Executive Remuneration: The Good and Ugly Battle Over Bonuses

This report examines the contentious issue of executive remuneration, particularly in the Australian banking sector, following the 2018 slump and scandals. It explores shareholder opposition to high bonuses, the role of the Royal Commission in uncovering malpractices, and the impact of declining returns on equity. The report analyzes perspectives from Business Insider and Bloomberg, highlighting the debates surrounding executive pay, the need for reforms, and the evolving regulatory landscape. It discusses the shift towards corporate and consumer awareness, the demand for transparency, and the potential for banks to build sustainable businesses rather than focusing solely on inflated bonuses. The report concludes with a call for better governance, accountability, and the alignment of executive pay with financial performance, referencing several news articles and reports.

Corporate Responsibility and Governance
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Running head: EXECUTIVE REMUNERATION

EXECUTIVE REMUNERATION
The Good and Ugly battle over Executive Remuneration
After the banking sector experienced terrible growth slump in 2018 in Australia executive
remuneration particularly their fat bonuses convened serious opposition and rejections from
investors and shareholders. These oppositions from shareholders raised questions regarding
what executives had done to deserve a bonus. Further, the anger of shareholders have vented
against bonus payments after a year of scandals, torn out reputation of banks, allegation of
criminal misconduct and dropping of stock prices.
Editorial 1
According to perspective of Business Insider more than 80 bn AUD had been absolved off
from the market valuation of many big Australian Banks such as NAB, ANZ after
investigation of potential wrongdoing and dampening of housing market growth prospects.
The Royal Commission 2018 inquiries brought forward the widespread malpractices of
Australian banks that put profits before customers by disregarding adherence to obligation
leading to encouraged misconduct behaviour to reach to bonuses and commission. Though
these investigations by Royal Commission exposed more lack of accountability at higher
levels and misdeeds in banks but higher executives continued to receive fixed bonuses and
packages. In another report from Australian Council of Superannuation Investors it was
shown that on average the executives remuneration in banks did not changed much even after
loss of profits, dwindling growth and global financial slowdown which resulted to
shareholder’s agitation, impatience and consequent emphatic rejection of proposed
compensation add packages in an unprecedented protest vote during annual general meeting
of NAB in Melbourne. According to data presented by Refinitiv Eikon some big Australian
banks earlier offered near to 20% return on equity to investors and shareholders over past
decade which declined to 12% in 2018 due to abandoned growth planning. Yet to the running
out patience of shareholders the banks continued to offer allocated millions as executive
bonuses.
The shareholders raised different concerns over NAB’s and other banks executive
remuneration structures and based on these protests the banks management have reported to
change the design of their executive pay schemes and bonuses. However the changes should
have been done much earlier and management should not have awaited for shareholders
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EXECUTIVE REMUNERATION
protest votes as the dropping growth signals, returns and alleged malpractices were value
destroying events so the management should have instead pro-actively taken adequate
measures to focus on control of risk. The management should have voluntarily proposed
scrapping of executive bonus or performance payments in lack of evidenced signs of growth
to lead examples of conduct that would have not let down shareholders and customers
expectation. But as the executive pays and bonuses continued so there was loss of trust in
shareholders where the management of banks did not took adequate actions or efforts to fix
the issue and get it right.
The continuance of executive remuneration particularly bonuses at higher level raises serious
questions on ways of performance metrics over which these are based, designed and applied.
As companies pay bonus and other incentives to boost performance so, when performance of
high level executives fell in first place then it represented that they should not have been
qualified for any bonus payments. But banks have disputed use of bonus by not excluding
performance rights granted to executives and allowed bonuses despite poor performance.
Editorial 2
However according to perspective of Bloomberg, after the revelation of Royal Commission’s
systemic breaches in Australian banks and investors’ concerns over executive payments
specifically bonuses immediate reforms were sought over as senior level executives failed to
fulfil investors and community expectations. Moreover as the culture of greed is spreading
beyond financial sector so before things would worsen reforms need to confront this greed
culture. It is depressing to see banks destroying shareholders and customers money. One can
see for sure that if average Australian stole money from bank then they would be jailed but it
is not yet clear that any banker would go to jail for destroying customers and investors’
money, though it is possible. In 2018, the CEO’s of NAB and Commonwealth Bank earned
more than 100 times average weekly earnings. They don’t work 100 times more than average
worker nor they certainly deliver 100 times customer service, but certainly they are
effectively ripping off customers. Then surely one would not want to reward this behaviour
with huge Executive remuneration and bonuses, then why perhaps this continues. It’s time to
talk about reigning in Executive pays to incentivise better accountability from bankers and to
deal with greed. Like parliament of Australia recently have authorised regulators with new
power to ensure they cap top bank executives pay, disqualify them and impose fines for
misconduct. This latest reform is in response to various scandals and anger vented from
shareholders over bankers who have undermined trust thereby putting the banking sector
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under public and political attention. The new power of regulators like Australian Prudential
Regulation Authority (APRA) would make bankers and senior executives more accountable
to deliver expectations with imposition of higher standards of behaviour where if obligations
are not fulfilled then regulators are empowered to seek fines or disqualify individuals to
insure compliance to policies that would link remuneration with financial performances.
These reformed policies will force banks to adjust their executive remuneration and bonuses
creating better governance, culture and accountability in banking sector in Australia due to
tougher regulatory environment. Also following several scandals that unearthed
investigations these new remuneration policies and tighter regulations for banks will help to
sharpen their customer focus thus replacing short and long term bonus for executives with
single variable incentives based on performance.
To conclude it can be stated that more transparency has been demanded by shareholders after
event of public protest over high level Executives remuneration. It has even highlighted the
question whether CEO’s really deserve bonuses. On the other hand, besides protesting views
the emerging debate on Executive pay has also resulted into fairness by ensuring shift in
focus towards corporate and consumer awareness which has ultimately created willingness
amongst regulators and bankers to correct the situation. It has thus encouraged the CEO’s of
banks to think more creatively over building sustainable businesses rather than thinking only
about inflated bonuses.
Bibliography
CNBC (2019) Australia to overhaul regulators after landmark banking inquiry. CNBC.
Retrieved from: https://www.cnbc.com/2019/02/04/australia-to-overhaul-regulators-
after-landmark-banking-inquiry.html
Danckert., S & Grieve., C (2018). You have destroyed billions’: NAB cops record protest
vote over pay. The Sydney Morning Herald. Retrieved from:
https://www.smh.com.au/business/banking-and-finance/we-got-it-wrong-nab-hit-by-
record-protest-vote-against-exec-pay-20181219-p50n48.html
Duran., P & Barrett., J (2018)Angry shareholders slap down National Australia Bank’s
executive pay plans. Business Insider. Retrieved from:
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https://www.businessinsider.com/r-angry-shareholders-slap-down-national-australia-
banks-executive-pay-plans-2018-12?IR=T
Johnson., E (2019) Key takeaways and recommendation from Australia’s Bank Inquiry.
Bloomberg. Retrieved from: https://www.bloomberg.com/news/articles/2019-02-
04/key-takeaways-and-recommendations-from-australia-s-bank-inquiry
Khadem., N (2018) Bank bosses at NAB and ANZ face investor backlash over executive pay.
ABC News. Retrieved from: https://www.abc.net.au/news/2018-12-19/nab-and-anz-
bosses-face-investor-backlash-on-executive-pay/10634000
Thomson., J (2018). NAB faces an even bigger executive pay strike than Westpac. Financial
Review. Retrieved from: https://www.afr.com/brand/chanticleer/nab-faces-an-even-
bigger-pay-strike-than-westpac-20181213-h1928d
Vercoe. P (2019) Australia Banks surge as Misconduct report delivers soft blow. Bloomberg.
Retrieved from: https://www.bloomberg.com/news/articles/2019-02-04/australia-
banks-hit-with-tougher-regulation-after- scandals?
utm_source=google&utm_medium=bd&cmpId=google
Vercoe., P (2019) How bad behaviour caught up with Australia’s big banks. Bloomberg.
Retrieved from: https://www.bloomberg.com/news/articles/2019-02-06/what-now-
for- australia-s-banks-after-misconduct-probe-quicktake
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