Barclays PLC's U.S. unit is rolling out a couple of important changes to its compensation program as it looks to stay ahead of a shift in regulators' attitudes toward bonus pay and bring U.S. advisers in line with values-based performance goals the firm is implementing globally.
The plan, which the firm announced to its approximately 260 financial advisers in the U.S. late last year, still compensates advisers according to a payout grid, but money is distributed through a nearly equal ratio of base salary to bonus rather than a lump-sum payout on top of a very small salary, according to several sources familiar with the matter.
Barclays spokeswoman Kerrie Cohen declined to comment.
Traditionally, according to the grid system, advisers at Barclays and competitor firms were paid monthly and earned a percentage of their fees and commission revenue based on their total trailing-12 month production at the firm.
This variable compensation thus constituted the vast majority of what advisers were taking home, since guaranteed salary was typically only around $20,000 to $25,000 a year for all advisers.
Barclays' new plan, however, will pay advisers half of their grid-based payout as a guaranteed yearly salary. For example, a $1 million producer who was making approximately $400,000 at a hypothetical 40% payout rate on the grid would now take home $200,000 a year guaranteed.
The rest of the earnings would be paid out as a quarterly variable bonus based on trailing-12 month production. Every three months the firm will pay the adviser the difference between the salary and the full amount he or she would have made on the production grid.
Essentially, the adviser's pay is now 'made whole' every three months rather than each individual month, and half of the pay is now defined as a salary, according to details provided by people familiar with the changes.
It is important to note that even though half of Barclays advisers' pay is now technically defined as a salary, the fundamental grid structure remains in place, said Andy Tasnady, a compensation expert at Tasnady Associates.
“Advisers love to have a very direct clear opportunity to make money, so usually when people talk about base and bonus the first thing that tends to involve is a cap on the upside and often a lot of the best advisers will go running,” Mr. Tasnady said. “But this doesn't sound like that.”
“This sounds like, at least for the first year, you'll make the same amount as if you were paid entirely commissions,” he added.
The main difference will be the timing of advisers' pay, he said. Advisers who have a big month in commissions, for example, may have to wait until the end of the quarter to see the benefit. On the other hand, advisers who have a large portion of fee-based business may not notice it because they often see fee income paid on a quarterly basis.
“It is an issue of timing and categorization,” he said. “Some people might feel better about it or more secure.”
Regulators in Europe have passed laws restricting the ratio of bonus pay to base salary at banks. The European Union's bonus cap, which went into effect this year, set a limit on bonuses of no more than two times base salary.
Barclays' compensation plan will make the ratio more even for its advisers in the U.S., Mr. Tasnady said.
“It will be less variable compensation,” he said. “To some regulators, any variable compensation sounds like some extraordinary gift.”
The move also follows Barclays' announcement of its Balance Scorecard program, which is designed to base employee pay at all divisions worldwide around how well they are conforming to the firm's values. The program was announced last year after the firm was accused of manipulating the Libor rate and several top executives in London left the bank.
“We will continue to pay for performance and we will continue to pay competitively for the best talent,” Barclays' website explains. “However, in future, variable pay will depend on performance against our values as well as other targets.”
The new values-based performance assessment approach was introduced for executives at the firm last year and will apply to all employees in the middle of 2014, according to Barclays' website. Advisers will be judged according to criteria such as citizenship and client satisfaction.
Ms. Cohen declined to elaborate on how that might affect advisers' payout grid in the future.
“That usually means other measures and metrics other than pure sales that they try to work into an index to measure performance and create one 'balanced' blended number or score,” Mr. Tasnady wrote in an e-mail. “Items such as customer satisfaction levels, quality metrics, performance on particular behaviors (client retention, lending levels, new account openings, number of financial plans; etc.) could be included.”