ANZ had not cut executive incentive payments in 10 years until 2018 despite a series of scandals, including the bank bill swap rate disaster that cost the bank $50 million in penalties, the financial services royal commission has heard.
CEO Shayne Elliott said on Wednesday that he, along with three executives, had seen their variable incentive payments cut for the 2018 year as a result of the fee manipulation and other issues that emerged earlier in the year at the commission.
He was asked by counsel assisting Rowena Orr QC, “How many other senior executives at ANZ have had this type of consequence applied to them in the last 10 years?”
“So if we are looking at equivalent-level people, I think it’s none,” Mr Elliott replied.
“Why is it that it has taken until the last financial year for ANZ to exercise this important power of withholding deferred remuneration?” she asked.
Mr Elliott responded that ANZ did not have a “good track record” of linking senior executive pay with the bank’s performance.
In the 2018 year this changed when Mr Elliott had his pay cut by $950,000 to $5.25 million. Three other executives who came under the purview of the commission had their variable pay cut, one by 100 per cent and two others by 25 per cent.
Details of those directors’ pay cuts were not included in the annual report and Mr Elliott admitted that it would be virtually impossible to understand the details of their pay cuts by reading the report.
“Wouldn’t it be a powerful way, Mr Elliott, to admonish your senior executives for failings in relation to risk, compliance or conduct, to identify those remuneration consequences that had been taken in response to those failings publicly?” Ms Orr asked.
Mr Elliott said that was not the aim of the pay cuts, which were more about holding people responsible for the overall performance of their departments rather than punishing actions by individuals.
“I think some sort of ritualistic public shaming of individuals would be of little value and, in fact, potentially significantly negative consequence in terms of attracting, retaining and motivating the very best people for the future,” he said.
Mr Elliott admitted that ANZ’s pay structure had been problematic in the past and he agreed with Ms Orr that it “acknowledges that its remuneration and incentive structures have at times not adequately discouraged and may even have encouraged poor conduct”.
That was due to gearing incentives too far towards financial returns for the bank. “A weighting towards financial outcome will, all else being equal, tend to deprioritise customer remediation,” he said.
Ms Orr asked whether the bank had looked at clawing back pay from executives responsible for misbehaviour that comes to light after they have been paid incentives for that year – as recommended by an inquiry into CBA and was the case in the UK.
However Mr Elliott said it was not possible to do that given ANZ’s current remuneration rules.
The bank was currently moving to reduce the emphasis on sales incentives for frontline staff who dealt with the public, he said.
An email produced by the commission detailed that Mr Elliott had asked chairman David Gonski to cut his pay further than was originally planned for 2018. He could not remember how much Mr Gonski had originally offered him, but said his variable pay was ultimately cut by 23 per cent on the year before.
“I can’t ask my people to be down 22 per cent unless my own [remuneration] reflects a similar number. I want you to reassess your recommended CEO as a result,” he said in the email to Mr Gonski.