Standard Life voted against Barclays in its proposal to increase its staff bonus pool by 10% to £2.38 billion, despite announcing a 30% drop in profits in February and having to cut staff to save money. Standard Life is a major institutional Barclays shareholder.
At its annual general meeting, Barclays shareholders are voting on whether the British bank should raise executive bonuses; a plan that has been ridiculed by the UK media and lawmakers, and has provoked growing anger among shareholders.
Update: Barclays wins pay vote – shareholders have voted to approve the Barclays staff bonus pool.
Barclays PLC, with headquarters in London, operates in over 50 countries and employs 140,000 workers.
Q1 2014 profits will be down
In an announcement to shareholders today, Barclays said it will announce first quarter results on May 6th, and warned that profits will be down compared to the same quarter last year. It added that a cost-cutting program is starting to produce a “material benefit” and will help make up for a poor performance in investment banking.
Shareholders say the main theme at the AGM (annual general meeting) will be the issue of bonuses. Shareholders are furious after a very poor performance by the bank in 2013, during which the FTSE 100 gained 4.4% but Barclays shares sank 14.7%.
The Guardian quoted a private investor who expressed his frustration at the dividend, poor shareholder performance and the £5.8bn cash call in 2013, who said “We’re paying for Manchester United but we are getting Colchester United.”
Why Standard Life voted against Barclays
A governance and stewardship director at Standard Life Investments, Alison Kennedy, said the company would vote against the planned bonus increase.
Kennedy said today:
“On behalf of our clients, we have today instructed our proxy to vote against Resolution 2, the approval of the remuneration report. We did not take this decision lightly but, on balance, believe this was the right thing to do. We appreciate that there were competitive pressures during 2013, particularly in the investment banking business and that the board was seeking to protect a business franchise under threat.”
“Nevertheless, we are unconvinced that the amount of the 2013 bonus pool was in the best interests of shareholders, particularly when we consider how the bank’s profits are divided amongst employees, shareholders and ongoing investment in the business. The dividend was unchanged in the year and an additional £5.8bn of capital was raised from shareholders. We also believe that this decision has had negative repercussions on the bank’s reputation.”
Barclays fears an exodus of investment bankers
Outoing Barclays remuneration committee chair, John Sutherland, responded to Kennedy’s announcement by saying that concerns should have been expressed during the consultation period. Sutherland said the number of investment bankers resigning had doubled, and he fears there will be an exodus of staff if the bonus plan is not approved.
According to Barclays, its fixed-income operations have considerably lower revenue compared to the same period in 2013. Investment banking has become less profitable due to stricter regulations, something all financial institutions have reported this year.
Should shareholders decide executive pay?
Executive pay should be decided by shareholders in a binding vote, says the European Commission in a proposal to increase shareholder power and “democratize companies’ remuneration policies.”
If the European Commission’s proposal is approved there would be no EU (European Union) pay cap. According to the Commission, a growing number of investors, economists, lawmakers and academics believe shareholders should decide executive pay. “Business executives are there to serve the company, which belongs to its shareholders,” they argue.
Are banks back to their pre-crisis habits?
During the financial crisis and the Great Recession that followed, scores of banks and financial institutions went to their governments cap in hand begging for taxpayer-funded bailouts. There were promises of reforms, the elimination of improper conduct and better supervision of bonuses.
There is a growing feeling that nothing has been learned and that banks are sliding back into their old “jobs for the boys”, “fat cats” behaviors where bonuses and pay hikes are seen as an executive’s right regardless of performance.
A recent eFinancialCareers study reported that banking bonuses worldwide have increased by 29% over the last year.
After posting a massive pre-tax loss of £8.243 billion ($13.30 billion) for 2013, the Royal Bank of Scotland still managed to tuck away £576 million ($964 billion) for bonuses.
Last year, JPMorgan, America’s largest bank, had to lay off 8,000 workers due to financial problems but awarded its CEO a whopping 74% pay increase.