Why bank CEO wages are simply obscene

Westpac’s ex-CEO, Gail Kelly, is only the latest example of egregious overpayment, of dopey boards throwing scores of millions of undeserved dollars at executives. It’s up to you to stop it.

Kelly made headlines for picking up the better part of $12 million for her final four months running Westpac.

In fairness, “only” $2.25 million was cash for the four months’ work – the rest was the value of shares that vested for prior years’ “performance”.

The extent of the CEO pay obscenity though can be guessed at by the $55 million worth of Westpac shares she accumulated and options worth another $12 million or so. It is ridiculous.

And there are worse cases.

Also read: Westpac's Kelly walks away with $11.8m

The departing Mike Smith has been more overpaid throughout his term as ANZ CEO and the all-time record goes to the CBA for paying Ralph Norris $16 million for his efforts in 2010.

But Kelly’s bloated pay has been big enough for a bank board to finally admit it was wrong to throw so much money at its CEO.

The current crop of replacements are being paid a few million less than their predecessors who basked in the golden age of CEO excess.

When announcing Kelly’s successor last year, Westpac chairman Lindsay Maxsted said:

"There's an understanding in the investor community and the public generally that the levels of salaries within financial services did get out of kilter through that era and have been brought back.”

And that’s as close as we’ll get to a board being really honest and confessing along these lines:

“Look, we’ve been a bunch of total dopes, completely out of touch with the real world, throwing shareholders money around like drunken sailors, effectively captured by our CEOs and dubious remuneration consultants. We’re an embarrassment to ourselves, our company and the idea of good governance.

“It was largely an ego thing – we had to keep paying our CEO more to keep up with the other banks were paying, otherwise it might look like our CEO wasn’t as good as the others.

“Basically, when it comes to negotiating CEO pay deals, we’re a bunch of incompetents.”

Also read: ANZ's CEO pay packet closes in on $11m

If Westpac – or any of the banks – decide they want to make more money out of their customers, they have no trouble simply changing their interest rates and fees.

A smarter, braver board would have re-negotiated the CEO’s contract when the directors woke up to the fact that the contract was not good for the bank, that it held the bank and its CEO up for contempt. But none of the bank boards have been that smart.

It annoys me intensely for a number of reasons, not the least of which is the crazy idea that an individual CEO is ever worth the so many millions when, if the CEO is any good, that person is just part of a team that actually runs the company and the CEO will ensure that he or she is infinitely replaceable.

In the case of the banks, the richly retiring crop all owe their success to their predecessors who built strong banks after their scare during th last recession, plus the government guarantees that protected them during the GFC, plus the government preventing them from taking over each other, plus the fact that they were all making so much relatively easy and safe money out of Australian housing that they didn’t need to chase the higher risk stuff that got foreign banks into trouble,

I’ve spent most of my working life interviewing and observing CEOs and I can assure you the average CEO is pretty average.

They often achieve their lofty positions as much through luck and as good management and, more often than not, they have tended to be managers rather than leaders.

The selection process tends to boil down to a sort list of three or so candidates and any one of them is pretty much as good as the others.

Every now and then it turns out the board makes a mistake and appoints the wrong person – Woolworths is the present case in point – and every now and then someone really good gets the job and actually deserves their pay.

Also read: CBA CEO's pay drops to $8m

Two come to mind: Paul Anderson, the imported American who turned BHP around and Paul Simons, the man who rescued Woolworths. In the last interview I did with Anderson as BHP CEO, he readily agreed that he had been overpaid and Simons kept tight control on executive pay at Woolworths, including his own.

It was Simons’ policy that the CEO should be paid, including bonuses, no more than 30 times the salary of the company’s lowest-paid employ. 

Simons also ran a decidedly less-than-flash headquarters office, right down to the lousy coffee machine dispensing miserable instant.

No, they don’t make ‘em like Paul Simons anymore.

The good news is that you can fight the excess of dopey boards.

If you own bank shares in your own name, it’s safe to routinely vote against the remuneration report.

More importantly, you should write to your superannuation fund and demand that the bank shares held on your behalf vote against the remuneration report. It’s the super funds who own and control the banks and elect the boards.

If enough of us do it, maybe the out-of-touch directors will be brought back to earth.

And if any of the current CEOs aren’t prepared to work for only a few million, there are plenty of others who will. None has stamped himself as a genius.