Australia’s financial regulator has warned the big banks to sort out their fat-cat pay deals, or it will step in and do it for them.
Australian Prudential Regulation Authority (APRA) chairman Wayne Byres has told a banking and wealth summit that bank boards had been too slow to reform remuneration packages for their top brass.
And if they didn’t do it soon, APRA could intervene and legislate to radically overhaul the pay packets.
“Boards have struggled to gain acceptance that new approaches are needed,” Mr Byres told the summit, hosted by The Australian Financial Review.
“So it seems inevitable that regulatory intervention, and a greater degree of prescription, will be required to shift practices.”
The move would be extraordinary and unprecedented – a statutory financial regulator intervening in the executive remuneration decisions of a public company.
As public odium around the banks and their executive salaries has grown, the institutions have moved to rein in big pay packets.
ANZ chief executive Shayne Elliott’s total package went from $6.2 million in 2017 to $5.25 million in 2018, while the bank last year also flagged a 20 per cent cut to directors’ fees.
Mr Elliott told a parliamentary committee that remuneration for the bank’s top executives had shrunk by 40 per cent over the past three years.
The Commonwealth Bank’s Matt Comyn was paid 17 per cent less in his first year in charge ($8.4 million), compared with former CEO Ian Narev’s $10.1 million for the 2017-18 financial year, according to the bank’s 2018 annual report.
NAB boss Andrew Thorburn’s package plummeted from $9.72 million in 2016, to $3.11 million in 2018, while Westpac’s Brian Hartzer had a 9.4 per cent pay cut from $5.45 million in 2017 to $4.94 million in 2018.
But APRA argues it needs to go further with an overhaul of the make-up of those packages.
Associate professor of finance at the Melbourne Business School, Keke Song, told The New Daily it was clearly the right time “to do something real with the banks”.
APRA could consider a 50:50 “remuneration matrix”, he said, divided into financial and non-financial benchmarks that could include measures such as customer satisfaction or social responsibility.
Too much emphasis on financial performance alone can make bosses “more focused on short-term benefits or take excessive risks” to achieve higher profits.
Professor Song said while the move seemed extraordinary, banks were vastly different to most businesses.
“They are more important than many other businesses, with a much bigger range of stakeholders,” he said.
“On top of shareholders – like conventional businesses – banks’ stakeholders also include their depositors and households, for example.
“So the traditional financial matrix [for remuneration] may not work here … if a major bank fails, for example, the impact can be huge with a lot of people suffering in the economy. And if something goes wrong with banks, it can be taxpayers having to bail them out,” Professor Song said.
ANZ defends board pay packets
Executives weren’t the only group to have their remuneration arrangements challenged on Wednesday, with the House of Representatives economics committee also questioning the fees paid to bank board members.
Mr Elliott was challenged on $3 million in fees paid to ANZ’s non-executive directors in 2018, but defended it, noting that those board members had voluntarily cut their pay by a fifth.
“The workload is quite significant for those non-executive directors. Iit’s not just turning up to meetings. The reality is today that bank non-executive directors are somewhere in the middle of the pack when it comes to large corporates in Australia, if not lower down,” he said.
Mr Elliott also questioned banking royal commissioner Kenneth Hayne’s assertion that greed was the root cause of the sector’s problems.
That assertion, he said, places the blame on “bad apples” when the real drivers of the banks’ behaviour were “our processes and governance structure” instead.