Scrutiny hits bank bosses in the pocket but ANZ, Westpac still make millions

Thursday, 8 November 2018

Bank bosses not only oversaw billions in profits for their organisations, they earnt millions themselves over the past year.

But they could have earnt more, were it not for revelations of serious misconduct in the Australian banking sector.

Banking chief executives are paid both a base salary and a range of variable incentives linked to the performance of the bank.

David Hisco, ANZ's local chief executive, who oversaw a record $1.99 billion profit in New Zealand, took a pay cut to A$3.12m ($3.34m) from A$3.4m last year.

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That was made up of A$1.17m in fixed remuneration and A$1.95m in variable pay associated with him meeting required targets.

Last year, he earned A$2.2m in those variable incentives.

The banks' share prices have fallen over the year as the Australian Royal Commission of Inquiry into misconduct in the sector revealed poor behaviour.

That was followed by an investigation by regulators here.

Westpac's share price fell from almost $37 a year ago to just under $30. ANZ's dropped from $4.30 to $28.

In announcing this year's profit, Hisco said his pay did not only reflect his work as chief executive of ANZ in New Zealand but his service on the group board and oversight of the Pacific Islands, among other duties.

ANZ group chief executive Shayne Elliott earned A$1m less.

Elliott received A$5.25m in remuneration in the 2018 financial year, compared with A$6.2m in 2017.

The bank said in its report that he was receiving less of his incentive-based pay because of the conduct issues and reputational damage of the matters raised in the Royal Commission.

Westpac's David McLean had total realised remuneration in 2018 of A$1.769m up from A$1.707m last year. But he forfeited almost A$1m in short-term incentives from last year.

The bank pulled in a record profit in New Zealand this year of just over $1b.

'The board recognises that Westpac needs to continue to improve the way it prevents, detects and addresses misconduct,' the bank said in its annual report.

'The board also recognises that the value of your shares has declined over the year.'

The incentives paid to bank staff at all levels are coming in for increasing scrutiny.

The Financial Markets Authority and Reserve Bank said banks needed to ensure they aligned with customer interests.

'The degree to which senior management focuses on conduct is likely related to how they are incentivised. In all banks, a portion of the CEO's remuneration was linked to the performance and outcomes of the bank, such as financial performance, risk management, strategy and customer relations,' they said.

'At six of the 11 banks, approximately two-thirds of the total remuneration for the CEO was based on these variable components. In some instances, incentives were linked only to short-term outcomes.

'This is likely to lead to short-term financial goals being prioritised over long-term customer outcomes. Even where CEO remuneration was linked to long-term outcomes, the measures mainly related to financial performance or parent bank considerations rather than customer outcomes or the behaviour of bank staff. Boards need to set clear expectations for management about achieving good conduct and culture outcomes. Any incentives for senior management need to appropriately balance short-term and long-term outcomes, and be aligned to good outcomes for customers as well as shareholders.'