Barclays 2014 Annual Report Download - page 29

barclays.com/annualreport Barclays PLC Annual Report 2014 I 27
Running the company well
Becoming ‘Go-To’
The Committee remains focused on paying for sustainable
performance, aligning remuneration with risk and
delivering a greater proportion of the income we generate
to our shareholders.
Consistent with this, between 2010 and 2014 the
incentive pool has decreased by 47%.
Dear Shareholders
We recognise that remuneration is an area of particular importance
and interest to shareholders and it is critical that we listen to and take
into account your views. Accordingly, my meetings with major
investors and shareholder representative groups have been helpful and
meaningful, contributing directly to the decisions made by the
Committee for 2014.
Performance and pay
An important principle which the Committee applies in its deliberations
is that while Barclays will not pay staff more than we judge to be
necessary, it is in shareholders’ interests that Barclays should pay for
performance. Front of mind is that we determine the correct level of
variable pay in a given year in order to maximise shareholder value over
the medium term.
In May 2014 the update to the Group Strategy resulted in the creation
of a Core business comprising four units: Personal and Corporate
Banking, Barclaycard, Africa Banking, and the Investment Bank.
This Core business represents the future of Barclays. Separately we
established Barclays Non-Core, with the intention of disposing of the
assets therein over time, assets which are no longer strategically
attractive to Barclays.
This restructuring has enabled Barclays to strengthen performance
across a range of metrics. The Group has delivered solid financial
performance with adjusted profit before tax up 12% to £5,502m for
2014. In achieving this there have been particularly good results in
Personal and Corporate Banking and Barclaycard. These results are
partly offset by a reduction in Investment Bank adjusted profit before
tax, as well as the impact of adverse currency movements in Africa
Banking. Sustained progress is being made and the balance now
present in the Group means that Barclays is a stronger business.
There has been considerable progress in strengthening the capital
position of the Group with Common Equity Tier 1 (CET1) ratio of
10.3% and a leverage ratio of 3.7% at the end of the year. Adjusted
operating expenses excluding costs to achieve Transform (ex CTA)
are down by £1.8bn year on year, in line with target. Barclays Non-Core
reduced Risk Weighted Assets by nearly a third, making substantial
progress towards the target, and materially reduced its drag on returns.
In formulating our 2014 decisions on variable pay the Committee ensured
that pay appropriately reflects financial performance delivered, both on an
adjusted and statutory basis, but also rebalanced returns back towards
shareholders. Performance against the commitments across the 5Cs of
the Balanced Scorecard was also an important consideration.
While the 2013 decisions on incentives reflected the high global
resignation rate for senior staff, the 2013 outcome helped to stabilise the
position. There continue to be some areas of concern but these are more
localised and had less bearing on 2014 pay decisions.
Consistent with that intent to rebalance returns, the incentive pool is
significantly lower overall for 2014, down by more than £0.5bn or 22%
in absolute terms at £1,860m compared to the incentive pool of £2,378m
for 2013, against a backdrop of an increase in adjusted profit before tax
year on year. The reduction in incentive pool is aligned to the reduction
in statutory profit before tax which incorporates all conduct adjustments.
Part of the reduction in the incentive pool year on year is due to the
introduction of Role Based Pay (RBP) in 2014. Nevertheless, on a like for
like basis the incentive pool is down 11% on 2013. The introduction of
RBP in 2014 meant that an additional accounting charge of c£250m was
taken in the year, which would otherwise have been borne in future years
under our previous remuneration structures.
The Investment Bank incentive pool is down 24% in absolute terms.
This reduction is greater than the change in adjusted profit before tax (ex
CTA) which is down 21%. For the reasons set out above, the introduction
of RBP impacted profitability in the Investment Bank in 2014. Excluding
the impact of RBP, Investment Bank adjusted profit before tax (ex CTA)
would have been down by 12%. On a like for like basis, the Investment
Bank front office incentive pool is down 12%.
Total compensation costs are down 8%, and the compensation to
adjusted net income ratio for Barclays Group is at 37.7%, down from
38.7% in 2013. In the Core business the ratio is at 35.7%, an
improvement of 50 basis points, and therefore tracking at the target level
of mid-thirties. The average value of incentive awards granted per Group
employee in 2014 is down 17% at £14,100 (2013: £17,000).
Following these 2014 decisions, the incentive pool has reduced by £1.62bn
from £3.48bn in 2010, an overall reduction of 47%, while adjusted profit
before tax over the same period is up 18% if the costs to achieve
Transform are excluded. Over this period the compensation to adjusted
net income ratio has reduced from 42.4% in 2010 to 37.7% in 2014.
Remuneration and Risk
As a Committee, we are committed to linking pay with performance
and to making adjustments to remuneration to reflect risk and conduct
events. Risk and conduct events are considered as part of the
performance management process and reflected in incentive decisions
for individuals. All employees have their performance assessed against
objectives (the ‘what’) as well as demonstration of Barclays’ Values and
Behaviours (the ‘how’). We have a clear process for making adjustments
for poor conduct at an individual level. This is underpinned by a robust
governance process overseen by the Remuneration Review Panel and
this Committee. We remain absolutely focused on making the required
and appropriate adjustments both to individual remuneration decisions
as well as the overall incentive pool where required.
Although no resolutions have yet been reached with the relevant
investigating authorities, the Committee has adopted a prudent
approach in relation to any potential settlements in respect to the
ongoing Foreign Exchange trading investigations. The 2014 incentive
pool has, as a result, been adjusted downwards by the Committee.
The Committee will, however, keep this matter under review.
Implementing fair and appropriate financial reward
Balancing the financial contributions we seek to meet
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