BARCLAYS is heading for a clash with shareholders after the Association of British Insurers labelled its bonus plans as "very close to business as usual" despite a cut in payouts to top bankers.
Barclays saw underlying pre-tax profit fall 2% to £5.6 billion after a 32% drop in earnings from its investment bank, which was hit by the fall-out from the eurozone crisis. Revenue fell 8% to £28.5bn.
Barclays said it would not meet its target for a 13% return on equity by 2013, set last year. Its return of equity of 6.6% for 2011 was "not acceptable", chief executive Bob Diamond said.
Average bonuses at its high-paying investment bank Barclays Capital were slashed from £91,000 last year to an average of £64,000.
It capped the cash element of the payment at £65,000.
Mr Diamond remained tight-lipped on his own bonus. However, if his bonus falls 48%, in line with plans for the executive team as a whole, he can expect something around £3m.
The value of bonus per employee in the group as a whole was down 21% year-on-year to £15,200.
Mr Diamond said: "We need to balance being competitive and driving business results for our customers, our clients and our shareholders with being responsive to the [public] mood."
He said the fall in performance-related pay was larger than the drop in profits.
But the ABI, whose members control a fifth of the UK stock market, made a rare public criticism of the payouts. Robert Talbut, chairman of its investment committee, said: "While overall bonus levels at Barclays have been reduced, for Barclays Capital, this reduction is only in line with the fall in profit before tax.
"This appears to be very close to business as usual.
"It is not the signal of the change required in order to improve the investment case."
Asked for his response to the ABI, Mr Diamond said: "We stay very close to our shareholders. They are very supportive of what we do."
He compared Barclays' fortunes to those of part-nationalised Royal Bank of Scotland and Lloyds Banking Group.
"If we run this institution poorly, if we make a decision not to care about being competitive on investment banking with JP Morgan and Deutsche Bank, we will look like the other banks in the UK that are taking Government money.
"That is not good for the UK. It is not good for income inequality. It is not good for shareholders and employees."
Banking expert Rob Webb of Glasgow Caledonian University told The Herald: "They are in a difficult position. If they start to not pay investment bankers the required amount, it is very easy for them to walk off to another investment bank in the City."
Dr Webb added that although the investment bank had had a tough 2011, in previous years it had provided a large proportion of the bank's earnings.
Barclays announced a final dividend of 3p to be paid on March 16, leaving its pay-out 9% up on last year.
But the decision to increase dividends and pay bonuses totalling £2.2bn could put Barclays at odds with the Bank of England, whose financial policy committee last year called for banks to divert money from bonuses and shareholder pay-outs to beefing up their capital cushions.
A major positive area for Barclays was its UK business where profits rose 60% to £1.4bn, as bad debts improved and Africa, where earnings rose 26% to £908m as it tapped into the continent's rapidly expanding economies.
Barclays doubled its target for annual cost savings to £2bn by 2013, but insisted it had no plans for widespread job cuts.
Nic Clarke, analyst at Charles Stanley, said: "Given that Barclays Capital has been the majority of the group's earnings in recent periods and that this division has operated in very difficult conditions in the second half of 2011, the fact that group adjusted pre-tax profit was only down 2% was impressive."
l RBS is cutting up to 300 jobs at its equities unit in London.
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