Barclays to fire thousands after raising bonuses

Barclays PLC, the British financial multinational that employs 140,000 people, says it plans to reduce its workforce by between 10,000 and 12,000 in 2014, including 7,000 in the United Kingdom.

Included in the cuts are 800 management personnel.

Barclays had already trimmed its workforce by 7,650 jobs as part of its restructuring.

Antony Jenkins, Barclays CEO, has spent the last twelve months telling eveybody how important it is to restore trust in banking. For his workforce and investors to trust him from now on is going to be much harder.

Not only is he overseeing the cutting of up to 12,000 jobs, he has also been trying to defend the company’s 10% rise in its bonus pool in 2013 to £2.38bn, from £2.17bn the previous year, and to top it all profits have fallen.

Bonus increase necessary, says Jenkins

Jenkins, a retail banker, was brought in two years ago to try to make the company more efficient. He said the bonus increase is necessary if the company wants to hold on to and recruit top bankers. He is sure the bonus pool will diminish as the workforce is cut.

In a press conference with reporters on Tuesday, Jenkins said:

“The compensation levels are set by the market. That is not something we can control. At Barclays we believe in paying for performance and paying competitively. Ensuring that we have the right people in the right roles serving our customers and clients effectively in a highly competitive global environment is vital to our ability to generate sustainable shareholder returns.”

For the second year running, Jenkins has refused to take a bonus of up to £2.75 million.

Barclays’ inflated cost base

However, not much has been done to address Barclays’ enormous cost base, especially in its investment banking division, which reported a loss in Q4 2013. In 2013, the proportion of revenue in investment banking paid out to staff increased from 39.6% to 43.2%. Jenkins had promised he would reduce it to 35%.

Higher pay inflated costs in the investment bank by £200m in Q4 2013, compared to Q3 2013.

The Financial Times quoted Christopher Wheeler, an analyst at Mediobanca, who said “Revenue is down 9 per cent and yet costs are flat – the cost base is out of kilter. I just sense [Mr Jenkins] knew the 43 per cent comp ratio was going to be a killer.”

Jenkins had pledged to reduce annual group costs to £16.8 billion from £18.2 billion in 2013. Investors now wonder how he is going to be able to do that.

As far as shareholders are concerned, virtually every measure that matters – the share price, earnings per share, return on equity – 2013 was a worse year than 2012. For them it is incomprehensible that a bank can be raising bonuses at a time of declining profits.

Barclays should be run by shareholders

The Institute of Directors, an organization based in London, says Barclays should be run by its shareholders and not its executives.

Dr. Roger Barker, Director of Corporate Governance at the Institute of Directors, said:

“It cannot be right in any business for the executive bonus pool to be nearly three times bigger than the total dividend pay out to the company’s owners. In 2013, the bank paid out £859 million in dividends compared to a staff bonus pool of £2.38 billion. The question must be asked – for whom is this institution being run?

“Efforts to pay high bonuses based on exploitation of loopholes in the EU bonus rules also send a bad signal. Barclays needs to recognize that it starts in an extremely difficult place in the eyes of the public, given its ongoing stream of regulatory problems and infringements, including the recent loss of customer data, the LIBOR scandal and the mis-selling of PPI.”

“This is not a matter for government. It is a matter for shareholders – and particularly large investment fund managers who have a duty to the ordinary workers whose pensions they are investing. Their approach to the banks continues to be supine. We would like to see shareholders take a more aggressive role in the governance of the bank, and in light of Barclays’ fragile reputational recovery we would urge the bank to ensure that the Chairman of its Remuneration Committee remains an independent director.”

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