CS Venkatakrishnan, chief executive of Barclays Plc, during an interview on Bloomberg Television on the third day of the World Economic Forum (WEF) in Davos, Switzerland. Getty Images—Bloomberg/Getty Images
Barclays Plc is planning to give dozens of investment bankers no bonuses as a deal slowdown forces it to cut pay for a larger-than-usual group of its lowest performers.
Executives are also planning to reduce the bonus pool across the firm amid a continued decline in deal and capital markets activity, according to people familiar with the matter. Junior bankers will largely be unaffected by the moves and top traders could still see a rise of up to 10%, the people said, asking not to be identified discussing personnel information.
A Barclays spokesman declined to comment.
The brutal bonus round comes at an uncertain time for Barclays’ investment bank. In the coming weeks, Chief Executive CS Venkatakrishnan is planning to unveil a series of new financial targets for the British bank, which has seen its rivals lag in share price. The firm’s investment bank — and how much capital it consumes compared to other parts of the lender — is expected to be a focus at the investor event.
For most banks, giving staff no bonus at all – a process known as ‘zeroing’ or receiving a ‘goose egg’, a ‘croup’ or a ‘bagel’ – is done sparingly and usually only if a company wants to accelerates attrition among its lowest performers.
But Barclays has had to turn to the practice for much of its investment bankers, just as executives have spent months trying to recover from a steeper-than-usual period of decline last year, where dozens of bankers left for rivals. The moves come after the lender appointed Cathal Deasy and Taylor Wright to head up the investment bank.
After those departures, Deasy and Wright were forced to go on a charm offensive to retain and recruit bankers to major industries by offering guaranteed bonuses and paying more to those who threatened to leave, according to people familiar with the matter.
The company eventually recruited dozens of managing directors and directors across the banking division. But those moves further depleted the bonus pool this year, frustrating bankers who stayed on, the people said. Executives now fear it could trigger another wave of departures just as capital markets are poised to rebound, they said.
Barclays is not alone in cutting bonus compensation for bankers as M&A activity remained muted for most of the year in 2023. On average, merger advisers are expected to see their 2023 payouts fall by to 25%, according to compensation consultant Johnson Associates Inc.
This is because bankers are paid on an “eat what you kill” model. At Barclays, the deals and underwriting businesses are expected to bring in just £1.86 billion ($2.34 billion) for the year, according to analyst estimates compiled by Bloomberg. That would mark a 16% drop from a year ago and is roughly half of what they brought in for 2021.
“It’s been similar to what we experienced in the second and third quarters — not enough volatility for the markets, but a little too much for the banks,” Marina Shchukina, head of investor relations, said of the firm’s fourth-quarter results in a event in January. . “Hopefully the recovery will come in 2024.”
However, the decision to cut compensation once again comes after Barclays bankers experienced a similarly dismal season for bonuses just last year, when the bank considered cutting bonus pools for its investment bankers by up to 40%.
In 2022, Barclays ultimately said it provided £1.79 billion in total incentive compensation, which was an 8% drop from the £1.95 billion it offered a year earlier. This figure includes bonuses for traders and other parts of the firm.
Legions of Wall Street staff rely on their annual bonuses because they are usually multiples of their annual salary and can run into the millions of dollars. Bankers and traders spend months counting on their bonuses to pay for private schools and club memberships.
The size of Barclays’ investment bank has long been a source of contention among investors because it consumes large amounts of capital compared to other, higher-returning parts of the bank’s business. Venkatakrishnan has said Barclays will likely need to grow other divisions, such as retail banking, in order to reduce the investment banking unit’s share of the firm’s overall business and boost its share price. On Friday, Barclays announced it will buy most of Tesco Plc’s banking business in a move that will give it £4.2 billion in credit card receivables and £6.7 billion in customer deposits.