Is the tide turning against egregious pay packages for top bankers at last?
At a stormy Barclays AGM yesterday, nearly one-third of shareholders refused to endorse the company's executive pay package. Around 27% explicitly voted against the deal, which includes a total package for chief executive Bob Diamond of £13 million, after a year in which the bank's shares fell sharply. It includes a £5.75m US tax payment.
As one exasperated shareholder put it, Barclays appears to be "a cow being milked for the benefit of senior officers". No wonder chairman Marcus Agius was jeered and heckled.
Though the whole process has become so opaque that they are hard to see, the plain facts are these: Barclays has awarded £2.15 billion in bonuses for 2011, while paying out just £730m in dividends to shareholders. As the shareholders are dominated by institutional investors, that imbalance is reflected directly in the disappointing growth ordinary workers and the retired are seeing in their pensions. Last night the National Association of British Pension Funds warned the banking industry that boardroom pay needs to be better aligned with the long-term interests of shareholders.
Mr Agius attempted to explain away the figures in two ways. First, he acknowledged shareholder anger but put it down to "failures in articulating our case". Apparently, banks still do not get it. Secondly, he defended big reward packages as "dynamic", or rewards for progress towards a target. This sounds suspiciously like stopping a long distance race after every track circuit to hand out prizes. At best, an odd idea.
Some progress has been made. To head off criticism, Mr Diamond has agreed to stricter conditions on future bonuses, suggesting the bar is far too low at present. Also bonuses are now largely awarded in shares, tying an individual's future rewards to that of the company. But much remains to be done.
It is time to create a better balance between rewards to staff and to shareholders and also call some bluffs on executive pay. The argument that British bank bosses will be poached if they are paid less is largely mythical. Few top executives are lured across the Atlantic. Another myth is that nobody worries about this issue in the US. Recently Citibank experienced a 55% shareholder revolt against the chief executive's fat reward package.
Secondly, shareholders should start flexing their muscles more. It would help if institutional investors were obliged to disclose how they vote on executive pay, so that ordinary shareholders and pensioners can keep tabs on those acting on their behalf. Would it destroy global capitalism if remuneration reports had to secure 75% shareholder support?
Thirdly, the way reward packages are presented should be simplified so that shareholders know the total sum going to those at the top. Fourthly, executives should never be rewarded for future performance that may not materialise. Finally, it is time to review the composition of remuneration committees. Imitating much of Europe by putting employee reps on these committees would help rein in fatcat pay.
Though Barclays did not take a Government bail-out, the public purse is providing an implicit subsidy from which all banks benefit. Society and the banking sector are mutually dependent. If public trust falls down, that mutuality is jeopardised.
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