Barclays Plc former Chief Executive Officer Robert Diamond was reluctant to tackle “obscene” levels of pay as he was overly protective of investment bankers, ex-compensation committee head Alison Carnwath said.
The committee asked Diamond when he was promoted in January 2011 to clarify compensation to employees, Carnwath wrote in a submission to the Parliamentary Commission on Banking Standards today.
“Diamond was reluctant to do this and reluctant to accept pay at Barclays was high particularly in the investment bank,” Carnwath wrote. “Barclays were demanding too much patience from their shareholders and were insufficiently sensitive to the political and economic environment.”
Carnwath quit Britain’s second-largest bank by assets in July after the bank lost its three most senior figures amid the lender’s 290 million-pound ($458 million) fine for rigging global interest rates. About 21 percent of Barclays’s shareholders opposed her re-election as a non-executive director in April amid criticism from investors the lender was enriching employees, while failing to hit its own profitability targets.
Diamond “thought he found loyalty in people around him by paying them very well,” Carnwath said. “In my view more than he needed to.”
Carnwath said that after a poor performance for the bank in 2011, during which the stock fell 33 percent, she was alone in recommending Diamond should receive no bonus. Diamond was awarded a 2.7 million-pound deferred bonus in shares for 2011, according to the bank’s annual report.
Former Chairman Marcus Agius “is in a better position to explain how his formulation was reached,” she said in the submission. “Mr. Diamond needed to set an example to all stakeholders that remuneration policies had to change to reflect the low return environment.”
Diamond agreed before he resigned in July to cap the pay of some bankers who received too much because of the structure of some plans, she said.
Some executives had their bonuses reduced following the scandal over payment protection insurance, or PPI, when consumers were sold loans insurance they did not want or need, she said. It was more difficult to adjust bonuses for deals that caused “reputational damage such as the bank’s tax affairs, or its ‘‘protium’’ deal, Carnwath said.
FSA Chairman Adair Turner said in July Barclays’s protium transaction in 2009, which involved moving the riskiest assets off its balance sheet using a Cayman Islands-based fund run by former executives, was a ‘‘convoluted attempt to portray a favorable accounting result.’’
Annual bonuses paid in the future should be lower and made only after shareholders have benefited from the bank’s performance, Carnwath said.
Carnwath was paid 158,000 pounds in 2011 at Barclays, the third-highest of its 10 non-executive directors that year, according to the annual report.
Separately at the parliamentary commission, Barclays’s current compensation committee chairman John Sunderland said it was right for Diamond to receive a bonus as he ‘‘deserved some recognition” for his work, though he would have “debated the quantum” of the award.
Andrew Tyrie, the head of the bank commission, suggested Diamond’s 1.35 million-pound salary would have been enough of an award for his work. “1.3 million by any stretch of the imagination is what most people would consider to be a bit of recognition,” Tyrie said.
The commission received testimony from a witness who said in 2000 that the structured capital markets division of Barclays contributed 110 percent of Barclays’s investment banking unit’s profit, Labour lawmaker John McFall said.
“We saw the profitability by division of all the elements of the investment bank including structured capital markets,” Sunderland said. “At no time can I recall that would constitute 110 percent of the total profits of that bank.”
Barclays in 2009 denied a Guardian newspaper report that it made about 1 billion pounds a year from tax-avoidance activities in its structured capital markets business.
Parliamentarians also questioned Sunderland on mis-sold loan insurance. Lawmaker Andrew Turnbull described as “just rubbish” Sunderland’s assertion that most PPI sales were made in the last 10 years and that most people associated with the scandal are “long gone from the bank.”
“This committee has done a lot of work on this,” said Turnbull. “This doesn’t go back 10 years, the complaints started to reach crescendo in 2005.”
-- Editors: Jon Menon, Steve Bailey