Bonus structures at Barclays are to come under increased scrutiny after the appointment of Anthony Salz to lead an investigation into the culture at the bank. Is this something to worry about?
Possibly. Considering that this is an investigation into values and practices at the bank, one of the key things that will be looked at is whether the bonuses encouraged bad behaviour.
On Monday, Professor John Kay’s report into the financial sector suggested that bonuses negatively affect behaviour, and this is one of the things that will be explored by Salz. Meanwhile, FSA chairman Adair Turner yesterday called on banks to change their culture from the top and said that bonuses have helped destroy public trust in the industry.
At Barclays, the derivatives traders at the heart of the Libor-rigging scandal were encouraged by the prospect of bigger bonuses, and even junior staff in the investment bank had the potential to earn a large proportion of total pay in variable comp. Salz will look at whether this encouraged dishonest behaviour. Any negative findings could fuel the anti-banker bonus argument even further.
More worryingly, perhaps, is that fact that he will be able to draft in a team from either a management consultancy or accountant to help with the investigation, suggesting that any bonus figures will come under the microscope.
Barclays’ small band of code staff earned the largest bonuses of any of the European banks, and total compensation was also among the highest.
However, lower down the ranks, Barclays’ investment banking staff have had their bonuses curtailed already. It limited cash bonuses to £65k this year, and a hefty 75% was deferred (compared to 47% in 2010).
Of the average comp of £202k, just £16k came in the form of bonuses that were immediately payable, up to £41k came from bonuses deferred from 2009 and 2010. The remaining £145k appears to have been in the form of salary. A further £48k was deferred to 2012 and beyond.
Nonetheless, Salz has nine months to conduct his investigation and will publish the results. That’s plenty of time to uncover any skeletons in closets.