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Barclays PLC (BCS) Thursday said Chief Executive Bob Diamond will to tie half of his long-term bonus awards to the U.K. bank's future profitability, as the lender looks to quell rising shareholder anger over pay ahead of its annual general meeting.
Diamond and group Finance Director Chris Lucas will forgo 50% of their deferred bonuses, which are paid out over three years, until Barclays' return-on-equity exceeds its cost-of-equity, the bank said. If the condition isn't met within the three-year time frame, the potential payout--which amounts to GBP1.35 million for Diamond and GBP900,000 for Lucas--will be scrapped, the bank added.
The move follows recommendations from influential shareholder advisory bodies--the Association of British Insurers and the Pensions Investment Research Consultants--that stakeholders should consider voting against Diamond's nearly GBP15 million pay package. Pirc criticized the payout, which includes a GBP5.7 million tax bill paid on Diamond's behalf, saying it was unwarranted in a year when the group saw its net profit drop 8% and its share price fall by around a third.
In its statement, Barclays said that its 2011 returns were "unacceptable" and re-iterated its goal to hit a target of 13% return-on-equity as soon as possible. In 2011, the bank clocked in a return-on-equity of 5.8%. "Barclays is fully committed to ensuring that a greater proportion of income and profits flow to shareholders notwithstanding that it operates within the constraints of a competitive market," the company said.
Barclays' olive branch to shareholders comes as the lender attempts to avoid the fate of Citigroup Inc. (C) Chief Executive Vikram Pandit, who saw his pay package rejected by investors earlier this week. Corporate governance advisers had criticized Citigroup's plan because it failed to closely link pay to performance. Shareholders subsequently made their feelings clear in a non-binding vote.
This trend of increased shareholder activism over remuneration is likely to continue, said Vivek Raja at Oriel Securities. "Since 2007 bank dividends have tended to fall while executive pay has held up," Raja added.
Barclays' move seemed to placate some institutional shareholders. "Barclays have responded constructively to our concerns, and we now intend to support the remuneration report at next week's AGM," said Guy Jubb, global head of governance and stewardship at Standard Life Investments, which owns a 2% stake in Barclays.
However, it is unclear whether other minority stakeholders will be so accommodating.
In the U.K., anger over executive pay is running particularly high following a series of taxpayer-funded bank bailouts. The U.K. government has pumped a total of GBP65.5 billion into Royal Bank of Scotland Group PLC (RBS) and Lloyds Banking Group PLC (LYG). In 2011, shares at both banks tanked, and the CEOs of the two institutions forwent their bonuses. This left Diamond as one of the U.K.'s best-remunerated bankers and the cheerleader for executive pay, a privilege that has earned him sustained scrutiny by the U.K. press.
Diamond is widely known in Britain for defending banker pay during a series of heated interviews with parliamentary commissions during the height of the financial crisis. Recently, Diamond has attempted to reconnect with the British public by stressing the bank's "citizenship" credentials and lending track record to small businesses.
However, the attempt by Barclays to woo the U.K. public was largely undone in February when the U.K. Treasury blocked the bank from implementing what it called two "aggressive" and "highly abusive" tax shelters that would have cost the government GBP500 million in lost revenue.
- By Max Colchester and Marietta Cauchi, Dow Jones Newswires; +44 207 842 9241