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Barclays caps bonuses at £65,000 but investors say it’s ‘business as usual’

• Association of British Insurers attacks bonus levels
• Bob Diamond stresses need to ‘celebrate rewards for success’
• Annual bonuses for top executives down 48% on 2010
• Profits fall 3% to £5.9bn; return on equity down to 6.6%

Barclays bank is on a collision course with its shareholders despite insisting it has taken strong steps to show pay restraint at its Barclays Capital investment bank.

As the bank reported a 3% fall in profits to £5.9bn, major shareholders were considering whether to summon the bank’s top executives, led by Bob Diamond, to explain the scale of the payouts at BarCap – where the average pay of the 24,000 bankers was some £200,000. The shareholders may even vote against the remuneration report, or even some directors, at the annual general meeting in April.

In the face of political pressure on bonuses following the furore surrounding the near-£1m bonus for the Royal Bank of Scotland’s chief executive, Stephen Hester, Diamond said it was important to “celebrate rewards for success or then we won’t have an economy”.

“We need to be comfortable in this country talking about growth, growth, growth. Business, business, business. Jobs, jobs, jobs. Economy, economy, economy. And I think if we don’t recognise the need to shift the mantle of growth from the public sector to the private sector, if we don’t recognise that every time a leader talks about eradicating reward for failure they also talk about celebrating reward for success, then we won’t have an economy,” he said.

The size of Diamond’s bonus will not be revealed until next month when the bank’s annual report is published. However, a claim by the bank that the average pay of the top eight highest-paid bankers and the executive team was down 48% led to speculation that the chief executive’s payout was between £900,000 and £3m.

Ahead of the bank reporting season, which kicked off with Barclays on Friday, one shareholder body, the Association of British Insurers, had written to banks to urge pay restraint – and held meetings with bank bosses themselves.

After learning that as a percentage of BarCap’s profits, the bonus pool was 35% (against 36% a year ago), Robert Talbut, chairman of the ABI’s investment committee, said on Friday there had been no step change at Barclays: “Whilst overall bonus levels at Barclays have been reduced, for Barclays Capital this reduction is only in line with the fall in profit before tax.

“This appears to be very close to business as usual. It is not the signal of the change required in order to improve the investment case.”

Diamond had tried to head off a row with shareholders by capping cash bonuses at £65,000 even though he admitted the returns to shareholders were “unacceptable”. Targets he set only last year – to produce a return on equity (a crucial measure of performance used by shareholders) of 13% by 2013 – are now likely to be missed as the bank’s returns were just 6.6% in 2011, down on 2010′s 6.8%.

Diamond shrugged off the ABI’s unexpected criticism, saying: “We stay close with our shareholders and they are very supportive.”

Providing more detail about bonuses than usual, the bank said the average bonus across the bank was down 21% year on year to £15,200, while the average bonus at BarCap was down 30% to £64,000 – just below the cap. Last year the average bonus was £91,000. In 2010 Barclays doubled the base salaries of its investment banking staff to combat restrictions on bonuses.

But the shareholder advisory group Pirc questioned whether the bank’s assertion that it intended to pay out £2bn in deferred bonuses in the future was allowing the bank to flatter its performance.

Unions were also unimpressed. The TUC general secretary, Brendan Barber – who wants bonuses taxed – said that the payouts proved that “City bonuses have nothing to do with rewards for success”.

Diamond again stressed the bank’s commitment to “citizenship” and repeatedly refused to disclose whether he had been offered a bonus, what the size of it might be and whether he intended to take it. The chairman, Marcus Agius, also refused to disclose the size of the payouts. The bank also admitted it paid only “a relatively small amount” of UK corporation tax.

While the bank stressed that in 2011 bonuses were down 26% across the group and down 35% at BarCap compared with 2010, the proportion of revenue used to pay BarCap’s staff actually rose to 47% from 43% a year ago. Revenue inside BarCap – which Diamond used to run until being elevated to chief executive a year ago – was down 22% and profits in that operation down 32%.

“Very weak BarCap revenues do most of the damage today,” said Ian Gordon, banks analyst at Investec. On a volatile day, the shares closed at 234p, up just 1p.

The bonus pool in BarCap was down 32% to £1.5bn – but the World Development Movement noted this would pay for school meals for two years for the “23 million primary-age children who attend school hungry across Africa”. About 20% of the profits generated by the bank – £1.3bn – were generated in Africa.

The total bonus pool for the bank’s 141,000 staff was down 25% to £2.1bn – more than twice the £700m being used to pay a 6p dividend to shareholders.

Cash bonuses at the bailed-out banks Royal Bank of Scotland and Lloyds Banking Group, where neither boss is taking a bonus, are subjected to a £2,000 cap.

Diamond said the mood towards the bank ing industry was “not a positive” but said, of the move to cut bonuses, that “we need to balance remaining competitive with being responsive to the public mood.”

BarCap, despite the 32% fall in profits, was still the biggest single contributor to profits at £2.9bn, while profits were dented by a £1.7bn impairment in the bank’s stake in BlackRock, which bought the Barclays Global Investors fund management business in 2009, and a £427m goodwill impairment in Spain and restructuring charges there of £189m. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds