IT has become the City’s most wearyingly familiar formula: bank floats pay proposals with investors; investors cry foul; bank showers its largesse on employees regardless; bank suffers revolt at annual meeting. Repeat, year after year.
The 2013 bonus round should, at last, provide an antidote to the toxic relationship between Britain’s biggest lenders and the stock market’s biggest investors. And the man to thank? Paul Tucker, deputy governor of the Bank of England, who used a recent speech to demand that lenders pay bonuses partly in bonds.
He may not realise it yet, but that exhortation has placed the leading candidate to replace Sir Mervyn King on the brink of a remarkable feat: securing a long-awaited rapprochement between banks and their shareholders.
I understand that at a meeting convened by the Association of British Insurers (ABI) last month, Barclays directors insisted they had no plans to bow to Tucker’s wishes. Instead, they suggested that variable compensation would be paid largely in long-term equity, which – as at HSBC – bankers should expect not to vest until they retire, according to one account of the meeting.
Under Bob Diamond, Antony Jenkins’ predecessor as chief executive, the bank toyed with using contingent convertible bonds (or Cocos) to pay staff bonuses, one of myriad schemes that alienated investors during Mr Diamond’s brief tenure.
Shareholders have for some time expressed concern that Coco bonds would mean employees ranking ahead of them in the capital structure during a future rescue. They have also been sounding the alarm over the potential generosity of the coupon on such instruments. Barclays can ill-afford another row. Last year’s debacle – when Diamond received a £25m package for delivering a woeful 5.8 per cent return on equity, and dividends were one-third of the employee payout – underlined the point that radical reform was long overdue. Sir John Sunderland, the new remuneration committee chairman, signalled at the ABI meeting that the 2012 pay round will be the personification of restraint.
Jenkins echoed that at yesterday’s third-quarter trading update. The disclosure of two fresh US regulatory inquiries and anaemic investment banking profits cemented the fact that he is not in a strong negotiating position. The new chief executive must reflect that heeding investor concerns on the structure and quantum of pay this year and beyond are not merely a reflection of prevailing winds on bank pay; they are also a sensible nod towards self-preservation.
CAMERON’S OLYMPIC LEGACY
Is David Cameron’s push to promote trade with key export markets enduring a post-Olympics stumble?
The Prime Minister’s plan to announce half a dozen peers as trade representatives has already suffered more false starts than a sprint final.
It is, though, finally nearing the finishing tape. Among those selected for the cushy new roles, I hear, is Lord Sharman of Redlynch, who will get to visit the souks of Marrakech as the UK’s trade rep for Morocco.
Baronesses Bonham-Carter and Scotland, and Lords Puttnam and Risby will also be flying business class at the taxpayer’s expense.
Whether these posts are any more than glorified sinecures is doubtful. Cameron’s Business Ambassadors programme, which involves the likes of Lord Browne, former BP chairman, and Dick Olver, BAE Systems chairman, flying the flag for UK plc, is regarded as having been largely ineffectual since its launch in 2010.
Either way, Aviva shareholders unamused by the 61 per cent slump in its share price during Lord Sharman’s six-and-a-half year stint at the helm may wish that a one-way ticket to Morocco had landed far sooner.
Mark Kleinman is the City editor of Sky News. You can follow him on Twitter @MarkKleinmanSky