Business Decisions and Executive Pay: A NAB Case Study

This report examines the controversy surrounding the National Australia Bank's (NAB) executive pay, stemming from issues in 2018. The report details significant investor backlash, including an 88% shareholder objection to NAB's remuneration report, fueled by concerns over excessive executive compensation and the 'fees for no service' scandal. It explores the role of major shareholders and proxy voting services in challenging NAB's policies. The report further analyzes the findings of the Royal Commission, which highlighted NAB's overcharging of customers and breaches of corporate and ASIC acts. The editorial emphasizes the potential negative impact of extreme capitalistic approaches by corporate organizations on stakeholders, the need for stronger regulations to protect investor interests, and the importance of fair remuneration systems. It references articles from ABC News Online and Australian Financial Review Online, along with the Royal Commission report, to provide a comprehensive overview of the events and their implications.

Running head: EDITORIAL: IMPACT OF BUSINESS DECISIONS
EDITORIAL: IMPACT OF BUSINESS DECISIONS
Name of the Student
Name of the University
Author Note

1EDITORIAL: IMPACT OF BUSINESS DECISIONS
ABC news online
The National Australia bank faced significant issues in regards to their executive pay in
2018. The bank faced strong backlash from their stakeholders for their bad remuneration policy.
An investor revolt occurred in which more than 88% of the shareholders in Melbourne objected
to NAB’s report in their Annual general meeting. Matters went even worse when larger
shareholders such as the ASA, ACSI, Ownership Matters and Institutional Shareholder Services
that have proxy voting powers announced to vote against the remuneration report of NAB.
The issue gave rise to further controversies as many started questioning the extent to
which capitalism can be exploited by an organization. An investor named Chris Schacht said to
the AGM of NAB that they were the unacceptable face of capitalism. He also said that the
organizations had actually destroyed billions of dollars’ worth of shareholder value. The bank
chairperson Ken Henry admitted that the executive pay of the bank indeed got it wrong. He also
told that the bank will revamp its pay structure.
The royal commission report of 2018 focused on the issues reported with NAB and
slammed the overcharging of the customers by the organization. Along with the same the report
also identified breaches of corporations act. Additionally, the breaches of the ASIC Act were
also reported. Along with the same various suspected breaches of the Corporations Act and also
the ASIC Act were put forward through the report.
The entire issue surrounding the ABC news online points to the fact that corporate banks
often take measures to ensure their greater profitability that actually end in losses for the people
that have trusted these organizations with their money. Extreme capitalistic outlooks by
corporate organizations such as the NAB can cause further problems for the stakeholders and

2EDITORIAL: IMPACT OF BUSINESS DECISIONS
shareholders of these organizations if not properly checked by the various regulatory bodies.
Here, it should also be pointed out that NAB admitted that it did indeed broke the corporate law
84 times between the period of 2014 and 2017. The remuneration issue was touted as the fees for
no service scandal of NAB. The events that were reported were quite obviously very worrying
for the shareholders. It is bound to affect other such investors and shareholders that have invested
in similar organizations. The problem is quite certainly the severe capitalistic tendencies of these
banks. In some cases the returns of certain regulation breeches are too big to be altogether
ignored by the large banking organizations. There is a need for stronger laws to ensure the safety
and security of the investments of the shareholders. Investor remunerations should hence be
adjudicated as one of the topmost priority of the banks.
It can be said that the incident brought to light some of the most unfair remuneration
systems that are sometimes implemented by banks in order to increase their profits. Capitalistic
approaches of financial organizations should hence be checked by the financial regulatory bodies
from time to time. Hopefully, strict actions will be taken in this regards and such incidents could
be effectively avoided in the future.

3EDITORIAL: IMPACT OF BUSINESS DECISIONS
Australian Financial Review online
The National Australia Bank recently found themselves in the middle of a significant
financial controversy as their remuneration policies came under severe criticisms from their
investors. The 2018 remuneration report of NAB showed that the company was planning to
implement a new remuneration policy that was to deliver zero bonus outcomes in cases of non-
performance.
This caused significant outrage among the majority of the investors, stakeholders and
shareholders. 88% of the shareholders of the bank opposed to the remuneration report. This was
following the signals that were given earlier by shareholders that have proxy voting powers. This
includes the Australian council of superannuation investors, Australian Shareholders
Association, Institutional Shareholder Services and Ownership Matters. This was the highest
ever vote given against the remuneration report of any organization in corporate history. The
higher management of NAB were quick to acknowledge the matter, however. The chairperson
Ken Henry admitted that the executive pay was gotten wrong and said that it will be revamped.
The Royal Commission provided a report in regards to the incident. The commission
charged the NAB for overcharging its customers. Moreover, the commission identified breaches
of corporations act and the ASIC Act. Along with the same various “suspected” breaches of the
Corporations Act and also the ASIC Act were put forward through the report. The NAB admitted
that it did indeed broke the corporate law some 84 times between the period of 2014 and 2017. It
is important to understand that the regulatory bodies have actually been unable to regulate the
corporate environment concerning banks and investors effectively. Although, many of the

4EDITORIAL: IMPACT OF BUSINESS DECISIONS
investors have accused NAB for taking capitalism to the worst level, it has to be seen that better
regulatory actions are in place to control the same.
The case has raised eyebrows across the financial and the banking communities across
the nation. However, it needs to be said that specific regulations need to be in place to control the
exact areas within the law that can be taken advantage of. Remuneration systems should be
regulated more. Many of the banking organizations have been seen to take advantage of some of
the lesser regulated acts that are in place. As profit making organizations banks cannot be
entirely blamed for the situation that transpired. It becomes the joint responsibilities of both the
banks and the regulatory authorities to ensure the security of the investments of their customers.
The organizations should work in a coordinated manner to ensure a safe environment for mutual
financial gains. Blaming the entire issue on capitalistic system might not be the answer as these
systems often become more evident in the absence of proper government control. The NAB bank
has ensured that the issue would be resolved as soon as possible.
The implications of the incident point towards the apparent inability of the laws to control
the remuneration systems created by banks. However, the issue can be an example that can be
used to prevent similar situations in the future. Greater participation of banks and regulatory
authorities are required for ensuring financial security.

5EDITORIAL: IMPACT OF BUSINESS DECISIONS
Bibliography
‘Unacceptable face of capitalism’: NAB and ANZ bosses face investor backlash on executive
pay. (2019). Retrieved from https://www.abc.net.au/news/2018-12-19/nab-and-anz-
bosses-face-investor-backlash-on-executive-pay/10634000
Royal Commission | NAB News. (2019). Retrieved from https://news.nab.com.au/royal-
commission/
Sarah Danckert, C. (2019). 'You have destroyed billions': NAB cops record protest vote over
pay. 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