ABI: Barclays cocos a no go

SHAREHOLDERS should be wary of waving through a new form of compensation for top Barclays executives, an influential investor advisory grouped warned yesterday.

The Association of British Insurers (ABI), whose members own 15 per cent of Barclays stock, has issued an “amber” traffic light warning to members regarding Barclays’ annual report.

City A.M. understands that its latest advice issued to shareholders – not made public – warns them that Barclays’ plans to award a portion of managers’ compensation in contingent convertible bonds (coco’s), which turn into equity upon a certain trigger, could provide them with an overly “juicy” pay packet.

The cocos pay a generous coupon rate of seven per cent and have a conversion trigger – at which they turn into less desirable equity – set at a seven per cent core tier one capital ratio. That means if the bank’s capital ratio under Basel III falls below a seven per cent threshold, the coco’s convert.

But Barclays is likely to have to maintain a ratio of at least ten per cent under rules being mulled by the Independent Commission on Banking, making the threshold effectively meaningless.

The ABI has also advised members to consider Barclays’ revision of its performance-related pay metrics: execs are now to be paid 60 per cent of their long-term bonuses on the basis of returns on assets, with 30 per cent based on avoiding losses and 10 per cent on sustainability. This means more focus on returns over loss-avoidance than in the past.

It also said that chief executive Bob Diamond’s pay packet might be unduly generous, being a 20 per cent increase on John Varley’s pay.