How can bank bonuses both rise and fall in the same year?

With the Co-operative Group putting executive pay back in the headlines this morning by announcing that its chief executive was in line for a £3.5 million payout, the BBC's business editor Robert Peston has highlighted on his blog that the bonus figures used by the media might not always be quite as they seem.

Looking at Barclays, Mr Peston points out that many reports attacked the bank for raising bonus payouts by 10% to £2.4bn at a time when profits were down by over a third. However he tells readers that Barclays' directors claim the opposite: that the bonus pool set by the bank actually fell by 18% this year.

The confusion is caused by the way that Barclays' bonuses are structured. According to the firm's annual report, just under £2.5bn was earmarked for the 'incentive pool' in 2013, which was 18% lower than the previous year.

However this wasn't the amount that was actually paid out, because deductions are made from this to pool to cover the costs of 'risks' incurred by the bank, for example through the mis-selling of PPI. In 2012, £860m was deducted from the pool, whereas in 2013 £290m was removed.

The end result is that because less was removed from the incentive pool this year, 10% more ended up being paid out, even though the bank made the decision to reduce the amount it set aside for bonuses.