The government said it supports APRA acting on the recommendations.
Yearly review of remuneration
Dealing with non-executive pay, the report said all financial services entities should review “at least once each year” remuneration systems for front-line staff, “to ensure that the design and implementation of those systems focus on not only what staff do, but also how they do it”. Banks should also implement fully the recommendations of the review by Stephen Sedgwick. The government also said it supports these recommendations.
The final report said all banks must give “close attention to the connections between compensation, incentive and remuneration practices and regulatory, compliance and conduct risks”.
But the Finance Sector Union said the final report was a missed opportunity, describing its failure to examine the pay structures of workers who are not executives or front-line workers as “staggering” and criticising it for not proposing “any concrete action to rein in obscene executive pay”.
“Today’s report has failed to address the issue of conflicted remuneration, or the myriad other issues that bad pay structures cause,” said FSU national secretary Julia Angrisano. “It is now up to APRA to force banks to fix these problems. The FSU believes that the only system of remuneration in the financial services sector should be one in which workers are paid for their skills and experience rather than the current model that relies on targets and bonuses.”
With bank boards seeking to introduce more subjective measures into executive pay policies, the report said “focusing only, or largely, on a measure of total shareholder return when deciding whether long-term variable remuneration should be paid does not allow consideration of all relevant aspects of the executive’s performance”.
“In particular, I would add, it does not allow consideration of how the executive has managed risk,” the commissioner said.
Commissioner Hayne also called on all financial services companies, whether named in the report or not, to “look again at the way in which it governs itself and manages not only its employees, but also the entities and individuals who act as its intermediaries, or are seen by consumers as representing” the entity.