Barclays pay row lifts the lid on bank’s closed culture

Bob Diamond’s tax bill is just the tip of the iceberg.

At the bottom of page 11 of a “service and assignment agreement” between Gracechurch Services Corporation and one of its small number of employees sits a 13-line clause on tax treatment and payments.

Clause 8.2 spells out for the employee in question that Gracechurch will “ensure that you pay no more or less tax than you would have paid on that income had you been resident only in the UK and not in New York State/City”.

Were this to be any other employee, the agreement and the specific clause would be quite unremarkable. Except that this is the contract signed in January 2011 between one Robert E. Diamond and Gracechurch, a Delaware-based subsidiary of Barclays reports The Telegraph.

Since The Sunday Telegraph revealed a week ago that in excess of 10pc of the bank’s shareholders are poised to vote against Barclay’s remuneration report and/or the re-election of remuneration committee chairman Alison Carnwath, the previously private debate about the amount earned by Bob Diamond – the bank’s US-born chief executive – in 2011 has become very public.

With investors and politicians lining up to denounce publicly the decisions made by the Barclays board, corporate governance watchdogs including the Association of British Insurers and PIRC have followed suit, registering concern about remuneration levels.
Front and centre in the debate has been the £5.7m of tax equalisation payments that came about as a result of clause 8.2. The payments were made in respect of taxes owed by Diamond as a result of his move from New York – where he previously ran Barclays Capital (BarCap), its investment bank – to London in January 2011 to take the top job.

The £5.7m came in two parts – the smaller element, which will be ongoing, is to shield Diamond from double income tax and to meet his obligations in terms of US taxes. The larger element, which should not reoccur, is to cover a capital gains tax liability relating to share awards that had previously vested.

But despite Barclays pointing to the existence of the clause in the 16-month-old contract or that using a US-domiciled service company for employing American staff is common to allow them to maintain social benefits such as health care, shareholders are not amused.
“The tax compensation was not something that had been flagged to shareholders,” said one top-10 shareholder. “The company was not forthcoming, and so people were surprised at that. One of the principles the shareholder bodies have laid down is that this sort of compensation should not be borne by investors.”