employees have some skin in the game,” he said.

Barclays president defends BGI share options

By Peter Thal Larsen

Published: November 8 2006 22:07 | Last updated: November 8 2006 22:07

Bob Diamond, president of Barclays, has issued a robust defence of a share option scheme that has seen employees of Barclays Global Investors earn more than £1bn ($1.9bn) over the past six years.

In his first public comments on the issue, Mr Diamond, who as chairman of BGI was awarded options in 2004, said the scheme was an integral part of the success of the division.

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“If there was a time to second-guess this, it was when it was presented to the shareholders in 2000,” he said in an interview with the Financial Times. “To second-guess that now because it’s been successful is part of the frustration I have.”

Barclays approved the plan to award options on up to 20 per cent of the shares of BGI six years ago in an effort to link employees’ pay to the growth of the division.

However, the scheme has drawn scrutiny from investors in recent months after analysts at Evolution Securities, the stockbroker, calculated how much value had been transferred to BGI employees.

Under the scheme, employees are awarded options over BGI shares which they can exercise over a three-year period. They can then sell back the shares to Barclays at a price determined by a valuation of the business calculated by Ernst & Young, the professional services firm.

Since it was introduced, the value of BGI shares has risen more than 11-fold, reflecting the growth in pre-tax profits, which increased from £59m in 2000 to £540m in 2005. Though the value of the options is charged as an expense when they are granted, Barclays’ purchase of BGI shares is accounted for as an investment and therefore does not affect profits.

Mr Diamond said the scheme was a success for Barclays as the value of the bank’s 80 per cent stake had increased as well.

Mr Diamond said the scheme had been instrumental in allowing BGI to keep its employees and had helped it win business. “Our clients like to see theemployees have some skin in the game,” he said.