AMP’s plan to raise CEO bonus fails pub test

AMP chief executive Francesco De Ferrari. Picture: Britta Campion

In a post Hayne royal commission world, bumping up a chief executive’s potential bonus at the same time as reporting a $2.5bn loss doesn’t pass the pub test.

But that’s what AMP’s board chose to do on Thursday for Francesco De Ferrari.

With regulators still crawling over the wealth and banking sectors as they assess accountability and deal with referrals from the commission, the timing is off.

Investors are still reeling from billions of dollars wiped from the wealth group’s market value and the reputational damage to AMP caused by the royal commission.

The official rationale for increasing the maximum potential short-term bonus De Ferrari can earn — to 200 per cent of his $2.2m base salary from 120 per cent — was to bring it into line with a policy “intended to apply” to senior executives. Intended is the key word there.

AMP’s annual report including details within the remuneration section is slated for release next month, so the situation and hurdles will be clearer then.

For the CEO, the pay change applies for calendar 2020 and is accompanied by robust performance hurdle rates that have to be exceeded for the maximum payment to apply.

No doubt shareholders will applaud De Ferrari if there is a sharp recovery in performance and the share price this year, but that isn’t baked into AMP’s 2020 expectations. The turnaround he has outlined is a three-year proposition.

AMP last year avoided a second strike against its pay structure as more than 89 per cent of investors voted in favour of the remuneration report, following a change of CEO and overhaul of the board.

AMP chairman David Murray has moved to stabilise and beef up the board and, interestingly, also heads up the nomination and remuneration committees.

When asked by this column how he would front angry shareholders at this year’s AMP annual general meeting in May on pay, De Ferrari said: “We will tackle the challenges as they come.

“If I don’t perform I don’t get paid, it’s as simple as that.”

It’s not the first time his overall pay package has been tinkered with since taking the AMP reins in late 2018. Last year, his pay package was revised to take account of the share price rout that occurred prior to his start date.

His initial incentive package included a buyout of his incentives at former employer Credit Suisse and an incentive to drive a recovery at AMP. The face value of the awards were reduced from $3.44 to the share price just before his start date of $2.45. The board cut the face value of a recovery bonus and there is an available long-term incentive of $3.5m.

Thursday’s change in the bonus opportunity for 2020 certainly puts the onus on De Ferrari to ramp up the execution of his strategy and cost cutting this year.

From Thursday’s briefings it is again clear he is not afraid of making big calls, removing layers of complexity and facing into big structural issues.

But with few runs on the board yet, the maximum bonus change for the CEO is poorly timed.

Musical chairs

The ink is barely dry on AMP cementing James Georgeson as permanent finance boss, effective from February 3, and the group has had to fill another key executive spot.

AMP told the market on Thursday its chief risk officer Jenny Fagg was departing the group in April, after just two years in the role. With the intense regulatory attention the sector continues to attract it’s an inopportune time to lose a head of risk.

De Ferrari said Fagg had indicated some months ago her intention to move on and they had been discussing the right time.

“We felt the year end was a good time, obviously recognising we have lots of things going on we were very happy to have a number of really strong internal candidates for this role,” he said.

“I feel very comfortable, and while it’s sad to see Jenny go, we are working very collaboratively to ensure that no ball is dropped.”

To be fair, there will be a two month overlap and handover between Fagg and her successor Phil Pakes who has been AMP’s chief audit executive since joining from Citigroup in April last year. Prior to Citigroup he was Deutsche Bank group audit country head for north Asia, ex-Japan.

Fagg joined AMP from Canadian bank CIBC, and had also held roles in Australia and New Zealand including managing director of ANZ National Bank.

The turnover at the AMP board also continued on Thursday as financial services veteran Mike Wilkins stepped down to take over as chairman at general insurer QBE. His spot will be filled by Sigma board member and former Healthscope and Medibank finance boss Michael Sammells.