Salz Review - Wall Street Journal

145
Salz Review
An Independent Review of Barclays’ Business Practices
component of pay was significant and dependent on the performance of the
business. It appears that their performance assessment and variable remuneration
decisions were largely determined by their front-office counterparts. This reflected
the fact that the primary reporting lines for some functions were to business unit
chief executives. Under certain circumstances, this could be construed as a conflict of
interest, although we should note that the Group Centre functions also provided
input to these decisions, with their influence varying by function. Given the role of
HR and Finance, many of the same considerations should apply to these
functions too.
11.57 Barclays has recognised the disadvantages of the current structure and is now
changing the dual reporting lines for control functions so that the hard line is to
Group functions (see Section 12).
Recommendation 25: Control functions’ incentives
The design of incentive schemes for the control functions should avoid
potential conflicts of interest, such as an interest in business unit profitability;
this may require a higher proportion of fixed remuneration. Barclays should
develop specific performance measures related to successful achievement of the
control functions’ objectives and these should form a significant element of any
incentive arrangements.
Remuneration Governance
11.58 Remuneration governance is primarily overseen by the Board Remuneration
Committee. In line with good practice, the overarching purpose of the Committee is
to develop and oversee an overall remuneration policy and philosophy that is aligned
with Barclays’ long-term business strategy, objectives, risk appetite and values. The
Remuneration Committee must be given all the information necessary to exercise
rigorous and independent judgment on the operation of the compensation system.
This will include appropriate market benchmarks, analyses of discretionary pay
relative to profitability, the correlation of discretionary pay to performance evaluation
grades, application of malus and adjustments made for risk. This will assist the
Committee in determining how well the compensation system delivers appropriate
pay outcomes, motivates appropriate employee behaviour, improves the wider
culture in the bank, influences the firm’s current and future financial condition, and
impacts its level of risk. It needs the power to make discretionary adjustments as it
feels appropriate. This focus on strategic principles has not been evident at times and
Barclays has often been slow to identify undesirable outcomes and to change the
compensation system accordingly.
11.59 The governance of pay is particularly challenging; according to the Barclays Board
evaluations, compensation strategy has been one of the top concerns for the Board
for the last four years. Remuneration issues in a bank are particularly complex and
quite unlike any other industry in having a very large number of extremely well-paid
employees, significant regulatory requirements and important risk issues. Indeed,
when remuneration committees were first established, they were designed to set the