“Some 18 months ago, the board of Britain’s biggest bank heralded the coming of a “new” Barclays. The culture would change. Greed might not be abolished, but it would not drive the institution. Shareholders, clients and the public would benefit from a better balance between behaviour and profit; between employee compensation and shareholder return.
“Last week, it appeared that in the investment banking business, at least, venality had yet to decline while hypocrisy was on the rise. Barclays’ chief executive, Antony Jenkins, announced that although earnings had fallen, the bonus pool had not. Indeed, it had increased. This was, he said, necessary to retain talent and thus his investment banking franchise. Let us set aside for the moment the moral issues and outrage that understandably dominate the airwaves. Focus instead on the business challenge: was it necessary? And, if so, what implications might that have for the health of the business?
“Compensation policies at publicly listed financial firms feature many bells and whistles. But at the heart of the annual reward process are two drivers: 1) the size of the bonus pool; and 2) the way in which that pool is distributed. The first will define what portion of earnings goes to employees versus what portion goes to the owners. The second defines which of those employees gets what.”
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