Australian Banking Executives to Have Pay Deferred Under New Law

  • Draft legislation aims to improve executive accountability
  • CEOs would have to wait at least 4 years for full remuneration

Australia’s top bankers including Andrew Thorburn, Shayne Elliott and Brian Hartzer would have almost half of their pay deferred for four years under proposed laws to clean up the country’s scandal-ridden financial services industry.

Executives and board members earning A$500,000 ($400,000) or more will have to defer a portion of their remuneration under the Banking Executive Accountability Regime Bill announced by Treasurer Scott Morrison. Slated to start next July, the measures will demand greater clarity on the accountability obligations of banks and their key personnel, and bolster penalties for breaches.

Andrew Thorburn

Photographer: Mark Graham/Bloomberg

Battered by a series of scandals, banks have been trying to head off calls by opposition lawmakers for a wide-ranging inquiry into the sector, and fight back against the government’s decision to hit them with a A$6.2 billion levy. The Australian Prudential Regulation Authority will have stronger powers under the draft legislation, including the ability to seek civil penalties of as much as A$210 million when standards of behavior aren’t met, according to a 33-page explanatory memorandum.

“This is imperative to maintain community confidence that the banking sector will serve the interests of consumers and businesses,” Morrison said in an emailed statement Friday, adding that submissions in response to the bill are due by Sept. 29.

The Australian Bankers’ Association, whose members include the country’s biggest lenders and several foreign-owned banks, is calling on the government to extend the seven-day consultation period.

Scrutiny Needed

“Banks want to work with the federal government to get this right, but just seven days to consult is not good enough,” Anna Bligh, the association’s chief executive officer, said in a emailed statement Friday. “This is a significant piece of reform that impacts on the integrity of banks and the stability of the financial system, and it needs thorough scrutiny.”

The new law would create a new definition of an “accountable person” -- a board member or senior executive with responsibility for management or control over a significant part of a bank -- who would require registration with banking authorities.

Bank chief executive officers are among the highest-earners in corporate Australia, a report by the Australian Council of Superannuation Investors showed last month.

Bank Scandals

Even still, scandals have been breaking out since 2014, including a finding of systematic misconduct in Commonwealth Bank of Australia’s financial advice division; allegations that lenders including National Australia Bank Ltd., Australia & New Zealand Banking Group Ltd. and Westpac Banking Corp. tampered with the bank-bill swap rate -- the local equivalent of Libor, which the banks have denied; and charges that banks hadn’t passed on the full benefit of central bank interest-rate cuts to mortgage customers.

Commonwealth Bank’s Ian Narev, 50, received a A$2.86 million short-term bonus in the year ended June 2016, as part of total remuneration of A$12.3 million, according to the lender’s annual report. Narev, along with other senior executives, was stripped of his bonus, the bank said last month, amid allegations the bank failed to stop or report money laundering by criminals. The move contributed to Narev’s total pay falling to A$5.5 million in the fiscal year ended June 30, 2017. Narev will step down from Australia’s largest lender by the end of June next year.

Shayne Elliott, who took over as ANZ CEO on Jan. 1, 2016, was paid a base annual salary of A$2.1 million in 2016, according to the bank’s latest annual report. In addition, he receives annual and long-term variable bonuses, with about half of the total target remuneration allocated as shares deferred equally over four years, and performance rights deferred over three years, which remains at risk until vesting date.

National Australia’s Andrew Thorburn received a cash salary of A$2.36 million as part of total remuneration of A$6.71 million in the 2016 fiscal year, according to the bank’s latest remuneration report. That was a 22 percent increase over the previous year’s A$5.48 million.

Culture Criticism

“NAB and other Australian banks are experiencing criticism of the culture within the banking industry and the conduct of some people working for the banks,” the Melbourne-based lender said in the report, adding that its remuneration committee continues to be “focused on these issues.”

Westpac’s Brian Hartzer’s total remuneration increased to A$6.75 million in the year ended Sept. 30, 2016, from A$5.74 million a year earlier, according to the Sydney-based lender’s latest annual report. The 50-year-old’s fixed pay increased to A$2.77 million from A$2.41 million.

Under the bill, an accountable person who is the CEO of a large bank will be required to defer the lesser of 60 percent of variable pay or 40 percent of total remuneration for a minimum of four years. An accountable person, who isn’t a CEO, at a large bank would be required to defer the lesser of 40 percent of variable pay or 20 percent of total remuneration for the financial year.

Under the new rules, as much as A$4.8 million from a total salary of a A$12 million package could be required to be deferred, the Australian Financial Review reported Saturday. An executive with critical responsibilities at a smaller bank would be required to defer the lesser of 40 percent of variable pay or 10 percent of total pay unless the consideration in question is less than A$50,000, the newspaper said.

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