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Barclays pay focused too much on profits, independent review concludes Barclays bankers tried to 'win at all costs', independent review concludes
(about 2 hours later)
Barclays was complex to manage, failed to create a group-wide culture and had pay policies that focused too much on profit generation, according to the top lawyer appointed by the embattled bank to review its culture. Barclays bankers were engulfed in a culture of "edginess" and a "winning at all costs" attitude, according to the top lawyer appointed to lead a review into the ethics of the embattled bank.
In a 244-page report (pdf) – which cost £17m – compiled after interviews with 600 individuals in the wake of the Libor-rigging scandal, Anthony Salz calls on Barclays to strengthen its board, bolster its human resources function and link its pay to the "long-term success of the organisation".In a 244-page report (pdf) – which cost £17m – compiled after interviews with 600 individuals in the wake of the Libor-rigging scandal, Anthony Salz calls on Barclays to strengthen its board, bolster its human resources function and link its pay to the "long-term success of the organisation".
Salz said that the remuneration put in place during 10 years of rapid growth as Barclays rose to become a top-five bank rewarded "revenue generation rather than serving the interests of customers and clients".
The board should have "set the tone" of culture from the top but "with the benefit of hindsight we believe that the Barclays board did not give sufficient attentions to this area", the report found, and was not able to penetrate the structure of the bank.
The human resources department did not "stand up" to the pay culture that developed, said Salz, who also described "an institutional cleverness" which made it difficult for shareholders to engage with the bank.
"Based on our interviews, we could not avoid concluding that pay contributed significantly to a sense among a few that they were somehow unaffected by the rules," the report said. "A few investment bankers seemed to lose a sense of proportion and humility.""Based on our interviews, we could not avoid concluding that pay contributed significantly to a sense among a few that they were somehow unaffected by the rules," the report said. "A few investment bankers seemed to lose a sense of proportion and humility."
Barclays had an "edginess and strong desire to win", said Salz. "Barclays was sometimes perceived as being within the letter of the law but not within its spirit." The strongest culture was inside the investment bank, which Salz said was focused on success. But, he noted: "Winning at all costs comes at a price; collateral issues of rivalry, arrogance, selfishness and a lack of humility and generosity".
In opening remarks, Salz said: "Banks matter. Barclays is a major institution which daily touches the lives of millions, operates in more than 50 countries and employs 140,000. The report – which for the first time criticises the management style of former chief executive John Varley – provides an insight into the pay of the top 70 executives who received up to 35% more than peers at rival banks. It reveals that in 2010 some 728 Barclays bankers received more than £1m – considerably more than 428 that the bank admitted received that sum in 2012.
"Despite its turbulent recent history, Barclays has emerged from the financial crisis, somewhat against the odds, as one of the world's leading banks. But this has been achieved at a cost. A group of 200 executives were also paid through a long-term incentive plan (Ltip) – now restricted to just a handful of top executives – which paid out lavish rewards. In the investment bank, the Ltip paid out £170m each year between 2002 and 2009 to a changing group of 60 people.
"Significant failings developed in the organisation as it grew. The absence of a common purpose or common set of values has led to conduct problems, reputational damage and a loss of public trust". Salz notes that the culture was created during 10 years of rapid growth as Barclays rose to become a top-five bank under the stewardship of Varley, who handed the top job to Bob Diamond in January 2011. Varley had an executive committee of six colleagues which did "not develop a cohesive team at the top".
Diamond, who left in July 2012 just days after the bank was fined £290m for rigging Libor, attempted to develop one culture across the bank in contrast to the operation of silo-like divisions.
Divisions previously run by Diamond's successor and current chief executive, Antony Jenkins, are also highlighted. Barclaycard had a culture of making money ahead of customer satisfaction while the retail bank had a focus on sales where loans sold with payment protection insurance generated two-and-a-half times more commission for staff than loans sold without the discredited insurance.
Salz found that the board should have "set the tone" of culture from the top but "with the benefit of hindsight we believe that the Barclays board did not give sufficient attentions to this area", the report found, and was not able to penetrate the structure of the bank.
The human resources department did not "stand up" to the pay culture that developed, said Salz, who also described "an institutional cleverness" which made it difficult for shareholders to engage with the bank.
Barclays had an "edginess and strong desire to win", said Salz. "Barclays was sometimes perceived as being within the letter of the law but not within its spirit.
"Significant failings developed in the organisation as it grew. The absence of a common purpose or common set of values has led to conduct problems, reputational damage and a loss of public trust."
Salz made 34 recommendations – which included requiring closer co-operation with regulators and finding more board members with banking expertise. The chief executive should build a "cohesive senior executive team" and create an environment where staff felt they could escalate issues to senior management, he said.Salz made 34 recommendations – which included requiring closer co-operation with regulators and finding more board members with banking expertise. The chief executive should build a "cohesive senior executive team" and create an environment where staff felt they could escalate issues to senior management, he said.
Sir David Walker, appointed chairman of Barclays in the wake of the Libor fine, said: "The report makes for uncomfortable reading in parts. That is bound to be the case when one asks for an independent examination of this kind, and we must learn from the findings".Sir David Walker, appointed chairman of Barclays in the wake of the Libor fine, said: "The report makes for uncomfortable reading in parts. That is bound to be the case when one asks for an independent examination of this kind, and we must learn from the findings".
Salz is a director of the Scott Trust, owner of the Guardian. Rothschild, where Salz is also a director, received £1.5m in fees for his time.Salz is a director of the Scott Trust, owner of the Guardian. Rothschild, where Salz is also a director, received £1.5m in fees for his time.
In his report, Salz noted that the bank came across as "too clever by half" and that its involvement in tax avoidance through its structured capital markets (SCM) division – which new chief executive Antony Jenkins insists is being shut down – operated in an "inherently risky business". The 100 people employed in SCM continued to work at Barclays but have been moved to other areas. In his report, Salz noted that the bank came across as "too clever by half" and that its involvement in tax avoidance through its structured capital markets (SCM) division – which Jenkins insists is being shut down – operated in an "inherently risky business". The 100 people employed in SCM continue to work at Barclays but have been moved to other areas.