In the wake of the Royal Commission inquiry into financial misconduct by the banking system, one of the key issues that emerged was that the banks tied too many bonuses to hitting targets regardless of the effects that they had.
This meant that sales took priority over everything else to the point that a lack of credibility and trust undermined the entire major banking system, and as a result of the inquiry, several executives left their posts.
However, it seems that the sales culture has not resolved fully enough to change bank processes quite yet, as three of the four major Australian banks found their shareholders revolting over the bonuses that they had planned to hand out.
With Westpac, ANZ and National Australia Bank (NAB) all coming under fire for failing to appropriately counteract the growing sentiment that they would have to start slashing bonuses, they are all now under a pressure that they can no longer ignore.
Proxy advisers are echoing this belief. They are often the ones providing advice to the investment vehicles that are exerting more control and influence over banker directives than ever before.
The banks that have already made their initial decisions on bonuses have all confirmed that they plan to listen to feedback from investors before making any approvals in the future, and governance experts are weighing in to say that they believe a better framework would help in this regard.
By implementing a clearer structure, banks can obligate hitting targets but also use a broader set of key indicators that will make it harder to reach bonuses. There have been strong calls for bank boards to become more active and not be afraid to take steps against the wishes of senior management teams.
One proxy adviser, Dean Paatsch from Ownership Matters, railed against the boards not using their authority to control bonuses and only viewing them as a way to top up executive pay rather than seeing the two as separate entities.
Protest votes have rocked the banks in recent weeks, and NAB was particularly caught out with a spectacular 88% voting against its proposals. Additionally, 64% rejected what was on offer at Westpac, and a significant 34% voted to reject ANZ’s remuneration structure.
Paatsch said: ‘If the bonuses had been docked or paid at zero in recognition of the real risks and conduct issues that had been highlighted in their particular bank, no one would be having this debate.’ These conversations are occurring more openly and seem indicative of a different direction from that which led to the 2008 financial crash worldwide.
Proxy advisers are more attuned to the kinds of problems that instigated the big crash ten years ago, and steps are taking place to contain and stop misconduct on this kind of scale. With so much external pressure from all sides of the political sphere as well as media scrutiny and public distrust, it appears that the banks will struggle to keep handing out heavy bonuses for much longer unless they can find a way to appease the shareholders.