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Over 800 shareholders heard Barclays’ (LSE:BARC) Chairman, Sir David Walker say exactly that this morning at the banks AGM at Royal Festival Hall today. In fact, what he said was, “”Bonuses up, profits down. Not a headline we would have chosen.” I beg to differ, as I usually do. I would most respectfully submit that Sir David and CEO Antony Jenkins have the full authority to prevent that headline, but they have chosen not to do so. Apparently an abundance of shareholders feel the same way.
Barclays has clearly taken the position that retaining bonus-eligible executives and managers is more important than being committed to running a worthy operation. I truly believe that Walker and Jenkins may be suffering from senility and insanity respectively. Standard Life Governance and Stewardship Director, Alison Kennedy, speaking perhaps a bit more politely than I, said that “We are unconvinced that the amount of the 2013 bonus pool was in the best interest of shareholders.”
Ms. Kennedy is clearly correct, and comments by Walker and Jenkins clearly underscore that she is. The bonus pool of £2.4 billion was an increase of 10% – at the discretion of the directors, whilst profits dropped by 30%!
Despite his attempts to pacify the vigorous shareholder protests with comments like, “I am impatient to deliver the performance and dividend that you deserve,” his insincerity is exposed by his – and the board’s – actions. He defended the increase in the bonus pool as a measure necessary to retain key employees who, especially in the US, have been leaving in droves. I can see how he may think that retaining these employees is in the best interest of the company, but I believe that he is wrong. Their retention may not be, and the cost of it certainly is not, in the best interest of the shareholders or even that of the company.
The single, most positive impact for the company and the shareholders may be letting those go who want to leave. When you have to offer outrageous bonuses to get key people to stay, you’ve got the wrong people in key positions. Let them go. Let them take their chances somewhere else. There are plenty of highly-qualified individuals willing to take their place at less salary and certainly less bonus.
To be honest, I have received some hefty bonuses in my career, but only when performance warranted it, which begins with the company being profitable. That profitability matter changes everything, in part because it creates a wonderful tension between those whose areas of responsibility are profitable and those whose are not, especially when the latter group causes the company as a whole to operate in the red.
Today would be a good day for Barlays’ leadership to bet a grip on reality. Your shareholders couldn’t be making their displeasure more apparent and still be polite. Not listening to them could spell your demise.
