Major bank trims executive bonuses

National Australia Bank has responded to regulatory and media scrutiny by revamping its remuneration package for the CEO and executive leadership team.

Short and long-term incentives have been replaced with a single variable bonus that the major bank claimed will decrease executive rewards.

Under the “simplified” remuneration framework, which is now in effect, executives will be assessed individually based on a combination of “customer, risk and financial metrics”.

The board will also take into consideration “regulatory compliance, customer outcomes and issues that impact on the group’s reputation”, NAB said in its disclosure to the ASX.

Chairman Ken Henry suggested that the new pay structure is more aligned to customer, shareholder and community expectations, and provides the board with the ability to hold executives accountable.

“The NAB board is determined to drive customer focus at every level of the organisation. This lens needs to be considered alongside financial metrics when assessing executive performance if we are to deliver long-term, sustainable performance for shareholders,” Mr Henry said.

“The board recognises it is important to attract, retain and reward skilled executives while remaining mindful of the quantum of executive remuneration.

“The new framework provides the right tools to ensure performance.”

For NAB’s chief executive, Andrew Thorburn, the new pay structure means that his “at target” remuneration is now $7.94 million, representing a reduction of 11 per cent (or $1.05 million) from 2017 and 18 per cent (or $1.78 million) from 2016.

The “at target” pay is made up of a $2.3 million fixed salary, variable reward of $4.6 million and dividends of $1.04 million.

Under the new remuneration structure, the variable reward will be paid in cash following the end of the financial year, with the remaining 60 per cent to be awarded in shares that will be deferred for at least four years, the major bank explained. Executives will receive dividends on the shares but won’t be able to sell them.

Mr Thorburn’s maximum remuneration, however, will be $10.76 million, which is marginally lower than the maximum of $10.82 million in 2017.

NAB has also recently restructured its remuneration package for brokers, announcing that from November 2018, NAB and its white label brand Advantedge will calculate the upfront commission a broker receives for a home loan based on the amount drawn instead of the total approved facility and net of any offset facility. The restructure is in response to  the recommendations from the ASIC and Sedgwick reviews, which were backed by the Combined Industry Forum package of reforms.

Meanwhile, in July, Westpac Group CEO Brian Hartzer said that the bank would not wait for changes to be imposed on it by the banking royal commission.

Rather, it said that it would fully implement the recommendations that came from the year-long Sedgwick review (such as the suggestion for banks to remove volume-based incentives and “soft dollar” payments for its employees) two years ahead of schedule in an accelerated effort to address the “trust gap”, according to the CEO.

Mr Hartzer said that one of the factors that has contributed to this trust gap is “the perception that some of the incentives for our people, or third parties, have been structured in a way that put the interests of the bank and its shareholders before the interests of customers”.

As such, from October, incentives for Westpac’s customer-facing employees will be “further weighted towards providing great service and doing the right thing, rather than product sales”, the CEO said.

“This builds on steps we took two years ago as the first bank to remove sales incentives for tellers and to de-link increases in base pay from product sales,” Mr Hartzer said.

[Related: Australian banks still using KPIs under new guise: FSU]