As executive pay faces crackdown, Barclays plans a £5bn bonus pot

EXCESSIVE pay packets of bankers and bosses are set for a crackdown as Deputy Prime Minister Nick Clegg and the Bank of England seek ways to curb out-of-control remuneration and bonuses at the top of corporate culture in Britain.

Nevertheless, Barclays is reportedly planning to pay its investment bankers an estimated £5 billion this year despite calls for restraint from Bank Governor Sir Mervyn King.

Speaking on the BBC’s Andrew Marr Show yesterday, Clegg yesterday pledged to balance austerity in the public sector with a crackdown on “abhorrent” top corporate pay.

Clegg said action would be taken in the new year to ensure that state employees do not feel like they are doing “all the heavy lifting”, but he stressed that the UK government would not be “going round setting pay rates in the private sector”.

Meanwhile the Bank’s financial policy committee (FPC) is considering bringing in rules on how bank bonuses are measured, making it much harder for lenders to hand out multi-million bonuses to high-flying staff.

The proposed technical change will see bonus awards based on “return on assets” (RoA) rather than “return on equity” (RoE), the use of which allowed bankers to reap vast rewards on transactions while risks were passed to shareholders and ultimately the tax payer in the wake of the banking crisis.

According to analysis led by FPC member Andy Haldane and supported by Bank external member Robert Jenkins, the average pay of the top seven US investment bank bosses rose from $2.8 million (£1.8m) to $26m between 1989 and 2007 when RoE was increasingly used as a performance target. But, if the performance had been linked to RoA, pay would have increased to just $3.4m in the same period.

Robert Talbot, chief investment officer at fund manager Royal London Asset Management, said: “This is something shareholders have been talking about with management for about 12 months. RoA would lead to reducing the size of the overall bonus pool because it is a harder target for them to meet.”

Regarding pay in listed firms, Clegg said he wanted to “break open this closed shop of remuneration committees, which seems to be too often an old boy’s network… I scratch your back you scratch my back.”

Rank-and-file workers could be put on remuneration committees and companies could be forced to publish pay ratios between junior and senior staff.

Shareholders were too often given a “blizzard of information” about pay and had their opinions ignored, Clegg said.

Some 24,100 staff at Barclays Capital, the bank’s investment arm, are in line to receive an average £210,000, which would include all salaries, bonuses and other benefits, according to reports yesterday. But the £5bn total bonus pot would be 10 per cent lower than last year.

Reports over the weekend suggested Eric Daniels, former chief executive at Lloyds, is preparing to resist having up to half of his £1.5m bonus clawed back.