Barclays 2009 Annual Report Download - page 172

170 Barclays PLC Annual Report 2009 www.barclays.com/annualreport09
Corporate governance
Remuneration report
Statement from the Chairman of the Board HR and
Remuneration Committee
Context
The Committee’s goal is to balance the needs of sustaining a competitive
business capable of creating future value for shareholders with the
crystallisation of current returns to build capital to finance business growth
and to pay dividends to shareholders.
This is never an easy balance to strike and trading conditions of the last
two years, exceptional levels of political and social interest in remuneration,
new fiscal measures and new regulatory requirements that differed in their
interpretation in different jurisdictions all complicated our task this year. This
has also been a year of significant business growth in investment banking
which has materially increased the scope of matters requiring our attention.
During 2009, we have been reviewing our remuneration practices to
ensure that they remain appropriate and effective. The context of the review
was to ensure that the important principle of pay for performance that
underpins our business continues to be implemented in a way that is
consistent with and supportive of:
– appropriate management of risk
– delivering returns to shareholders
– strengthening the balance sheet to support current business activities
such as lending to our customers, and future business growth
– protecting the business franchise by maintaining our competitiveness in
the labour market.
We have drawn directional conclusions from our work to date which will
underpin our decisions about structure and quantum of compensation
looking forward. These are:
– a significantly greater proportion of incentives will be longer term and
more will be deferred in order to contend with greater risk adjustment,
industry cyclicality and market volatility
– the use of equity for employee remuneration remains central to ensuring
alignment of shareholder and employee interests
– there will be greater emphasis on the detailed consideration of risk
associated with individual performance
– there is a role for greater exercise of discretion to avoid the perverse results
that can arise particularly from long-term schemes being tied to over-
precise performance projections. Discretion should be exercised within the
context of a robust framework of performance and risk data, and be
associated with appropriate levels of accountability.
How the Committee goes about its business
A critical element of our approach is a robust governance framework.
The Committee approves forward-looking frameworks based on financial
metrics to ensure leadership and planning of remuneration in each of the
key businesses. These frameworks incorporate metrics consistent with
delivering the businesses’ business plans; and are assessed against market
benchmarks to inform its decision making when approving aggregate
remuneration proposals from management as well as the remuneration
proposals of any employee above a specified threshold or falling within the
scope of the FSA’s Remuneration Code.
To reflect the Group’s stated goal of focus on returns over growth, the
return we generate on risk-weighted assets was added in 2009 to the key
metrics of financial performance used in these frameworks. Our metrics
include compensation as a percentage of pre-compensation PBT and of net
revenues. We also monitor absolute compensation per employee.
The Committee’s decision making is also informed by input from the
Group Finance Director and, more recently, the Chief Risk Officer directly to
ensure that the level of risk within the business and the quality of underlying
profits have been considered. The Committee has also considered the
impact on profits from a number of factors including use of Central Bank and
government schemes, higher liquidity requirements and the shape of the
yield curve.
The Committee also reviews the structure as well as the quantum
of compensation, with particular attention on levels of deferral, the mix
of annual and long-term incentives and the proportion of equity relative
to cash.
In reaching its final decisions, the Committee uses its discretion,
informed by an assessment of performance and risk within the context
of a strong, risk-adjusted culture, and underpinned by robust governance
processes. Market benchmarking is an important but not the only input
in supporting the Committee’s objective to pay the minimum amount
consistent with maintaining competitiveness and long-term shareholder
value creation.
Subsequent to each year, we look back and review the extent to
which our decisions met our objectives and seek to learn lessons for
the coming year.
The Committee retains independent advisers to support it in its work.
2009
The performance of Barclays during 2009 is described in detail in the Group
Chief Executive’s business review. Barclays delivered profit before tax of
£11.6bn, 92% up on 2008. The underlying profits of the Group were also
very strong, increasing 243% to £5,634m from £1,643m. In addition,
excellent progress was made in the following areas:
– Core Tier 1 ratio increased from 5.6% for 2008 to 10.0% for 2009
– the balance sheet reduced by 33%
– adjusted gross leverage decreased to 20x compared to 28x in 2008 and
the Group liquidity pool increased to £127bn compared to £43bn in 2008
– gross new lending to UK households and businesses totalled £35bn
during 2009
– the payment of dividends resumed with a final dividend of 1.5p per share,
giving total declared dividends for 2009 of 2.5p per share.
Our decisions on discretionary pay in 2009 properly reflect this performance.
The increase in incentive compensation in the investment banking business
was materially less than the increase in total income (with the ratio of total
compensation to total income falling from 44% in 2008 to 38% in 2009);
and the cost to net income ratio was brought down even more sharply.