CEO compensation


Abigail Hofman
Published on:

Last month I mused about the 2012 compensation for Barclays chief executive Bob Diamond and whether the large package was justified. I received some interesting feedback on this topic. One source pointed out that a large part of the £20 million number I had referred to was vesting shares, accumulated during previous years when Diamond was head of the investment bank. Source went on to state that if Diamond and his advisers were more in touch with sentiment in the country, they might have realized that even though every item of the compensation package could be justified, it was simply not appropriate to snaffle all the moolah at once. "Why not put some of it in a charitable foundation?" source queried. "Or put it in trust until the share price rises by 30% so investors feel good about Diamond getting paid?"

Another reader came up with a different angle. "What everyone’s missing about Bob Diamond and other highly paid bank executives," Mole mused, "is that these guys are not real capitalists. Consequently, they’re giving our entire system a bad name and even making it hard for governments to implement pro-business policies. True wealth creators get lumped together with senior bankers’ predatory, rent-seeking approach and their defiant sense of entitlement.

"Capitalism has two essential components – risk and return. The people who make extraordinary income are meant either to take extraordinary risk, and/or make extraordinary returns for the providers of the risk capital (ie, the shareholders).

"Western bank bosses, such as Diamond, don’t clear the first hurdle since they have no capital at risk. And as regards returns for the owners, Barclays’ return on equity last year was 5.8% (which Diamond himself described as ‘unacceptable’) and the share price performance was lackluster. So clearly the owners of the business – shareholders – did not earn excessive returns.

"Then you have the specious argument that banks have to pay multi-million sums to retain senior staff. This argument ignores the basic premise that, if you can keep staff only by paying remuneration levels that destroy value for shareholders (by pushing returns below the cost of equity), then as responsible capitalists the board has no choice but to withdraw capital from that activity. And for the Barclays’ chairman, Marcus Agius, to describe the uproar as a ‘communication’ issue is a total abdication of his and the board’s collective responsibility as capital allocators."

I can only bow my head in admiration for the perspicacity of Mole’s analysis. However, I do have one tiny point of my own to add. I wonder what sort of bonus, if any, Jamie Dimon will get for 2012?