Customers suffer, scandals to lose bonuses in the new remuneration system of NAB

Dr. Henry noted that boards had long had the ability to get bonuses back, but that was seen as an extreme measure that was usually used only when a manager was fired.

"Those schedules can be quite attractive for boards because boards with one [long term incentive] structure can avoid responsibilities for the outcome, "he said.

NAB CEO Andrew Thorburn: his salary for this year has yet to be determined.

NAB CEO Andrew Thorburn: his salary for this year has yet to be determined.

Photo: Bloomberg

"This requires that we, at the moment of allocation, think very carefully about the performance of a manager against a series of metrics."

The move was made after the Australian Prudential Regulatory Authority (APRA) warned that recourse to financial measures alone was partly responsible for the cultural problems of the sector. The shift also occurs after the government had given APRA the authority to reimburse management remuneration under the so-called BEAR scheme.

The relationship between reward and scandal has also been a theme of the royal committee of Hayne. NAB executive Andrew Haggar, who recently announced his departure from the bank, told the commission that his bonus was reduced by 5 percent after the widespread forgery in his business unit was discovered. Meanwhile, the director of Commonwealth Bank, Helen Troup, said scandals at the insurance department under her supervision saw her bonus delayed but did not decrease.

NAB claimed that the new model would see rewards for top executives if the bank met the targets but did not exceed by about 15 percent compared to the previous year.

The bank presented a hypothetical example of how the model could apply to Mr Thorburn's remuneration, which shows that if targets are met but not exceeded, he would receive $ 7.94 million this year, $ 1 million. less than last year.

Dr. Henry said that the board still had to determine the actual remuneration of Mr. Thorburn for this year and that decision would be communicated to the shareholders prior to this year's annual meeting.

His possible maximum total remuneration, however, remained virtually unchanged.

Another important change is that executives would receive 40 per cent of their cash bonus and 60 per cent in shares, instead of the current distribution of around 20 per cent cash and 80 per cent shares.

Investors want executives to make money and make it the right way

From Kolesnikoff

And although executives must wait four years, and possibly longer, before they can trade their shares, they will immediately receive all dividends as cash. Under the new regulation, both cash and equity components can be recovered.

Dr. Henry said that this focus on equities and dividends, in combination with the four-year trade ban, brought directors into line with the interests of the shareholders.

& # 39; Very problematic & # 39;

If the bonus shares had to be reclaimed due to subsequent board events, Dr. Henry said that the size of that clawback would take into account the fact that dividends were paid.


Vas Kolesnikoff, executive director at Institutional Shareholder Services who advises major investors on, among other things, executive remuneration, was very critical about the shift of hard financial standards as a gateway for calculating bonuses.

He said that the move was "extremely problematic" and out of step with the Australian market, and raised echoes from badly received pay reviews at AMP and insurance giant QBE that garnered strong protest votes from shareholders.

Mr. Kolesnikoff said that the boards in Australia had a bad reputation in using their discretion to punish executives and that clear financial measures should form the basis for a bonus decision.

He said it was clear that other issues, such as those highlighted by the Royal Commission, could be included in the equation without abolishing measures, such as the total return for shareholders.

"Investors want executives to make money and make it the right way," he said.

"The board was unwilling to use their discretion to simply say & we will not pay your bonus."

The Australian Board of Superannuation Investors, chief executive Louise Davidson, said that steps to reduce both the complexity and the quantum of directors' remuneration were welcome.

& # 39; Investors will look very closely at the bonus results in the banks this year, especially in the light of the problems raised in the royal committee. Simplifying structures is one thing, where managers are responsible for performance is another. & # 39;

Mathew Dunckley is the business editor for The Sydney Morning Herald and The Age. Our office is located in our newsroom in Melbourne and has almost 20 years of experience as a journalist and editor.

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