In these austere times – GDP data next week will show whether the UK has sunk into an unprecedented triple-dip recession – an acknowledgement by top bosses that they are overpaid should be embraced. Or should it?
Take Mackenzie of Billiton. Even with the 25% cut in his pay, his salary is still £1.1m before any bonuses. Wolfson, a Tory peer and Conservative party donor, still enjoyed a 13% rise in basic pay to £4.6m at Next (the store’s staff got 2%). The Austrian bank boss still walked away with more than £2m.
And, as is usual with executive pay, there are many more bosses grasping for more. The attempts at restraint demonstrated by BHP’s boss contrast sharply with the behaviour of Xstrata’s departing Mick Davis. He is walking away with £75m as a result of the takeover by Glencore – a staggering £9.6m of which is to be handed to him in cash rather than shares. Similarly, compare Stepic’s gesture of goodwill with Barclays, where the much-welcomed retirement of Rich Ricci seems unlikely to stop millions of pounds of previously awarded bonus deals continuing to flow to him as he enjoys his retirement – which is beginning at the age of 49.
Ricci is a symbol of anything but restraint. This is the man who was handed £17m under the cover of this year’s budget – when Barclays seemed to hope attention would be focused on the chancellor’s speech – taking his earnings since 2010 to over £70m.
The announcement of Ricci’s retirement came just a few days before the bank’s annual meeting with investors this Thursday. The hope is that it will take the heat out of an uncomfortable few hours for new chief executive Antony Jenkins. Remember the fuss last year– even before the Libor crisis had struck – when Bob Diamond was at the helm? Diamond also had unimaginable wealth but was determined to take a bonus for 2011. Almost a third of Barclays investors failed to support the remuneration report.
That rebellion heralded last year’s “shareholder spring”, during which an unprecedented number of remuneration reports were voted down and a number of bosses ousted after years of being overpaid for underperformance.
There are signs that this year could see a replay. Standard Life has angrily criticised the pay policies at BP, and fund manager Jupiter – which itself polices pay policies – suffered a serious humiliation on Thursday, when 42% of investors failed to back its own remuneration report. Corporate governance expert Manifest reckons that any dissent of more than 10% is something for a management team to worry about.
Governments keen to pass the buck on the pay controversy point at shareholders to keep a lid on pay excess, but non-executive directors have at least an equal responsibility. Bonus schemes that pay out so much that their bosses are embarrassed to take the proceeds should never have been approved. Directors on remuneration committees need to think much longer and harder about how bonuses are handed out.
And then there are the executives themselves. Wolfson, Stepic and Mackenzie are to be applauded. But the loudest cheer should be reserved for those executives ready to acknowledge that they do the job to their best ability regardless of the bonus attached. Shell’s former chief, Jeroen van der Veer, once admitted his work would have been the same regardless of his bonus arrangements. Surely he cannot be the only one.
Npower’s tax bill may be justified, but its record isn’t glowing
Almost 90,000 people have put their names to an online petition for RWE npower to pay more corporation tax more in line with the rest of the business community. Revelations last week that npower – one of the Big Six energy providers – had paid “almost nothing” (just £5m) over three years understandably infuriated many.
Comparisons have been made with Starbucks, which faced similar protests and eventually decided to make a £20m ex gratia payment to the taxman.
Will npower have to do the same? Maybe, but the energy company is in a rather different position from the US-based coffee chain, not least because it has invested much more heavily in Britain. The German-owned company has spent almost £5bn over recent years putting in place new gas-fired power stations and wind farms.
Npower is legitimately able to write off some of the cost of those investments against its profits in Britain, where it has more than 6.5 million gas and electricity customers. Certainly, Britain needs new lower-carbon power stations rather more urgently than it needs caramel macchiatos.
It is more vulnerable to criticism over an estimated £350m of “interest payments” from the British company to the German parent. Npower argues that this is just good business: the British arm can borrow money for infrastructure building more cheaply from its colleagues in Essen.
But critics, including crusading tax experts such as Richard Murphy, say there is no difference between such “interest” and the “royalties” paid by Starbucks for use of the brand name, which triggered the coffee crisis.
And there is still no need for any of the Big Six to give regulator Ofgem anything other than retail and generation profits. Yet sitting in between these two are big trading divisions.
The real problem is that npower and the rest have been tarnished by a string of Ofgem fines, criticism over tariffs that seem designed to baffle, and some executive pay excess. Few feel inclined to give them the benefit of the doubt when a tax row breaks.
Departing lingerie boss leaves Bolland looking exposed
The sudden departure of Marks & Spencer’s lingerie boss 12 weeks after her much-heralded arrival means at least six senior bosses at the ailing retailer have recently quit.
When Janie Schaffer was recruited, her appointment was described as “inspirational” . Dubbed “the knicker queen”, she had learned her trade in the M&S undies department, founded the Knickerbox chain in 1986 and for the past five years had been creative director at Victoria’s Secret in the US, injecting new glamour that has helped to haul the brand out of the doldrums.
M&S sources say that Schaffer had come to the end of a three-month probation period – with the clear suggestion that she wasn’t up to the job. Schaffer’s supporters say she didn’t have a probation period and quit because she wasn’t allowed to make even basic decisions, such as new packaging for women’s tights.
Who to believe? Who knows. But a little of the Victoria’s Secret sparkle would have been welcome at M&S, where sales of clothing and homewares have been falling for the past seven quarters. Chief executive Marc Bolland should be worried: the executive exit door is revolving fast, and he might soon find himself spinning through it.
Bank fined for Libor rate rigging aims to avoid fresh shareholder revolt as chair Sir David Walker examines top pay
Barclays has clawed back up to £300m in bonuses paid to staff, after being fined for Libor-rigging and paying out millions for the mis-selling of payment protection insurance and interest rate swaps.
The bank is expected to reveal in next week’s annual report the extent to which it has reclaimed bonuses paid to its staff in previous years to try to demonstrate to shareholders that it is heeding their calls for pay restraint.
The bank previously insisted it had cut the bonus pool (which still stands at £1.8bn) by the equivalent of the £290m fine for manipulating Libor. The Libor events forced out the chief executive, Bob Diamond, in July 2012.
Sky News calculated that on this basis the loss to staff, due to the penalty for rigging the key benchmark rate, was £450m – the total of the cut to the bonus pool over the £290m fine, plus about half of the £300m being clawed back from staff.
The remainder of the clawback is the result of provisions for PPI, which have in the past two years cost the bank £2.6bn, while the total cost of the mis-selling of interest rates swaps to small businesses has reached £850m.
The bank is keen to avoid a fresh revolt at this annual meeting after its report outlining directors’ pay and the clawback provisions is published next month.
Barclays’ new chairman, Sir David Walker, who replaced Marcus Agius in the wake of the Libor scandal, has already sanctioned a move to provide a break-down of numbers of staff falling within certain pay brackets.
Other banks are also expected to be forced to follow the disclosures on pay, including Royal Bank of Scotland which on Thursday is scheduled to publish the extent of its losses for 2012 when it also received a fine, of £390m, for rigging Libor.
Bailed out with £45bn of taxpayer money, RBS has already said its bonus pot has been cut by £300m, the part of its Libor fine that is being paid to the US authorities.
About 1,500 RBS bankers are also seeing their bonuses clawed back due to the Libor fine. The total size of the bonus pot for 2012 is expected to be in the region of £250m to £300m, down on the near £800m handed out the previous year.
Stephen Hester, chief executive of RBS, is expected to insist that the bank is on track to resume dividends in 2014 – for the first time since the banking crisis – despite the torrid performance last year.
Hester is expected to unveil a partial flotation of the bank’s US arm Citizens to enable the bailed-out bank to focus more on its domestic market.
George Osborne, the chancellor, has called on RBS, a bank 82% owned by the taxpayer, to focus on UK small business, corporate and personal banking. He said on Monday that there would be “further progress this week” with regard to this UK-centric approach.
The chairman of the Treasury select committee, Andrew Tyrie, says the former Barclays boss, Bob Diamond, withheld information about the Financial Services Autority’s concerns about the culture of the bank, when he gave evidence to the committee
Report also criticises Bank of England and regulator for being slow to notice events leading up to Barclays’ £290m fine
MPs have attacked the former Barclays boss Bob Diamond for being “highly selective” in the evidence he gave to their emergency hearings on rigging key Libor interest rates, in the first comprehensive report on the way bankers and regulators handled the scandal.
The Treasury select committee also criticised the Bank of England and the chief City regulator for being slow to notice the events that led to the £290m fine for Barclays in June. “It doesn’t look good,” said Andrew Tyrie, the Conservative MP who chairs the committee, pointing out that neither spotted the problems with Libor.
Speaking about Diamond’s appearance before the committee last month, he said: “Select committees are entitled to expect candour and frankness from witnesses before them. Mr Diamond’s evidence, at times highly selective, fell well short of the standard that parliament expects, particularly from such an experienced and senior witness.”
The “poor state” of the culture at Barclays was also criticised, as was its board.
In response, Diamond made a strong defence of his 16-year tenure at the bank, arguing that Barclays had not needed a taxpayer bailout. He insisted he had answered “truthfully, candidly and based on information available to me” and that the image being created of Barclays “could not be further from the truth”.
Tyrie said the episode had damaged the City. “The sustained rigging of a crucial benchmark rate has done great damage to the UK’s reputation. Public trust in banks is at an all-time low. Urgent improvements, both to the way banks are run and the way they are regulated, [are] needed if public and market confidence is to be restored,” he said.
The MPs took evidence from Diamond barely 48 hours after he resigned as chief executive of Barclays, and were frustrated by his refusal to acknowledge that the City regulator, the Financial Services Authority, had expressed concerns about the culture of the bank to the Barclays board in the runup to the Libor fine.
But the committee’s 122-page report entitled “fixing Libor: some preliminary findings” also shows that the MPs believe the FSA and the Bank of England took the steps that led to Diamond’s departure only after digesting public and media reaction to the Libor fine. “Regulators should not decide the composition of boards in response to headlines. Many will agree with the removal of Mr Diamond. However, many will wonder why the regulators did not intervene earlier, for example, at the time of the publication of the [fine],” Tyrie said.
The committee describes the Libor fine – the first of many expected to be imposed on big financial firms – as a “reputational disaster for Barclays”. It forced the chairman, Marcus Agius, to quit, only to be reinstated 24 hours later after Sir Mervyn King, governor of the Bank of England, told him that regulators had lost confidence in Diamond.
Correspondence published for the first time today between Agius and Tyrie appears to support Diamond’s evidence to the committee, as Agius admits that Diamond had not seen some of the documents in advance when he was asked about them last month.
The committee said the Barclays fine should be seen in the context that other banks were being investigated for rigging the rate and that investigations should be accelerated, particularly at banks owned by taxpayers – a possible reference to Royal Bank of Scotland.
Diamond’s appearance before MPs was followed by those of Agius and Jerry del Missier, the top Barclays banker who quit after issuing an instruction to cut the bank’s Libor submissions in October 2008, as well as those of King and his deputy, Paul Tucker.
The hearings also put candidates to replace King as Bank of England governor next year on the back foot, as Tucker and Lord Turner, chairman of the FSA, were forced to defend their actions during the period.
The MPs said one question the inquiry became focused on may have been a “smokescreen” to distract from more serious issues underlying the scandal. At one point there was confusion about whether a Bank of England official had instructed Barclays to cut its Libor submissions in an attempt to avoid any impression that the bank was in difficulty during the financial crisis. Del Missier admitted he had instructed Barclays staff to reduce submissions after a conversation with Diamond, who was relaying a conversation with Tucker at the Bank. At the time, October 2008, a higher submission to Libor would have given the impression Barclays was finding it more difficult to borrow from other banks.
Del Missier, Diamond and Tucker were cleared of “deliberate wrongdoing”. “If they are all to be believed, an extraordinary, but conceivably plausible, series of miscommunications occurred,” Tyrie
Non-executive director who clashed with the chairman over Bob Diamond’s bonus suddenly quits
Barclays was thrown into fresh turmoil on Wednesday when one of the non-executive directors on the board of the scandal-hit bank suddenly quit.
Alison Carnwath, who also chairs the property company Land Securities, cited “personal reasons” for her immediate resignation from the board which has already suffered upheaval following the departure of chief executive Bob Diamond.
Even before the current Libor scandal there had been speculation about tension in the bank’s boardroom.
Carnwath also endured a shareholder rebellion because of her status as chairman of the remuneration committee although some investors were later keen for her to stay following the reports that she had tried to stop the bonus. One investor said: “She seemed to have been the one board member asking the right questions.”
However, others pointed out that she has seven other jobs or advisory roles in addition to Barclays. In terms of stock market listed companies, she chairs Land Securities and also sits on the board of the troubled hedge fund group Man Group, where she also endured a revolt about her continued membership of the board. Some 33% of investors failed to support her election to he board of Man, and some 22.5% failed to endorse her reinstatement on the board of Barclays, which are regarded as huge rebellions given that boardroom directors usually expect near-unanimous support.
She has not yet commented on the events.
But in a statement announcing her shock departure, Carnwath said: “With regret I have concluded that I am no longer able to devote sufficient time to my role as a director of Barclays given my other commitments. I would like to thank my colleagues on the board for their support and I wish Barclays continuing success in the future.”
Agius, who will leave once his successor is found, said thanked her for her “contribution” since joining the board in August 2010.
But her departure comes at a difficult period for the bank which is due to publish first half profits of around £3.7bn on Friday and will spark fresh rumours of another rift in the boardroom.
When reports of a disagreement over the bonus emerged, the bank had insisted it was keen to foster debate in the boardroom.
The £290m fine for attempting to manipulate the Libor rate last month has left the bank seeking a new chairman and chief executive and handed a central role to former top accountant Sir Michael Rake who is now deputy chairman – although he has ruled himself out of the chairman’s job despite expressing interest whem Agius first quit.
Washington politicians considering asking former Barclays chief executive to testify as Libor-fixing controversy crosses to US
US politicians are considering summoning Barclays’ former boss Bob Diamond to Washington to answer questions about the Libor-fixing scandal, in a sign that the controversy is becoming an ever hotter issue in the US.
Two high powered committees, the Senate Banking committee and the House Financial Services committee, are both believed to be considering calling Diamond to testify. The committees declined to comment, but sources close to them said they were in the early stages of gathering information and were almost certain to call the former Barclays chief executive after the summer recess. A spokesman for Bob Diamond declined to comment.
Senator Tim Johnson, chairman of the banking committee, said on Tuesday that his panel would quiz Federal Reserve chairman Ben Bernanke and Treasury secretary Timothy Geithner on the scandal at hearings scheduled before the August break.
“I am concerned by the growing allegations of potential widespread manipulation of Libor and similar interbank rates by some financial firms,” said Johnson.
The US justice department is already investigating the scandal, and several cities and state pension funds have launched legal action, claiming that their investments suffered as a result of the manipulation of Libor rates.
Barclays is the first high-profile settlement with regulators, and last month was fined £290m ($450m) by regulators in the UK and US over allegations that it attempted to manipulated Libor. But more than a dozen other banks including Citigroup, HSBC and JP Morgan Chase are being investigated for their roles in setting Libor rates.
White collar crime expert William Black, professor of economics and law at University of Missouri Kansas City, said US action would soon escalate the scandal. “We have very tough disclosure laws. We already seen how horrific these people’s emails can be, there’s going to be a lot more where that came from,” he said.
In emails already disclosed, Barclays traders referred to Libor “fixings” and appear to have colluded in manipulating the exchange rate. “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger,” wrote one trader after a colleague helped him out.
In the first signs of the reputational fall-out of the crisis, which has left Barclays searching for a new chief executive and chairman, Barclays was dropped from a bond issue for Japan Bank for International Cooperation, because of its involvement in the attempts to fix Libor.
Barclays refused to comment on its role in the bond issue, although City sources noted it had been active in other bond issues in recent days, including for other Japanese issues such as Sumitomo and NTT.
Wayne State University law professor Peter Henning said the scandal had the potential to become “the signature financial fraud of the meltdown.” He said the trigger point was likely to come if and when a US bank is fined.
Henning pointed out that the Justice Department’s fraud division was looking after the case, not the anti-trust division.
“They are looking at this as a fraud case. That’s much more serious for any individual involved. Given the amounts of money we are discussing, there could be serious jail time if anyone is convicted,” he said.
Henning said he expected the scandal to become an increasingly hot political topic. Analysts in the City are attempting to calculate the potential cost of any litigation. Cormac Leech, an analyst at Liberum Capital, calculated that bailed out Lloyds Banking Group could face a bill of £1.5bn – 7% of its stock market value – in the eventual fallout from the affair.
About 45% of US mortgages are tied to Libor rates, and cities including Baltimore are claiming they have had to cut essential services as a result of losing money on investments tied to Libor.
“They are never going to say this, but the Obama administration would like nothing more than to charge a big banker ahead of the election,” said Henning.
John Coffee, a Columbia Law School professor, said the scandal was proving as damaging for regulators as bankers.
The fallout from the scandal is already hitting Obama’s team. Geithner was president of the Federal Reserve bank of New York when the alleged manipulations took place and was aware of some of the issues. Geithner held a meeting on April 28 2008 titled “Fixing Libor” and communicated his concerns to the UK authorities but no further action appears to have been taken.He also regularly spoke to senior figures at Barclays, including Diamond.
“If the Federal Reserve knew that Libor was being manipulated and sat there and tolerated it, it suggests they were more interested in their relationships with the banks than with consumers,” said Coffee.
“When Republicans are being hammered for being too close to big business, what could be better than pointing fingers at Geithner?” said Black.
The way Barclays has been debased to enrich a few hundred of its elite employees is also the story of Britain in recent decades
You’d have learned precious little from watching Bob Diamond in parliament last week – apart, that is, from his love for his former employer. If pressed, you or I might admit to tolerating our jobs, to getting on with colleagues or, at the very least, to taking full advantage of the company stationery supplies. For the multimillionaire banker, however, this would be mere watery equivocation. The firm that had forced him out just the day before was “an amazing place”, packed with “wonderful people”. And, he told MPs over and over: “I love Barclays.”