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Lunchtime Links: The problems with Bob’s bonus

This was not surrender (Photo credit: Wikipedia)

This was not surrender (Photo credit: Wikipedia)

Bob Diamond has conceded.  He may not get quite such a big bonus.

Henceforth, Bob will be linking half his long term bonus awards, paid out over the next three years, to performance. Specifically, during that time BarCap’s return on equity must equal its return on equity. If that doesn’t happen, £1.35m of Bob’s £17.5m pay will be rescinded, forever.

Needless to say, this isn’t seen as entirely punitive.   As the Wall Street Journal points out, all it takes is for a small economic return in any year between now and 2015 and Bob’s bonus will be fully restored to its former glory.

As Robert Peston points out, Barclays’ returns are currently parlous, making it somewhat strange that so small a portion of Bob’s bonus is at risk: in 2011, the return on average shareholders’ equity was 6.6%; Barclays’ cost of equity was around 11%.

Moreover, by linking (a little bit of) Bob’s bonus to return on equity, one shareholder points out that Bob is simply being incentivised to add leverage, which is surely not a good thing.

Bob may need to placate a lot more heavily.


“For us it is about Barclays’ reliance on investment banking and the connected issue of the huge amount it pays senior investment bankers” said an influential shareholder. “Barclays has not tackled that”. (BBC)

Ruth Porat says Morgan Stanley’s great sales and trading success was the result of flow and engagement with clients, ‘adjacencies’, leadership and investment in technology. (Seeking Alpha)

James Gorman: This is not a flash in the pan. (Seeking Alpha) 

Standard Chartered does not pay people to hustle. (Finance Asia)

UBS’ algo designers have been usurped by the iPad. (Bloomberg) 

Maybe you don’t want to be based in Dubai. (TheGlobeandMail)

Wealth perpetuation: Renaissance Technologies has started a new fund, mostly with money from employees. (Bloomberg) 

The number of staff leaving the FSA rose from 330 in 2010 to 430 in 2011. (MoneyMarketing)

There are jobs in Ireland paying €350 a week for ‘excising bones from bloody slabs of cow’ (Wall Street Journal) 

Comments (1)

  1. See Bob run. Bob is good at being a banker. Bob has made sure that leverage is a word that Janet and John can do, even if Janet and John do not understand it. Bob is bewildered by all the fuss about leverage and things like credit default swaps. Janet and John have tea with cream cakes. Bob has tea without cakes. But Bob enjoys sandwiches, so that is alright, isn’t it, Bob? We bankers always get our cake later. Night-Night sweeties. Time for bed said Zebedee.

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