R29m for destroying shareholder value

Ramos and other Absa execs pocket big pay packages despite the bank’s questionable performance.

Barclays Africa Group (BAG) has released its 2013 Integrated Report reflecting a package of R28.7-million for CEO Maria Ramos. This is split into a basic fixed component of R6.7-million (no increase from 2012) and variable remuneration of R22-million. The variable remuneration for 2012 was R10-million – this being the year when Ramos “requested to forego consideration for an annual bonus award” because the results were not good.

Absa says her latest variable bonus component, spread over 2014 to 2017, is for the “strong personal contribution made by Maria during 2013, particularly in building and embedding a strong leadership team, the continued implementation of the One Africa strategy and the significant progress made against the group’s objective to become the ‘Go-To’ bank in Africa”.

Is this an appropriate package for a CEO who heads up the laggard of the big four, has serially underdelivered on minority shareholder returns while favouring the parent company, and comes under fire from analysts for being distracted by other responsibilities and unrelated directorships?

Absa says its remuneration policy decisions “protect and promote shareholder interests”. This is certainly the case when it comes to shareholder interests of Barclays PLC – but rather less obvious when it comes to the rest of the share register.

Analysts comment that for the 2012 financial year, Absa earnings were conspicuous by their underperformance, dragged down 10% due to bad debt provisioning. Its competitors were posting significantly improved earnings for the same period. The bank recovered somewhat in the 2013 financial year, but coming off such a low base, the recovery was inadequate and disappointed the market.

It also overpaid its own parent company, Barclays PLC, for the Barclays Africa assets – which are higher risk and come with earnings volatility. It is an exceptionally generous dividend payer – but only because it cannot profitably reinvest shareholder funds (hence the special dividend last year of R7.08 per share in November) and because its UK parent (described by its own CEO Antony Jenkins as needing to stave off a “death spiral”) is hungry for cash inflows. This kind of high payout ratio (low dividend cover) can only last a few more years.

Analyst reports come with a long list of further criticism of Barclays Africa and its management. To mention a few – Barclays PLC is accused of interfering in day-to-day operations, and have in fact guided its subsidiary into some bad decisions (reining in retail lending at the wrong point in the cycle). As we move into an upward interest rate cycle, Absa’s coverage ratios on its core retail products have in fact come down and this is a concern. There have been committee restructurings and then even further changes; senior staff departures are notable; it struggles to grow its revenues and rather focuses on cost cutting which shrinks the business; its restructuring policy on non-performing loans is not as conservative as the peer group; and portfolio provisions are still notably lower than some of the competition.

Snapping up staff from other banks has not helped stem the destruction in shareholder value and analysts point out that Absa management still lacks depth, experience and ability. And it is not only staff that leave. Clients continue to exit in their droves with the 2013 year saying goodbye to one million retail transactional and several thousand small business clients.

Absa has demonstrated that it cannot look after its clients, and it cannot look after its minority shareholders. For the past five years it has posted a poor 3.3% compound annual growth rate in revenue, which coincides with roughly the same period Ramos has been CEO (she was appointed in March 2009).

As the Absa share price has weakened, the corporate action speculations have got bolder and more radical. Market talk is that in five years’ time, after Barclays PLC has squeezed all it can from it, the local bank could be ready for takeover. There is conjecture that Capitec, hungry for transactional expansion, could well snatch up the bones of BAG retail operations.

Reverting to the integrated report, here is a quick reference on what executives earned in 2013 and why. David Hodnett, deputy CEO and finance director received a total package of R21-million, with variable remuneration including a reward for delivery of the highly criticised Barclays Africa transaction. Craig Bond, head of retail and business banking, got R27-million in his first year of employment at Absa for “continued focus on improving the customer experience”. Stephen van Coller of corporate and investment banking took home R25-million for a “strong contribution to the group’s citizenship agenda”. And Willie Lategan of WIMI lagged at R11.7-million.

Looking at other staff, the average package for BAG senior managers for 2013 was R5-million each, and “other material risk takers” coveted an average of R7.2-million each.  Those who were “severed” during the year were compensated with an average of R1.7-million each.

In Absa’s 2014 board fee structure, the Chairman gets R4.5 million a year (an increase of 17%). The range of increases for other board and committee positions is in the 13-14% range with a few outliers on both sides. Average increases for the huge workaday Absa labour force in 2014 are around 6% to 7.5%.

Some independent committee members/directors need to start arriving for work – Yolanda Cuba of South African Breweries came to 11 out of her requisite 18 meetings; and Peter Matlare of Tiger Brands showed up for half of his (7 out of 14).  Antony Jenkins checked in with zero attendance for the two he should have attended. Small consolation – his fees for nonattendance go to Barclays PLC and not to him personally. Overall, board attendance for 2013 was at 89%, down from 93% last year. Surely it should be 100%? Anything less and the absentee person – unless ill – is not fit to sit on the board or committee, or does not have the time to devote to the job.

For those who balk at these obscene levels of corporate rewards seen around the globe, usual paid in return for pedestrian performance, many stakeholders are equally fed up. David Cameron, UK Prime Minister has tasked Business Secretary Vince Cable to crack down on executive pay, commenting on the cronyism of this incestuous club and that everyone sits on each other’s boards and committees, looking after their own and others’ pay rises. However the less diplomatic Lord/Sir Alan Sugar (Amstrad/the UK apprentice) has advised that we just get over it and stop wailing. His comments are to the effect that making huge sums of money is in the DNA of corporate executives, that’s the way it is, and nothing will ever change.

The writer holds shares in Barclays Africa Group.

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