Barclays' investment bank outed as a massive over-payer. Now what?

Barclays has been paying its senior bankers too much. To be precise, it has been paying 70 top people 35% more than market rate. So said yesterday's report from Anthony Salz on Barclays' cultural failings.

"God they overpaid," said Chris Robbins at search firm Cherry Bull, "People in senior positions in sales trading and management were paid absolute market leading packages. For star employees, the top three payers in the market were always JPMorgan, Goldman Sachs and Barclays."

"In the past, Barclays paid people incredibly well," said Simon Head, deputy managing director at Correlate Search in London. "In 2005, 2006 and 2007, they hired a lot of people on two year guaranteed bonuses and paid them 60% more than they were receiving in previous roles. They were growing fast and needed to attract the best people."

Between 2003 and 2007, headcount at Barclays Capital went from 5,800 people to 16,200 people. Between 2007 and 2012, it went from 16,200 people to 23,600 people. That growth came at a cost: excessive pay.

Barclays wanted to hire top performers for its investment bank, said Zaheer Ebrahim, executive director at search firm Kennedy Associates. It had to pay. "In equities, they often paid anything from 10-15% above market rates to hire people in 2009 and 2010," Ebrahim added.

The rush to hire doesn't seem to have been the only reason for Barclays' extreme pay. Salz noted yesterday that bankers at Barclays were unjustly rewarded after they shifted internally from one department to another. Senior investment bankers were moved into "different, less well-paid roles, without adjustment in pay to reflect the 'going rate' for the new position," he said. Because of this, Salz said Barclays ended up paying different rates for the same job. Senior Barclays corporate bankers with ex-investment banking colleagues have new reasons to look at them askance.

Barclays' past generosity was illustrated last week when Rich Ricci cashed in £17.6m from selling Barclays shares as they vested. Among British investment banks, Barclays has historically been the most generous to its key risk takers - known in the UK as 'code staff.' Barclays' code staff earned the highest bonuses of the lot in the last year full figures were available (2011).

Barclays' reputation as a big payer doesn't bode particularly well for the new-look Barclays, where moralizing is the order of the day and 80% of fixed income bankers were reportedly paid below market in the last bonus round. Last year, David Walker - Barclays' new chairman - has said investment banking pay must fall, and Barclays has declared that it's on a 'journey' towards paying staff one of the lowest proportions of revenues in the industry. So will Barclays' senior bankers, used to earning more than rivals, quit now that pay doesn't measure up?

Not necessarily. Even if 80% of fixed income bankers were underpaid at Barclays this year, Robbins said top performers were still handsomely rewarded. Ebrahim said there's nowhere for disaffected Barclays bankers to go - plus they're tied in by their unvested stock: "It's going to be difficult for them to leave."