A review of banker pay has stopped short of abolishing incentives pay, meaning a third of employee performance metrics can be still be tied to how many loans, bank accounts and credit cards they sell.
The final Sedgwick report, released on Wednesday, recommended that no more than 33 per cent of the ‘balanced scorecards’ banks use to rate tellers and other staff be based on financial metrics such as sales.
These changes won’t be enforced before 2020. In the meantime, these ‘scorecards’, which are used to calculate bonuses, can be up to 50 per cent financial – leaving the door open to sales pressure from branch managers.
However, cash bonuses for ‘cross-selling’, say, an extra credit card when a customer asks for a term deposit will be abolished, along with all other direct sales incentives.
Former public servant Stephen Sedgwick, chair of the bank-funded review, found “instances” of incentive pay having “at least appeared to drive behaviour that was not in the best interests of customers and, on occasion, scandalously so”. However, he concluded the problem was not sufficiently widespread to warrant an outright ban.
Wednesday’s final report followed an issues paper published in January, which quoted anonymous tellers alleging they were pressured to up-sell “unnecessary” products to customers, and rebuked when they missed sales targets.
The report’s 21 recommendations “will assist in addressing a trust deficit that some key leaders believe has emerged in respect of the banking industry”, Mr Sedgwick wrote.
Six of the recommendations were aimed at compelling managers, senior managers and boards of directors to impose industry-wide culture change consistent with the “philosophy” of putting the customer first.
Consumer group CHOICE welcomed this focus on cultural change, but called for the 33 per cent cap on sales-based metrics to be an “evolving conversation”.
“What matters is bank culture. Even if incentives are a tiny fraction of pay, if a branch manager focuses on it, it can become a big problem,” CHOICE spokesperson Erin Turner told The New Daily.
“It’s up to the banking sector now” to prove it can continue to incentivise sales, albeit with smaller metrics, without hurting customers, Ms Turner said.
“The proof will be in the pudding,” she said. “Thirty-three per cent is better than 50 per cent, but zero is better than 33 per cent.”
The Sedgwick review was commissioned amid public backlash against a string of bank scandals and political pressure for a royal commission. It was accompanied by the McPhee review of new consumer protections, and the Khoury review of the industry’s voluntary code of practice.
Finance Sector Union national secretary Julia Angrisano also praised the report’s focus on cultural change, saying the 33 per cent cap would be meaningless without it.
Until the industry “genuinely shifts away from their emphasis on just the financial outcomes”, branch managers will find a way to pressure staff to oversell, regardless of how employee scorecards are weighted, Ms Angrisano told The New Daily.
“Some banks have already moved that way, but what our members tell us is that whilst its a ‘balanced scorecard’, the banks have just rebranded the financial outcome as something else, like ‘team behaviour’ or ‘customer service’.”
The union boss called for the recommendations to be legislated rather than voluntary, and for a royal commission to still be held.
All of the major banks – Commonwealth, National Australia Bank, ANZ and Westpac – pledged to implement the recommendations in full.
Australian Bankers Association CEO Anna Bligh also praised the report. She acknowledged that it “not only identified that remuneration arrangements need to improve, but also that it needs to happen alongside a change in culture and approach from management”.