is critical for the success of the business. However, for
Barclays employees in these functions – especially senior people – the variable
233 Only a few senior executives at Goldman Sachs receive long-term incentive awards, but all bonuses paid
out to managing directors are subject to this requirement.