UPDATE 1-Barclays tweaks bonus plan after investor resistance

Thu Apr 19, 2012 11:45am EDT

LONDON, April 19 (Reuters) - Barclays said half the long-term bonuses awarded to its top two executives will now depend on the British bank hitting key profitability targets, following resistance from investors to its original proposals.

Bonuses for 2011 for chief executive Bob Diamond and finance director Chris Lucas are due to pay out in shares over three years, a third in each year.

The new condition means half of the award that may vest in each year will not now pay out until the bank's return on equity (RoE) exceeds its cost of equity (CoE).

Barclays said on Thursday the change followed talks with a number of major shareholders in recent weeks and the "strength of opinion expressed by some shareholders" in the meetings.

Diamond was awarded a 2.7 million pound ($4.3 million) bonus for 2011 in shares that vest over the next three years. So he could lose 450,000 pounds in each of those years. But if the bank's RoE tops the CoE in any of those years, he will get the full amount.

He is due to take home about 17 million pounds in salary, bonus and share awards for last year.

Shareholder advisory service Pirc said Barclays should not pay bonuses at all for 2011, and repeated its advice that investors should oppose the remuneration scheme.

"The announcement does not address the fundamental issue of rewards for failure," Pirc said in a statement. "This proposed change acknowledges a problem with the bonus scheme, but still keeps it in place, and the change only applies to 50 percent of the awards."

Standard Life, one of the biggest investors in the bank, said it was pleased its "key concerns" over executive bonuses had been addressed and it would vote for the remuneration plan at the bank's shareholder meeting on April 27.

"The result is a much better alignment with pay for performance than was initially proposed," said Guy Jubb, global head of governance and stewardship.

Investors have said they want more profits to flow to them, rather than the bank's staff, and have warned they could vote against pay plans at this year's AGMs.

Barclays said its aim is to ensure a greater proportion of income and profits go to shareholders.

The bank hopes to lift its RoE to 13 percent as soon as possible, from 5.8 percent in 2011. Its cost of equity is about 11.5 percent.

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