Barclays executive defends his compensation

 LONDON — “If you really love working for Barclays, why do you need that huge incentive to do the job you are paid to do anyway?”
         The question for Robert E. Diamond Jr., the president of Barclays Capital and recipient of bonuses of 15.2 million pounds, or what was about $30 million, in 2006 and 21 million pounds in 2007, came unexpectedly.
         Diamond, a forceful American who masterminded the takeover by Barclays of Lehman Brothers’ United States business, had come recently to Chatham House, a leading British research center, to offer a defense of the risks that large, multifaceted banks take on a daily basis.
         But on the same day that the government announced it would impose a 50 percent tax on bank bonuses, it was Diamond’s compensation, not his views on risk and regulation, that drew the sharpest reaction among the 300 or so people who came to hear him speak.
         The British taxpayer had bailed out the banks, and now, as Diamond’s questioner put it, “you are paying yourselves enormous sums of money.”
         The question was tough but fair, Diamond acknowledged. As other bank executives have done, Diamond admitted that Barclays had made mistakes and said that banks now “get it.”
         But many believe now that if Barclays and other banks that have profited from the recovery reward their top performers in a fashion similar to the one before the crisis, that may suggest that they actually do not get it.
         The government’s decision to force banks to pay a 50 percent tax on bonuses above 25,000 pounds (about $40,700) this year was aimed more at preventing such payouts than raising badly needed tax revenue.
         But as banks and their armies of lawyers and accountants have pondered the bonus tax, it is becoming clear that instead of showing restraint they are going to pay their people a market rate, defying, in effect, at the government.
         “The banks are looking at this as a payroll tax — a cost of doing business,” said Sean Drury, a partner at PricewaterhouseCoopers who advises investment banks on compensation strategies.
         The chief executives of banks here have derided the measure as crassly political — and a prelude to a migration of London-based bankers to New York, Hong Kong and Geneva.
    In an interview with the BBC, Andrew G. Haldane, who oversees financial stability for the Bank of England, said such a migration abroad would be “unfortunate, but given the costs of carrying that financial system around, it may be a price worth paying.”
         Haldane also took a direct shot at Diamond’s contention that universal banks like Barclays were crucial to the health of the broader economy, saying, “There is not so much as a scintilla of evidence of bigger being better in banking.”
         Such pointed remarks are just the latest volleys in an increasingly bitter standoff between banks, emboldened by a return to profitability, and the wider public, which is still paying the costs of the roughly 1 trillion pounds bailout of the financial sector.
         When asked publicly about whether he deserved his large payouts, Diamond has not shied away from defending himself. In an interview earlier this year, he said that his mix of cash and deferred stock was “appropriate for someone as senior as myself,” citing Barclays policy of paying for performance. Diamond, along with John Varley, the chief executive of Barclays, took no bonus in 2008, although Diamond did receive 14 million pounds in cash and stock from a previous award plan.
         At Chatham House, Diamond gave a more detailed response to the question about why top bankers needed large financial incentives.
         He reminded the crowd that Barclays solved its financing problems by reaching out to private investors and not the government, and also referred to two deals that he was largely responsible for.
         One was the bank’s $13.5 billion sale of a controlling stake in Barclays Global Investors and the other its earlier purchase of Lehman Brothers’ United States-based operations.
         The deals “transformed our business,” Diamond said. Gains from Barclays Capital’s high-risk, high-reward investment banking business now make up about half of Barclays’ overall profits.
         “We are a stronger bank today than we were,” he continued. “We are more valuable to the U.K. today than we were, and we didn’t take any direct government money and we weren’t a burden to the taxpayers.”
         Diamond declined a request to discuss his views on compensation beyond his public remarks. A spokesman for Barclays Capital said: “Barclays’ remuneration committee, comprised of independent nonexecutive board directors, has not yet determined the compensation for any executive director for 2009 and will not do so until the year has been completed. Any speculation on compensation is therefore ill-informed.”
         Drury from PricewaterhouseCoopers estimates that by paying the tax instead of reducing bonuses, the government take from the levy will be as much as 2.5 billion pounds, far above the 550 million pounds forecast by Alistair Darling, the chancellor of the Exchequer.
         That does not mollify critics, though.
         “No one in the banking sector deserves a big bonus in this or any other year,” said Richard Portes, a professor of economics at the London Business School. “Barclays didn’t get direct aid — so what? It got enormous public assistance in the form of very cheap liquidity, or it too would have crashed.”
        

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