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Bank bosses set to face even bigger pay cuts, watchdog warns

Jessica Yun
Australian Prudential Regulation Authority chairman Wayne Byres appears before the Standing Committee on Economics at Parliament House in Canberra, Wednesday, March 28, 2018. <em>(AAP Image/Mick Tsikas)</em>
Australian Prudential Regulation Authority chairman Wayne Byres appears before the Standing Committee on Economics at Parliament House in Canberra, Wednesday, March 28, 2018. (AAP Image/Mick Tsikas)

The Banking Royal Commission has exposed the devastating impact that bank misconduct has had on Australians.

But it’s also had personal consequences for many big bank executives – some have lost their jobs while others copped major pay cuts.

But the storm hasn’t passed yet: the banking watchdog has flagged that it will be overhauling the way bank executives get paid.

Company boards have not wholeheartedly embraced the fact that the conventional way executive pay checks have been calculated need to be reviewed, said banking watchdog APRA chairman Wayne Byres in a speech on Wednesday.

“Boards have struggled to gain acceptance that new approaches are needed.

“It seems inevitable that regulatory intervention, and a greater degree of prescription, will be required to shift practices.”

What will the banking watchdog do?

The corporate regulator will look at three aspects: metrics, discretion, and something called ‘malus and clawback’.

Currently, executive pay packets are calculated on the basis of hitting targets – but this will have to change, Byres indicated.

“From APRA’s perspective, we want to see remuneration based on a genuine and even balance of financial and non-financial considerations.

“We have yet to reach a view as to the right mix, but an obvious question for boards is to ask themselves why 50:50 wouldn’t be a good starting point.”

In terms of who determines how much bank executives get paid, it’s a matter that’s up to the company boards to decide.

“Boards have a responsibility to ensure executive remuneration is appropriate,” said Byres.
More discretion is needed in rewarding bank executives and in judging whether the rewards should actually be granted, he said.

“Totally formulaic approaches with high leverage that some investors seem to favour are not going to cut it in the future.”

“That will also probably also require more transparency about decision-making, which is no bad thing.”

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