The recent uproar about the 2011 compensation package for Barclays chief executive Bob Diamond should not have taken anyone by surprise. For the year ending December 2011, Diamond received some £20 million ($32.5 million). The amount is large and out of touch with the economic and political climate in the UK.
For 2011, Barclays awarded Diamond a bonus of £2.7 million: 200% of his salary. The £20 million package included a £5.7 million ‘tax equalization’ benefit and deferred share awards from previous years that vested in 2011.
In 2011, Barclays’ return on equity fell from a feeble 7.2% to an anorexic 5.8%. Diamond himself described that number as "unacceptable". Moreover, a 13% return-on-equity target for 2013 was dropped this February.
During 2011, the Barclays share price slumped by some 30%; since the heady days of 2007 – when John Varley and Bob Diamond came up with the inspired idea of acquiring ABN Amro – the share price has tumbled from £7.30 (June 1 2007) to £2.15. In other words, the share price is down 70% in under five years.
Of course, the financial services sector has been chastened since the 2008 crisis: all western bank shares are down. Nevertheless best-of-breed bank JPMorgan’s share price is down only 17% from its June 2007 level. Barclays’ senior managers are employees. They work for the owners of the business, who are its shareholders. Shareholders have lost more than two-thirds of their capital, so why is Barclays’ chief executive receiving any bonus for 2011, let alone deferred share awards? It seems to me that shareholder returns and senior management compensation are not properly aligned. But maybe I have fallen asleep and woken up on a different planet.
Big investors, such as Standard Life, were particularly agitated about Diamond’s ‘tax equalization’ pay-out, worth nearly £6 million, which was intended to ‘compensate’ him for exposure to double taxation on returning to London from New York to take up the chief executive role. A week before its annual general meeting, after a series of meetings with big shareholders, Barclays retreated. Diamond volunteered to forgo half his 2011 bonus until profitability had improved, while the bank promised to distribute a greater proportion of profits as dividends.
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| The bank’s remuneration committee should all be fired, starting with its head, Alison Carnwath, who has to be accountable for failing to read the tea leaves correctly |
This is a sad saga. I don’t understand it on so many levels. Barclays’ chairman, the garden-loving Marcus Agius, is compromised for not seeing the accident waiting over the horizon and not steering the board to a better outcome. The bank’s remuneration committee should all be fired, starting with its head, Alison Carnwath, who has to be accountable for failing to read the tea leaves correctly. Obviously, there was insufficient consultation with big shareholders before the award was announced. And as for Diamond, he must steel himself and appoint a few individuals to his inner circle who know how to say no. A source muttered: "Barclays seems to be suffering from a bad case of group think."
Diamond is talented and ambitious. Does he want his legacy to be all about egregious pay packages? I guarantee that if Diamond’s obituary were to be written today, there would be more than few paragraphs devoted to compensation controversy and excessive remuneration.
By my back-of-the-envelope calculations, after 30 years in investment banking Diamond has to have a net worth of at least £100 million. So to allow himself to be immersed in a distracting and destructive controversy about a £6 million tax equalization payment and an extra bonus payment of £1.3 million is petty verging on the peculiar. It does not come across as statesman-like, nor does it imply good judgement. It was no surprise that Diamond and his colleagues got a rough ride at the Barclays AGM in late April. The bank’s brand has been badly dented.