At Barclays, Inaction Speaks Louder than Words

The Barclays annual shareholder meeting last week was a loud and lively affair, with howls of protest directed at CEO Bob Diamond and Chairman Marcus Agius over the bank’s pay practices.  Here’s how it was reported by the New York Times:

“The atmosphere at the meeting was hostile from the start, and the speeches were repeatedly interrupted by hecklers. Mr. Diamond was booed as soon as he stepped on the stage to take his seat, and when Mr. Agius said Barclays had “made progress” over the last two years in accepting that “remuneration levels across the industry have to adjust to the new reality,” the audience burst into laughter.”

Shaken by the ordeal, Mr. Agius said poor communication was the root of the problem:

Mr. Agius said Friday that he was sorry that some shareholders felt their views on executive pay had not been taken into consideration. “What we’ve not done well this year — and I admit it and I apologize for it — is handle communication,” he said.

If only that were true.  Mr. Agius has spoken about compensation in a clear and consistent manner.  Here is what he said about it in the 2011 annual report (emphasis added):

Remuneration continues to be the subject of considerable discussion. It remains our policy that we only pay for performance, not failure, and that we only pay the minimum necessary to be competitive. Historically, there has been intense competition for talent, particularly in the investment banking industry. The difficult economic environment and the impact of regulation on the profitability of investment banking lessened this competition in 2011 and, as a consequence, performance related pay across the Group reduced significantly. We recognise that compensation has to adjust to the new reality of lower returns for the sector and we will continue to ensure that our remuneration policies and practices are aligned with the long-term interests of our shareholders.

Those are fine, brave words; they are music to shareholders’ ears.  Except when you realize the pay reduction to which Mr. Agius refers was only in the aggregate and that Mr. Diamond was exempt from it.

A year ago, in the 2010 annual report, Mr. Agius gave shareholders similar assurances about pay restraint (again, emphasis added):

“As Chairman, I am acutely aware of the public disquiet over remuneration in the industry. Barclays is committed to acting responsibly in this area. We are fully compliant with all regulatory requirements and our remuneration systems are designed to reward success, not failure.”

In fact, you can look back at Mr. Agius’s remarks on pay in any year and see strong, purposeful words, carefully crafted and oozing sincerity.  Here’s the 2008 vintage (once again, emphasis added):

“As a Board, we very much regret what has happened to the banking sector in general and to Barclays share price in particular. We fully recognise that banks must review their internal governance systems and remuneration structures to ensure there can be no repeat of the turmoil that has impacted the industry, and the wider economy, over the last 18 months. The Board HR and Remuneration Committee is reviewing compensation policy and structures across the Group to ensure maximum alignment both with the interests of our shareholders and with best practice. The Board is also committed to ensuring that Barclays plays its full part in contributing to the restoration of the health of the global economy and, with that, the reputation of the industry.

Saying the right thing hasn’t been Mr. Agius’s problem.  But effective communication involves actions, not words, and that’s where Agius and the Board have failed.  That is why shareholders – and the public – are so irate.   Despite all of the nice language about “aligning shareholder interests,” pay for Mr. Diamond and other senior executives went up while shareholder returns went down.

No amount of communication can change those facts.

Five years of lovely, meaningless words.  No wonder shareholders are in revolt.


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