By Ambereen Choudhury and Howard Mustoe - Jan 31, 2012 4:56 PM GMT+0700
Barclays Plc (BARC)’s Robert Diamond, Britain’s top-paid bank chief executive officer, will probably receive his bonus even as his counterparts at state-backed lenders are forced to forgo theirs, analysts and investors say.
Diamond is the next executive likely to face scrutiny as Royal Bank of Scotland Group Plc CEO Stephen Hester waived his 963,000-pound ($1.5 million) bonus after the payout sparked a political and public backlash. RBS Chairman Philip Hampton also abandoned his 1.4 million-pound stock award.
“The pressure will probably stop at the government- controlled banks,” said Guy de Blonay, a London-based fund manager at Jupiter Asset Management Plc, which holds RBS shares. “Hester has taken a sensible decision in waiving his award. It will allow him to continue to focus on his job.”
Unlike RBS and Lloyds Banking Group Plc (LLOY), where the U.K. taxpayer is also the biggest shareholder, the government has no stakes in Barclays, HSBC Holdings Plc or Standard Chartered Plc, making it difficult for the state to exert bonus restrictions. Institutional shareholders also have different priorities than the government and the public, fund managers and analysts said.
‘The Larger Question’
“We tend to focus this debate on the top people whose pay is made public,” said George S. Dallas, a director of corporate governance at F&C Management Ltd. in London, which holds shares in all five of the U.K.’s largest banks. “Attention needs to focus on that, but in banks the larger question is what is happening below the boardroom -- the people whose names we don’t see?”
U.K. Prime Minister David Cameron said yesterday banks must show “proper regard” in limiting bonuses. “What needs to happen is a sense of restraint,” Cameron told reporters in Brussels after a meeting of European leaders. “They need to do a better job of demonstrating how pay is related to performance,” he said. “What I care about is the taxpayer going to get the money back.”
The CEO of Britain’s second-biggest government-aided bank, Lloyd’s Antonio Horta-Osorio, said on Jan. 13 that he also won’t take a 2011 bonus following his nine-week absence for exhaustion. The payment could have been as much as 2.39 million pounds, according to company filings.
Bonus Pool Declines
London bankers are expected to receive 4.2 billion pounds in bonuses for 2011, the lowest in almost a decade as financial- services firms face tougher regulations and post “weak” earnings, the Centre for Economics & Business Research Ltd. said in October.
“It looks like Barclays is next on the list, but it’s the same for all the banks,” said Oliver Roethig, regional secretary of UNI-Europa, a federation of European labor unions, including Britain’s Unite and Accord. “The decision-making system to decide on bonuses is murky. We are all talking about market systems and if you look at how these bonuses have grown compared with everyone else’s this is a hint to market failure.”
Diamond, 60, was awarded a 6.5 million-pound bonus for 2010 and a further 2.25 million pounds depending on the lender’s performance, London-based Barclays said in March. His base salary rose to 1.35 million pounds from 250,000 pounds after he became CEO on Jan. 1 last year.
HSBC (HSBA) CEO Stuart Gulliver received a 2.9 million-pound bonus for 2010, less than the 6.5 million-pound bonus Barclays gave Diamond for the same year.
Gulliver’s Compensation
HSBC, Europe’s largest bank, sought backing from investors to pay Gulliver as much as 13.3 million pounds for 2011, including 1.25 million pounds base salary, a bonus of as much as three times his base salary and a long-term incentive payment equal to six times his salary, two people with knowledge of the talks said in March. If awarded, it would make Gulliver the top- paid bank chief for 2011.
Spokesmen for Barclays and HSBC in London declined to comment on bonus awards yesterday.
Barclays is due to report 2011 results on Feb. 10 and will disclose pay proposals of its senior management with its annual report in March. The bank is expected to post a pretax profit of 5.87 billion pounds for 2011, down 3 percent from a year earlier, according to the median estimate of 10 analysts.
The Association of British Insurers, which represents investors with about 1.5 trillion pounds of assets, wrote to banks in December warning them to reduce pay.
Bank Shares Down
“We made clear in our letter to the U.K. banks in December remuneration costs as a proportion remain too high, particularly in an environment where we can expect lower returns from banks in the medium term,” the ABI said last week. “Failing to deal with this issue will affect the investment case for banks.”
The share price of Lloyds fell 61 percent last year while RBS declined 48 percent and Barclays 33 percent. HSBC dipped 25 percent and Standard Chartered (STAN) about 18 percent.
Ultimately, shareholders will decide if senior executives among the private banks deserve their pay, especially after the government’s proposal to empower shareholders to block compensation deals, said Tom Powdrill, a spokesman for adviser Pensions Investment Research Consultants Ltd. in London.
“The question is, do shareholders have the same kind of views on these issues as the public, as the taxpayer,” he said by phone yesterday. “In the case of Barclays, HSBC or Standard Chartered, decisions are mediated through asset managers, and reality is asset managers have quite a different view of the world to the public.”
The group has advised opposing the pay proposals of Barclays, Lloyds, HSBC and RBS for the last two years.
Labour’s Gambit
RBS’s Hester waived his bonus after the U.K.’s opposition Labour Party said it would ask Parliament to vote on the award. His decision, should not be “just a one-off episode” Labour leader Ed Miliband said in Glasgow, Scotland, yesterday.
“If we don’t deal with this systematically, if we don’t deal with the issue of bankers’ bonuses in a proper way, then this sort of thing is going to reoccur,” he said.
Cameron’s government is trying to respond to political pressure triggered by the bonuses bankers are being paid, starting this month, at a time that voters face pay freezes and unemployment at a 17-year high. U.K. Business Secretary Vince Cable this month outlined measures to make companies more transparent about top pay and give shareholders more power to vote on it. Cameron also said a knighthood awarded to former RBS chief Fred Goodwin may be revoked.
Political Storm
“This will stop at the government controlled banks,” said Tom Kirchmaier, a fellow in financial-markets group at the London School of Economics. “However, the political mobbing of Hester over the last few days allowed the government-owned bank to renege on its own promises” on bonuses. “This raises a number of questions about the governability of state-owned banks bank, something we should be very concerned about”
Hester, 51, has been at the center of a political storm over executive pay since the announcement on Jan. 27 that he would receive 3.6 million shares on top of his 1.2 million-pound salary. The Edinburgh-based bank has risen 33 percent this year to about half what the government paid for its stake.
“Only government-run banks have the ability to put pressure on their banks to control pay,” said Jason Kennedy, CEO of Kennedy Group, a London recruitment firm. “In the private sector, it’s not going to happen. They provide a bonus structure where if their employees get paid, so should the CEO.”
To contact the reporters on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net; Howard Mustoe in London at hmustoe@bloomberg.net
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net
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