Bonus season is guaranteed to provide some talking points, and this year is no different.
For many within the City, the award of massive payouts for those at the helm of major financial institutions is simply the cost of employing such “talent”; a relatively small price to pay given the massive demands of the job.
For others, the seven figure sums customarily awarded are highly symbolic of the industry’s continued practice of rewarding failure: individuals at the heads of organizations are responsible for establishing the culture of those organizations and, where evidence suggests that cultures are continuing to fall short of what is required, this should be reflected in executive remuneration.
The ongoing shortcomings of the banking industry make this latter view hard to dispute. The LIBOR scandal continues to rumble… Barclays, HSBC, Lloyds and RBS have begun to review their sales of interest rate hedging products (IRHPs) to small businesses, and the extent of this latest mis-selling scandal will soon be fully understood… the list goes on.
The decision by new Barclays boss Antony Jenkins to waive his bonus (which was reportedly up to £2.75m) was therefore welcome. First and foremost he looked to be applying the credo he recently laid out to his own employees: what he described as “an approach which… squarely links performance to the upholding of our values”.
Indeed, Mr Jenkins was transferred into the position following the resignation of Bob Diamond last summer, having previously headed up the bank’s retail arm, and has been given a clear brief to clean up the bank’s image and culture. He simply had to refuse the bonus to retain any credibility within that role: he hasn’t been in place anywhere near long enough to have established genuine cultural change at the bank.
Whatever steps Mr Jenkins does make towards cultural change at Barclays will take some time to manifest themselves, not least because the hangover from the financial crisis continues to linger. Take, for example, the investigations by the FSA and SFO into money that Barclays received from Qatar in 2008 which it is believed enabled the bank to avoid relying on UK government bailout. It was recently alleged that Barclays lent money to Qatar to invest in Barclays, which, if proved true, could result in criminal action and further reputational fallout.
Against these ongoing and intermittent scandals, the inherently slow, cumulative process of changing a culture is made doubly hard. Cultural change is a marathon, not a sprint, and the results of (and rewards for) such change should be measured along similar timescales. In that sense, Liberal Democrat peer Lord Oakeshott is right when he says that “Three years would be soon enough” for Mr Jenkins to demonstrate that some gains had been made in this area. Any seven figure bonuses before then might be considered scandalous in themselves.