Salz Review - Wall Street Journal

147
Salz Review
An Independent Review of Barclays’ Business Practices
11.64 It is essential that shareholders, the Board and the Remuneration Committee all have
confidence in the way in which management and the control functions operate the
remuneration process. As such, it might be useful for the Remuneration Committee
from time to time to commission an audit of the remuneration process, including the
implementation of the remuneration principles and the integrity of the underlying
performance management process. This will also provide some comfort that
discretion has been applied on a consistent basis.
Recommendation 26: Control functions’ review of compensation
Barclays should ensure that all its control functions have meaningful and direct
input into compensation decisions, making this input available to the relevant
Board committees.
11.65 Bank management typically have strong views on compensation. They often see it as
a key strategic lever – particularly in investment banks. Therefore the difficulty of the
remuneration committee’s role will vary according to the chief executive’s attitude to
pay. In Barclays’ case, there were times when the strong views of senior executives may
have made it more difficult for some Board members to address compensation issues to
their satisfaction. Problems are likely to arise whenever particular individuals become
apparently indispensable to the performance of the business. A remuneration
committee plays an important role in reviewing such cases and challenging such
arguments when made – but there are limits to its ability to second guess an executive
team and the senior HR executive on the risks of losing people who are key to the
business. Nevertheless, it is important that the Chairman and his colleagues are able
to challenge executive management and to rely on the senior HR executives to have
provided robust and well-considered advice to management.
11.66 Given the importance of compensation in banks as a strategic lever, it is desirable
that the Board as a whole is involved in critical decisions on remuneration, especially
where there are reputational issues.
11.67 From our interviews it appears that a number of shareholders have felt they have
been insufficiently consulted on remuneration issues. And, as we observed earlier,
more engagement with shareholders would also be useful. Shareholder
communication will be an important responsibility of the Remuneration Committee
Chairman.
11.68 We would also observe that, although the bank engaged remuneration consultants to
advise the Remuneration Committee, the practice of targeting top-quartile pay (to
attract top-quartile performers) is inherently inflationary. Too much emphasis may
have been placed on market benchmarks as a primary source of data rather than clear
measures of objective performance. We would prefer that the Remuneration
Committee has a genuinely independent remuneration adviser, with no role or
prospect of a role for the bank’s management. This would be required by its terms of
reference. However, the point was made to us that this would discourage leading
remuneration consulting firms from taking on such roles (or exclude them from
doing so). If the adviser is not fully independent but the Remuneration Committee