Australian banks still using KPIs under new guise: FSU

In its submission to the financial services royal commission, the FSU said that banks are continuing to use scorecards and leaderboards to compare sales performance, despite the Sedgwick review recommending a reduction in sales targets and conflicted remuneration for frontline staff and junior management.

“These reviews have not altered the underlying reality of a crisis of trust in Australian banks,” FSU’s submission states.

According to the union, key performance indicators (KPIs) have merely been rebranded as “behaviours” measures, focused on sales and revenue and not on “ethical behaviour or the customer interest”, while scorecards and leaderboards are described as “informal visual aids” or “visual management tools”.

“A change in nomenclature does not change function. Such tools have no purpose beyond attempting to increase sales volumes,” the union said in its submission to the royal commission.

“Union members continue to describe teleconferences with regional managers, which can occur up to several times on a single day, for the purpose of reporting sales progress and outcomes.”

FSU did acknowledge some change in its submission, saying that the proportion of a banker’s performance metrics dedicated to sales targets has been reduced since the Sedgwick review.

However, it argues that such targets have been “supplemented with ‘customer needs analysis’ processes like the ‘A-Z Reviews’ at ANZ, where customers are quizzed as to their finances with a view to selling the customer as many products as possible”.

The FSU continued in its submission: “Frontline staff are now being placed on performance management (which endangers their ongoing employment), and their eligibility for bonuses determined, by reference to how many customer needs analysis processes they cause to occur.

“From the perspective of the bank, a customer needs analysis process is an indirect measure of sales. The banks know that they will make more sales by causing more of these review processes to occur.”

The union noted that when bank employees raise concerns about culture or the ethics of certain practices, they are given “adverse behavioural ratings and are categorised as not being team players”.

The FSU suggested to the royal commission that the impact of remuneration structures for CEOs and other senior executives on bank culture and operations be examined, as they continue to be heavily focused on short-term and short-medium-term incentive payments.

“There is a broad consensus in academic and public review discussions that a prerequisite to improving bank culture is ‘buy in’ from management,” the union’s submission reads.

“To date, there has been no meaningful engagement from CEOs and other senior bank executives with the need for cultural change.”

The union observed that, unlike in Australia, reviews and assessment of business culture in which all stakeholders (including customers and employees) “are listened to with a genuine desire to improve” are the norm in the UK.

“Unless and until there is a willingness to acknowledge the existence of deep cultural issues, and to commit to a process of improving culture not simply as a generator of profit but as a central economic and social participant, there will be no genuine restoration of trust to the sector,” the FSU said in its submission.

Recently, chair of the Australian Competition and Consumer Commission (ACCC) Rod Sims said that raising the private cost of “bad behaviour” for companies is key to deterring it.

Speaking at the National Consumer Data Policy Research Centre, Mr Sims remarked how “appalling” he finds it that banks have knowingly engaged in “inappropriate” behaviour because “they would lose out to their competitors if they did not”.

He referred to remuneration structures that reward employees for reaching or exceeding certain targets, acknowledging that despite them being a “legitimate and effective way of encouraging sales teams”, they could lead to poor customer outcomes if “proper safeguards are not established to limit how staff or agents achieve their sales targets”.

As such, the ACCC chair has urged the Parliament to pass a bill to increase penalties for breach of the Australian Consumer Law and the Competition and Consumer Act 2010. Specifically, the ACCC would like the $1.1 million fine for breaching the Australian Consumer Law to be increased to either $10 million, three times the gains generated from misconduct or 10 per cent of a company’s annual revenues.

“Just imagine if the penalties we have achieved recently were 10 to 20 times higher. Then perhaps some companies would not be behaving so badly. And then, when they say they put their customers first, it might have more validity than it does today,” Mr Sims said.

The chair also mentioned the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which showcased some of the negative consequences driven, at least in part, by problematic financial incentives.

He further praised the efforts of activists in identifying and shining a light on bad behaviour, which Mr Sims believes is necessary to deter such behaviour in the future.

[Related: Raising fines key to limiting misconduct occurrence]