EU Cap Pushes Barclays Into Third Way On Pay
Barclays is drawing up secret plans to negate European Union restrictions on bankers' pay by introducing a separate chunk of remuneration that would be determined by an individual's seniority.
Sky News has learnt that Barclays directors have begun consulting with leading investors on the proposals in recent days as they seek to avoid a feared exodus of top staff to Asian and US-based rivals.
New rules from Brussels which are due to come into effect next year would limit the amount that banks operating in the EU can pay certain employees to the same level as their basic salary, or twice that sum if they have approval from shareholders.
Barclays' 'third way' on bank pay would involve splitting remuneration into three separate elements, rather than the current structure comprising basic pay and annual bonuses.
In addition to the existing components, a non-pensionable sum would be determined each year based on an individual's responsibilities. Paid each month in cash, this would supplement the employee's base salary but not be allowed to count towards the basic pay from which annual bonuses would be calculated.
Barclays' status as the leading proponent of the reforms may prove to be contentious among some investors who were taken by surprise when the bank was forced into a £5.8bn rights issue by banking regulators during the summer.
Its fundraising came after a torrid year for the British lender, beginning with its £290m fine for manipulating the interbank borrowing rate, Libor.
The new structure would not necessarily affect the pay of Antony Jenkins, Barclays' chief executive, or other board members, because much of their pay packages also include long-term incentive plan awards in shares.
Sources say the reforms would not have an inflationary effect on overall pay at Barclays because the new third chunk of remuneration would be factored in to deliberations over annual bonuses for senior staff.
Under one scenario outlined by a leading Barclays investor, a senior executive in its investment bank could be paid a basic salary of £750,000, a maximum bonus - with shareholder approval - of £1.5m, and a sum running to hundreds of thousands of pounds paid in monthly instalments.
Barclays and other UK banks such as HSBC have argued that the EU rules will inhibit their ability to compete with banks less affected, with some institutions complaining that staff are already being poached by non-EU rivals.
"One of the key questions to the banks is that as part of the uncertain bonus is shifted into a more certain payment then what discount should be applied to the more certain third element," said one investor who has been briefed on the plans.
"There are also a lot of questions on how the new third element is determined and how much transparency shareholders will get on this."
The issue of transparency will be particularly crucial since banks have been ordered to disclose more information about how much they pay their top staff.
Hundreds of thousands of City bankers are likely to be caught up in the EU remuneration rules, and other banks are also understood to be planning structures similar to that being discussed at Barclays.
Bankers' pay is already subject to rules relating to the proportions that can be paid in cash and shares, and much of it has had to be deferred for at least three years under reforms introduced in the aftermath of the financial crisis.
During the summer, the Parliamentary Commission on Banking Standards proposed a ten-year deferral period for senior bankers' pay in order to encourage a greater focus on long-termism in the City.
Sky News understands that the Treasury, which this month mounted a legal challenge to Brussels' efforts to impose a maximum two-for-one bonus/pay ratio, is being kept informed about Barclays' plans
The UK banks are also expected to ask shareholders to vote at next year's annual general meetings on a resolution to allow them to pay up to twice the level of base salaries to staff as annual bonuses.
A consultation paper is expected to be published shortly by the Prudential Regulation Authority relating to the implementation of the EU's Capital Requirements Directive-4 (CRD-4) and its implications for bank pay.
Barclays declined to comment.