CBA hikes bonuses to stop bankers from becoming brokers

The Commonwealth Bank of Australia (CBA) has confirmed that it will be increasing the bonus caps for its bankers from 50 per cent of base pay to 80 per cent of base pay.

The move, which was disclosed in an interview with the Australian Financial Review (AFR), revealed that the bank was increasing the bonus cap from the recommended limit of 50 per cent, following a drain of talent.

Speaking to the AFR, CBA’s group executive of retail banking Angus Sullivan was reported as saying that the move was necessary in order to stop bankers from leaving the bank to become brokers.

According to the AFR, Sullivan said: “We do see some of our lenders leave to the broker channel, where there is a big difference in remuneration, which is 100 per cent commission based.

“There will be some changes to how we remunerate our best lenders, to pay them a bit more.

“We want to make sure our very best people are rewarded more than they are today, to stay with CBA.

“We can’t have a cohort of our best lenders consistently leaving.”

CBA has now confirmed to Mortgage Business that it has increased its bonus caps. It is expected that the new cap limit will take effect from 1 July.

The Australian Securities & Investments Commission (ASIC) has flagged that the new position was “disappointing”, noting the 50 per cent limit was brought in following the Sedgwick review’s recommendation on variable reward payments (which was backed by the banking royal commission) in order to reduce conflicts of interest and reduce the risk of misconduct.

ASIC ‘disappointed’ with CBA move

An ASIC spokesperson said: “This change is disappointing. CBA’s position on remunerating its lending staff is inconsistent with both the Sedgwick review and the royal commission recommendations. It is also inconsistent with the ABA’s and CBA’s previous public position.

“There is ample evidence that variable remuneration arrangements and incentive selling result in poor outcomes for consumers.

“While we recognise this is a commercial decision for CBA, we will monitor for complaints and be vigilant for emerging conduct issues.”

However, speaking to Mortgage Business, a CBA spokesperson emphasised that the lender had increased its risk frameworks since the Sedgwick reforms were put forward.

The spokesperson said: “Over the last seven years, Commonwealth Bank has significantly enhanced its risk frameworks to ensure strong links with customer outcomes, values and compliance.

“We have recently made some adjustments to remuneration to reward excellent service provided to our customers by our lenders.

“All our remuneration programs are regularly monitored to ensure they are operating as intended and in line with the interests of our customers.

“Extensive controls are in place in relation to all forms of lending.”

While the lender is seeking to reduce the outflow of its bankers to broking, the lender added that the broker channel “plays a critical role in Commonwealth Bank’s strategy”.

“[I]n the last 12 months we’ve invested heavily in upgrading our broker and technology platforms, and appointment of additional staff to better support our network of brokers,” the spokesperson said.

The big four banking group has been through a period of transformation recently, with CBA having experienced a decline in new mortgage lending last year amid heightened home lending competition.

While the lender returned to growth this year, it has shifted its strategy to prioritise proprietary channel mortgages through CBA and broker-written loans through its subsidiary Bankwest (which is shifting to become a digital bank).

It flagged that 90 per cent of Bankwest’s home loans currently originate through the broker channel, with fewer than 2 per cent of its customers visiting a branch regularly.

You can find out more about CBA’s move to increase its bonus caps on the Mortgage Business Uncut podcast here:

[Related: Will increased bonuses help banks retain home loan officers?]