Bankers laugh all the way despite pay rules

Maria Ramos’s guaranteed pay soars as Barclays implements EU bonus regulations

BARCLAYS Africa Group more than doubled the guaranteed pay of CEO Maria Ramos last year, but substantially reduced her variable remuneration to keep in line with European regulations that are aimed at restraining out-of-control rewards to bankers.

The combined impact left Ramos — who has been criticised for the generosity of her remuneration despite pedestrian profit performance — with a marginal decline in her total 2014 package — down to R28.6million from R28.7-million in 2013. Ramos’s fixed pay included R6.5-million of role-based pay.

As a subsidiary of a UK bank, Barclays Africa has been subjected to European Union (EU) rules that took effect in January last year, restricting a banker’s variable pay to 100% of fixed pay. That ratio, intended to reduce recklessness by limiting rewards for short-term successful risk-taking, can be increased to 2:1 with shareholder approval.

Pay analyst Kaylan Massie, the author of the Remuneration Matters blog, said the restriction had been a banker’s bounty. Banks have resorted to shifting previously at-risk pay into guaranteed income. The majority of large European banks have introduced a new category of fixed pay: role-based allowance. This has been described as a payment of cash or shares that takes into account the role and responsibility of the employee.

Massie says that the EU’s bonus cap seems deeply misguided as a policy designed to reduce excessive risk-taking. “Bankers now have a large safety net in the form of a bigger guaranteed salary to fall back on if their risk-taking behaviour fails to produce results. It is possible that this structure actually incentivises risk-taking,” she says. Massie also points out that during periods of poor performance, banks will not have the flexibility to reduce these higher levels of fixed pay.

Craig Bond, the CEO of Barclays Africa’s retail and business banking division, followed close behind Ramos with just BREAKEVEN: Barclays Africa Group CEO Maria Ramos over R27-million, a marginal increase on his 2013 pay. Bond’s guaranteed pay was also more than doubled to R11-million and BETTER OFF THAN BEFORE: Nedbank CEO Mike Brown his variable pay hiked to R16million. Bond’s fixed pay included R5-million of role-based pay.

At Nedbank, the smallest of South Africa’s four big banks, there was little sign of restraint as CEO Mike Brown was awarded a R35-million package last year. This was 8% up on the previous year’s R32.5-million.

Brian Kennedy, who was recently appointed group managing executive for corporate and investment banking, enjoyed a 24% hike in pay to R29.4-million. His package included a R4-million “on-appointment award” to celebrate his new position.

Ingrid Johnson’s decision to quit Nedbank, where she was the head of business and retail banking, to take up the position of financial director at parent Old Mutual, cost her R10-million through the forfeit of the share- based awards that she received from Nedbank in 2013.

This “loss” is expected to be more than made up by a generous “signing-on” bonus from Old Mutual.

Shareholders and other interested parties who wade through Nedbank’s torturous 33-page remuneration report, contained in the group’s integrated report, might be satisfied with the reasons provided for the continued generosity heaped on bankers. But the majority of its millions of retail customers are unlikely to be persuaded by the justification most often used: that these are the levels demanded by the market for top bankers. Nedbank’s remuneration committee, like those of most listed companies, appears to work on the assumption that paying top-dollar guarantees the best executive talent.

In his remuneration report, Mpho Makwana, the chairman of the remuneration committee who has just assumed chairmanship of the board, refers to the measures introduced in Europe to restrict levels of bonus payments as a multiple of guaranteed pay.

He refers to the argument frequently advanced by banks “that increased regulation in Europe may reduce the competitiveness of the employment market in the region, with highly qualified and skilled individuals migrating to other, less onerous jurisdictions.”

Makwana supports Massie’s contention that the increase in fixed remuneration could increase business risk.