Barclays Advisers' New Performance Metric: Their Behavior
Bank Could Dock Compensation in U.S. Wealth-Management Unit for Misconduct
Updated Feb. 12, 2014 10:34 p.m. ET
The new pay model is part of Barclays's broad effort to clean its image. Associated Press
BarclaysBARC.LN -2.90% PLC is shaking up the way it pays its U.S. financial advisers, breaking with industry practice as the British bank seeks to clean up its image.
Advisers at the Barclays Wealth & Investment Management division in the Americas will no longer get paid solely on how much money they bring in. Going forward, their compensation could be docked for misconduct.
While the size of any such cuts remains to be seen, the new policy already has spurred some of the firm's roughly 275 U.S.-based advisers to look for jobs elsewhere, according to recruiters, and could make it harder for the firm to find new brokers.
Tom Lee, who heads the adviser unit, defended the compensation model that went into effect Jan. 1, saying the firm "remains competitive as it rewards talent and continues to pay for performance." He called the changes "industry-leading and an important step toward aligning our remuneration practices with our clients and shareholders."
The change is a small part of a global reshaping of London-based Barclays's business and practices, with the aim of polishing a reputation tainted in recent years by scandals, including involvement in efforts to rig benchmark interest rates and improper sales of insurance and other financial products. It also follows regulatory and internal criticism of the U.S. wealth-management unit's culture for allegedly putting boosting profits ahead of following rules.
Barclays's adviser network is tiny in comparison with those at big U.S. banks such asMorgan Stanley, MS -1.69% which has more than 16,400 advisers, and recruiters say they don't expect other brokerages to follow suit.
But it is still causing something of a buzz in an industry in which advisers typically can—and routinely do—calculate their own pay almost to the penny, based on a percentage of the commissions and fees they generate. At the largest retail brokerages, that payout ranges from around 40% to 50%.
Barclays advisers will receive about half of their pay in the form of a monthly payment; the other half will be paid out every three months, according to people familiar with the new arrangement. While both payments will be based on a production formula similar to that at other firms, the quarterly payment also takes into account values-based criteria that include professional conduct and customer complaints. Poor performance in these areas could lead to a reduced payout.
Mr. Lee said the new pay model was "well received." But Andrew Parish, managing director at Axiom Consulting Group LLC, says he has fielded calls from at least 10 Barclays advisers in New York, Los Angeles and Chicago, among other places, since they learned of the new arrangement late last year. So far, none has decided to move elsewhere, he said.
As part of his campaign to improve the Barclays image, Chief Executive Antony Jenkins announced last year that bonuses to employees will be based in part on how they uphold the bank's values. He said that employees unhappy with the changes could leave.
Barclays added about 200 U.S.-based financial advisers in its purchase of Lehman Brothers' North American operations in the 2008 financial crisis. Barclays's chief executive at the time, Robert Diamond, set out on an aggressive plan to build up the franchise but the unit has faced costs of increasing regulation and of paying a stable of well-connected wealth managers.
In 2012, the U.S. Securities and Exchange Commission said it found cultural "deficiencies" at Barclays Wealth, as did a subsequent independent report which the bank acknowledged was suppressed by an executive. Leadership of the wealth-management division was later replaced. The bank has since presented plans to cut its physical presence across the globe and refocus on key clients.
Since the first quarterly variable payments to U.S. advisers won't be made until April, it is unclear exactly how much pay could be affected by the new criteria. Scott Smith, an analyst at research firm Cerulli Associates, believes the change could help Barclays and wouldn't cause many advisers to flee—if pay is docked only rarely.
Deep pay cuts for anything less than serious misconduct wouldn't make sense, Mr. Smith said. "I don't think anyone's going to be docked 20% of their pay because grandma had a complaint," he said.
—Max Colchester contributed to this article.