Bob Diamond

The fiery debate over executive pay and bankers' bonuses has reignited today, after Barclays Chairman Marcus Agius apologised to shareholders at the bank's annual general meeting (AGM) over "poor communication" on the remuneration packages.

As a sore point in the court of public opinion, as well as a subject that has dogged media headlines over the last few years, the battle against bonuses has reached boiling point.

Barclays is the latest in a line of banks forced to address the disquiet over its chief executive, Bob Diamond's, remuneration package. The UK's second-biggest bank follows a similar controversy surrounding the final pay packet for RBS' chief executive Stephen Hester.

Agius reiterated at the AGM that as profits rise, he expects to be able to materially increase the amount of dividends shareholders receive and that he recognises and accepts that remuneration levels across the industry have to adjust. He added that he apologises for poor communication on pay and he will engage more "purposefully" with shareholders in the future.

"Out of Order"

Earlier this week, the general director of the Institute of Directors (IoD), Simon Walker, hit out at Diamond's £17m remuneration package, which includes a £2.7m annual bonus, and a £5.7m "tax equalisation" payment linked to his relocation to London from the United States.

Walker slammed the deal as "out of order" adding that Barclays "pays three times more in bonuses to top executives than it does in total dividends to all its shareholders."

Barclays paid £660m in dividends last year, while its bonus pot for investment bank staff was £1.5bn.

The latest Mea Culpa from Barclays seems like a small victory for shareholders and public appeasement but is it really fair to lump Barclays and its executives into the same pool as RBS?

The short answer is no.

Apples and Oranges

Executive pay is always going to be excessive in comparison to other industries, even if the defence for banker's bonuses and salaries has not been strengthened by the twin credit and Eurozone crises.

UK Deputy Prime Minister Nick Clegg recently spoke for a great majority of Britons when he called for more "responsible capitalism"

"I understand the anger people feel at the bonuses still flowing to bankers," he said. "Especially those who have been bailed-out by the taxpayer."

UK taxpayers have dug deep into their pockets to bail out four major banks in past five years. And with Britain falling back into a technical recession this week, the public feel that the industry is "rewarding failure."

No bonus, thank you

RBS' Hester famously bowed-down to public pressure earlier this year by turning down his £960,000 bonus, despite previous backing from an overwhelming majority of shareholders.

However, the desire to chastise Barclays in the same way as RBS is a false move to make.

That is not to say that Barclays are angels: the bank received the most banking customer complaints last, according to regulators the Financial Services Authority (FSA).

But let's take a look at infrastructure and the recent results.

Barclays undoubtedly outperformed many of its US and European counterparts, not just those in the UK, in the first quarter this year and revealed some of the highest revenues for its fixed income, currencies and commodities (FICC) unit in the investment banking division, since the first quarter of 2010.

That division's revenues climbed 9 percent to £2.4bn from the same period last year and helped offset a 17 percent drop in advisory and underwriting sales.

Subsequently, various industry analysts hailed this week's earnings announcement as "very strong" and "stellar." Overall, Barclay's investment bank revenues rose 3 percent to reach £3.5bn.

However, due to a slump in bond trading income due to the seemingly never-ending eurozone debt crisis, Diamond was forced to pull back a return on equity ROE) target he set less than a year ago of 13 percent. First quarter ROE hit 12.2 percent, according to Barclays' earnings statement.

Big Changes

RBS, which is just over 82 percent owned by the UK taxpayer, posted a full year loss of almost £2bn and has had to undergo a major bout of restructuring. It's scaled back its investment banking operations to skeletal levels and exited cash equities, corporate broking, equity capital markets and mergers and acquisitions.

RBS also pared its investment banking arm in order to hone its strengths in foreign exchange and FICC.

In addition, it has also significantly improved returns to shareholders from -31 percent to 10 percent, although this is still below the 12 percent and the revised 15 percent target that Hester set for 2013.

The difference in performance compared with Barclays and the most recent investment banking fee data from Thomson Reuters show that it is significantly lagging behind Barclays.

According to the benchmark Thomson Reuters Global Investment Banking Review, for the full year of 2011, RBS fell from 4th place to 14<sup>th place by posting 16.6 percent drop in investment banking fees. Meanwhile, Barclays stayed firmly rooted in 8<sup>th position with -2.8 percent, which is only 0.7 percent less than the first place bank, JP Morgan, which saw only a 2.1 percent drop in fees.

Six of one, half a dozen of the other

Interestingly though, there have been similar amendments to the general employee bonus pool that has tried to detract from the top executives' pay packages.

RBS revealed in February this year that it had increased the fixed salaries paid to its investment bankers and boosted their benefits by about a third last year, offsetting cuts to their bonus pool. It also revealed that it would be freezing salaries of its 10,000 highest paid employees.

Meanwhile, sources at Barclays have told the IBTimes that while fixed salaries may have increased and general bonuses have been cut down, additional fixed payments linked to performance are still available.

State versus Private

What many forget is the fundamental difference between companies that are taxpayer owned or controlled and those independent of government support. The uproar over Hester's bonus can be seen as more justified as, simply, it is mainly a taxpayer-owned bank and it is still failing.

The fact that RBS is state-owned means that the ability to control executive pay is possible and desire from the government and policymakers further afield means that any changes or limits to remuneration can be implemented more smoothly.

However, the debate on whether it is legally possible to control executive pay at private companies is an issue that many analysts have reiterated.

UK's Prime Minister pledged to tackle executive bonuses in 2012 during his New Year message, while this month, Europe's Internal Markets Commissioner, Michel Barnier exclaimed that "tougher measures" were needed in order to clampdown on executive pay.

The European Banking Authority (EBA) has also released a report on how existing bonus rules were not being adhered to consistently across European Union countries, which has only exacerbated the hurdles policymakers face on putting limits on non-nationalised company bonuses and pay.

Despite the obvious regulatory hurdles that curbing executive remuneration packages face, there has been a successful revolt amongst shareholders and the public against banks that are not majority state-owned.

Pandit paid $1 salary

This month, 55 percent of Citigroup shareholders rejected the executive pay scheme at the bank's AGM, citing unease with the idea of chief executive Vikram Pandit getting $15m last year, from again, a remuneration package made up of deferred shares, cash bonuses and base salary.

This despite Pandit famously testifying to US lawmakers that his salary "should be $1 per year with no bonus until we return to profitability."

According to a filing from the Securities Exchange Commission he received just that in 2010.

Recently, Deutsche Bank announced that it is to put a €200,000 limit on up-front bonuses, which follows in the footsteps of Morgan Stanley's decision to limit its upfront awards to $125,000.

However, the battle for bonuses is not over.

Internal bank limits on executive pay are not seen as enough by policymakers and the court of public opinion and it will undoubtedly rear its head at every bank AGM.

Credit Suisse is preparing for a similar shareholder revolt, while UBS executives will most certainly face a scrap of bonuses altogether after the infamous alleged rogue trading scandal cost the Swiss investment bank $2.3bn and re-highlighted its sub-par risk management record.

Is it fair to tar every bank with the exact same executive pay legislation despite the varying range of performances, return on equity and success and failures?

Is it at all possible to enforce new regulation on companies that are not state-owned, or receiving state aid?

It's questions like these that ensure the pay and bonus debate is likely to rage long after Barclays' bosses cash their 2011 cheques.