The lavish pay and bonus bill that Barclays shareholders complained about so bitterly at last week's annual meeting will be a little lighter from today following the abrupt departure of its most senior US banker, Hugh "Skip" McGee.
A former Lehman Brothers banker and a renowned deal-maker, McGee was one of Barclays' highest-paid employees last year. His pay was disclosed for the first time in March, when he received almost £9 million (€11 million) in shares.
That was way above the £3.8 million in shares handed to Barclays chief executive Antony Jenkins, and a mere fraction of what McGee once earned: at the height of the financial crisis in 2008, after Barclays bought Lehman's US operations for a song, he is said to have negotiated a $25 million deal to stay on at the business. At the time, that made McGee the best-paid banker on Wall Street.
'Difficult decision'
Now, after 21 years at Lehman and Barclays – making him Wall Street's longest-serving head of investment banking – McGee has "made the difficult decision" to leave. Describing banking as "a team sport", McGee said he was looking forward to his next challenge.
In announcing McGee’s unexpected departure, Barclays stressed that, to comply with the new financial rules of the Dodd-Frank Act, the management focus of its US investment banking operations would have to be on regulatory, legal and compliance issues over the next two years.
Replacing McGee is Joe Gold, global head of client capital management, who will push through the changes.
But McGee’s exit has raised the prospect of mass defections at Barclays investment banking arm, which is already in the process of a significant downsizing. Details of the cutbacks, which are expected to see thousands of jobs axed, are scheduled for next week.
McGee’s views on the furore over pay and bonuses at Barclays are not known, but his departure gives us a clue.
At last week’s acrimonious annual meeting, Jenkins and the rest of the board were subjected to fierce criticism from shareholders after its decision to pay out £2.4 billion in bonuses last year, despite a plunge in profits.
Almost a third of shareholders failed to approve the bank’s remuneration report and there was anger among shareholders that the bankers’ rewards were substantially higher than those given to shareholders in the form of dividends.
It was not just private shareholders who harangued the board in public, but also big City shareholders, who usually deliver their complaints behind the scenes. Alison Kennedy, a director of 2 per cent shareholder Standard Life Investments, told the Barclays board she was "unconvinced" the bonus pool was in the best interests of shareholders.
Defending the payments, the Barclays chairman and head of its remuneration committee, Sir John Sunderland, repeated the bank's fear that if its bankers were not given generous bonuses, they would defect to rival firms.
Jenkins previously described the threat of a mass exodus of traders as a “death spiral” from which the group would struggle to recover. Now, with the departure of the US investment banking boss, that’s exactly what could be in store for the bank, even after the bonus payout.
'Death spiral' defence
The "death spiral" defence of big bonuses has failed to impress Barclays shareholders and was debunked earlier this week from a surprising source – a former boss of blue-chip City firm Cazenove (now JP Morgan Cazenove).
In a letter to the Financial Times , Robert Pickering dismissed the phrase as a "tired old cliche", arguing that the threat of mass defections was a myth perpetuated by bankers to justify high pay.
He recalled regularly being “held up at gunpoint and told that we had to jack up so-and-so’s pay to prevent him or her leaving (usually for Goldman Sachs and invariably for ‘twice what they get here’)”.
While defections are disrup- tive for those who have to manage the fallout, it was up to the Barclays chief to face down bankers in their unreasonable demands, Pickering said.
Fiona Walsh is business editor of theguardian.com
