Barclays 2012 Annual Report Download - page 76

Remuneration questions and answers
Q How can you justify a bonus pool of £1.85bn when the bank’s
return on equity is not at an acceptable level?
A Adjusted return on average shareholders’ equity has increased
from 6.6% in 2011 to 7.8% in 2012, with improvements in the
majority of our businesses. However, we recognise there is
still much work to be done to ensure that the return on equity
exceeds the cost of equity on a sustainable basis.
Against this background the Committee’s view is that the
reductions that have been made to both our incentives pool
and broader remuneration costs are significant and appropriate.
2012 Group total incentive awards are down by 16% and the
Group bonus pool is down by 14% in absolute terms year
on year. Compensation costs are down from 42% to 38%
as a proportion of adjusted net operating income. These
reductions are against the background of significantly increased
profitability.
Although the market for talented staff in banking and financial
services is still a highly competitive one we have substantially
lowered Barclays compensation ratios, both absolutely and
relative to our peer group. To have made larger reductions at
this stage would, in the Committee’s view, have taken undue
retention risk.
We have made progress over the last two years. The 2012 Group
total incentive awards of £2.168bn is £1.3bn (38%) down on the
2010 levels. Group adjusted profit before tax is up 23% over the
same period.
Q How was profit distributed between shareholders and
employee remuneration in 2012?
A The chart opposite details how the earnings generated by
our businesses are distributed to key stakeholders, including
shareholders (in the form of dividends) and to employees.
The dividend per share has increased year on year from 2010
to 2012. The compensation to adjusted net operating income
ratio and bonus pool as a percentage of adjusted profit ratio
have both decreased over the same period. The Committee’s
approval of the 2012 Group total incentive awards took into
account the Group’s solid financial performance but also
reflected our broader intention to reduce compensation costs
on both an absolute and proportional basis. We see these
adjustments as part of a multi-year process following actions
we took in 2011, when total incentive awards were reduced
26% on a year on year basis across Barclays and 35% in the
Investment Bank.
Q Why do you need to pay bonuses at all?
A Barclays has to pay competitively to ensure it has people with
the skills and experience needed to deliver Barclays strategy.
In some parts of the banking sector, particularly investment
banking, variable remuneration in the form of bonuses forms
a high proportion of an employee’s total remuneration. This
has given Barclays the ability to reduce total remuneration
significantly in underperforming areas and manage and control
the cost base. However, it also means that in business areas
that perform to a satisfactory or good standard, some element
of variable remuneration is required to make employees’ total
remuneration competitive. It might be possible to deliver
competitive remuneration through higher rates of fixed
remuneration, but this would limit the bank’s ability to reduce
costs in underperforming areas and to respond to stress
scenarios through effective management of remuneration.
Distribution of earnings
We believe that the best way to support our stakeholders is by
operating a strong, profitable and growing business, which
creates jobs and contributes to the economic success of the
communities in which we live and work. The charts below detail
how the earnings generated by our businesses are distributed to
a number of key stakeholders.
6.5p
6.0p
5.5p
Dividend per share
19%
22%
19%
Dividend payout ratioa
Shareholders
2012
2011
2010
£3,234m
£3,341m
£3,138m
Taxes borneb
£2,856m
£3,078m
£3,011m
Taxes collectedc
Government
2012
2011
2010
38%
42%
43%
Compensation
to adjusted net
operating income
20%
29%
34%
Bonus pool as
% adjusted profit
Staff
2012
2011
2010
Notes
a Calculated as dividend per share divided by adjusted EPS.
b Taxes borne are the Company’s own tax contribution, representing taxes paid
by the Company in the year.
c Taxes collected are those collected from employees and customers on behalf
of governments.
barclays.com/annualreport74 I Barclays PLC Annual Report 2012