Bob Diamond\’s bonus is all in shares

From what I can see Bob Diamond\’s bonus is all in shares in Barclay\’s.

Something which rather changes matters.

For, do you recall a few years back, the screaming was that it was the payment of bonuses in cash which was the cause of all the problems? Bankers would do stuff this year that they knew would blow up next but who cared as their bonus was in cash and not reclaimable?

We were told that insisting that such bonuses were not paid in cash would solve this problem. Indeed, moving to long term incentive plans, where bankers were hugely interested in the long term performance of the bank, because that\’s where all their money way, would solve this problem neatly.

We now have a system where those top bods are not getting their bonuses in cash. They are getting them in restricted shares, they\’ve got to wait some years before being able to cash them in. Problem, as originally identified, solved.

But the same people are still shouting about bonuses, aren\’t they? So, clearly, their oirginal shouting about shares was not in fact true, was it?

3 comments on “Bob Diamond\’s bonus is all in shares

  1. This academic piece in the JFE (I’m linking to the free to download ssrn WP version) suggests that the problem of the crisis was not in the bonus culture:

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1439859

    To paraphrase – those banks where the CEOs had the greatest share of equity were those that did worst in the crisis. e.g. they had their incentives aligned with the shareholders.

    Does this absolve bonuses of responsibility for the crisis? No, because we don’t know the incentive effects for the non-CEOs. But the authors claim that it does undermine one argument for bonuses led to the crisis.

    One criticism that can be made of the paper is that it is not done dynamically. I rather suspect that the reason why the CEOs who had the most tied up in their banks did worst was that they got their shareholdings from prior periods of aggressive management (Lehman etc) and that it could well have been excessive bonuses in shares based on “performance” that got them where they were.

  2. To be fair £17.6m is in shares, the other £9m of his package is in cash or cash equivalents (predominantly paying his £5.8m tax bill).

    He also seems to get £474,000 for chauffeur, medical insurance and financial advice. Which struck me as a lot.

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