Board and CEO salaries on the chopping block

The Governance Institute of Australia’s seventh annual Australian Board Remuneration Survey, which is based on remuneration data covering 1,545 boards nationwide, revealed noticeable year-on-year declines in the pay packets of directors, chairs, managing directors and CEOs in the financial services sector.

The average chair salary is down 11 per cent from $169,712 in 2018 to $151,733 in 2018. Likewise, board directors are being paid 11 per cent less in 2019, with the average pay standing at $63,569, down from $71,288 in 2018.

The figures represent a V-shaped trend, as the average wages of chairs and director had increased from 2017 to 2018 by 29 per cent and 11 per cent, respectively. In 2017, the average pay for chairs was $131,811, and for directors, it was $64,032.

Managing directors, meanwhile, are being paid 10 per cent less than a year ago, with the average salary shrinking from $664,261 to $600,334, after rising by 11 per cent when compared to the 2017 average of $596,010.

Finance sector chief executives were hit the hardest, with their average salary contracting by 21 per cent, from $466,818 last year to $370,676 this year. However, CEO salaries were already on a downward slide, with the average pay falling 2 per cent over the year from $475,984 in 2017.

The pay packages of company secretaries, on the other hand, increased by 24 per cent from $165,513 to $205,393. This follows a 22 per cent year-on-year decrease from an average of $211,155 in 2017.

Speaking of the research findings, Megan Motto, CEO of the Governance Institute, said: “It is clear that the effects of the banking royal commission are already being felt by Australia’s financial institutions, as shareholders and their boards move to act upon commissioner [Kenneth] Hayne’s recommendations.

“The commission exposed multiple examples of poor corporate culture, poor ethics and risk management, leading to a number of board and executive resignations.”

She continued: “Beyond that, there has been serious brand damage, hefty fines for poor conduct and, in some cases, criminal proceedings where the behaviour has been outright illegal. The customer was not put at the centre of the experience, and their organisations are paying the bill. That bill is of course then flowing down to board and executive remuneration.”

The final banking royal commission report highlighted that “failings of organisational culture, governance arrangements and remuneration systems lie at the heart of much of the misconduct examined” by the royal commission during its 11-month inquiry.

Commissioner Hayne had, therefore, recommended: that the Australian Prudential Regulation Authority have greater oversight of remuneration structures at regulated entities, that financial services firms review at least annually the design and implementation of their remuneration systems for frontline staff, and that boards consider their role in reviewing these systems.

The commissioner had also backed the Banking Executive Accountability Regime, under which authorised deposit-taking institutions are expected to establish a remuneration policy requiring that a portion of executives’ variable remuneration be deferred for a minimum of four years and reduced commensurate with any failure to meet their obligations to act in the best interests of customers.

Stephen Sedgwick, a former public service commissioner who was tasked by the Australian Banking Association to conduct a review of remuneration in the retail banking industry, concluded in March that banks are on track to meet their 2020 deadline to overhaul staff remuneration.

[Related: Banks on track with remuneration reform: Sedgwick]