Banking royal commission: NAB lifts pay for customer service

NAB has foreshadowed an overhaul of executive pay practices that will include incentives linked to the treatment of customers.

NAB chairman Ken Henry. Picture: Hollie Adams

National Australia Bank has foreshadowed an overhaul of executive pay practices that will include incentives linked to the treatment of customers, as part of cultural change spurred by revelations at the royal commission.

NAB chairman Ken Henry said yesterday the new policy would be simpler to understand: it would reward long-term performance, including by deferring bonuses and it would provide incentives for “the right behaviours, especially with respect to the treatment of customers”.

The new approach, which will apply from next year, comes as the bank aims to implement by 2020 all the recommendations of the Sedgwick review of bank pay, which, among other things, ­curtailed sales incentives for bank staff. NAB has already replaced product-based incentives for 700 retail branch managers, assistant branch managers, and sales team leaders in consumer call centres with a group incentive based on a “balanced scorecard and NAB performance”.

“No retail branch manager or assistant branch manager has a product-based incentive,” Dr Henry told the Australian Shareholders Association in Sydney yesterday. “No call centre team leaders have product-based ­incentives.”

The Hayne royal commission has heard a string of complaints against the big four banks, including that NAB made potentially fraudulent payments to advisers who “introduced” business to the bank and that falsifying information about customers’ finances was a “social norm” in the bank’s wealth management business.

Dr Henry said those behind the misconduct being examined at the royal commission did not represent the majority of people at NAB. “Most of our people simply do not recognise themselves in what they are reading,” he said. “Our people are hurting; they are being asked by friends, family and strangers to justify the poor ­behaviour of some individuals. Poor behaviour is not what they stand for.”

Dr Henry said NAB was ­focusing on how pay drove ­behaviour in the bank. “Given what has happened in recent years, it is clear that behaviours need to be considered alongside financial performance,” he said.

NAB chief executive Andrew Thorburn received $4.06 million in 2016-17, including a base salary of $2.3m and a short-term bonus of $977,500. But he had another $977,500 split into two equal payments that will be paid on the first and second anniversaries of the original bonus.

Dr Henry, a former Treasury secretary who authored a much-admired but unimplemented ­review of the tax system, said ­ensuring executives were motivated for the long term was “very much in front of mind” in reforming executive pay.

He said he had been closely following the royal commission as an open forum for customers, and it was already “catalysing action”.

“There is no doubt that, if customer interests had been better served, misconduct better ­addressed, and sooner, we would not be participating in a royal commission today.”

Dr Henry said the misconduct was not just a consequence of employees being too focused on shareholder returns. It occurred “when individuals serve themselves, when they find a loophole in the system, or they blatantly break the rules”.

He suggested the issue could be dealt with by redefining the ­financial objective of a business to be “to maximise customer benefit and provide an attractive return on capital to shareholders”. “A business with that dual objective would know its purpose beyond profit, it would earn the trust of the community and it would ­deliver strong performance over the long term,” he said.

He outlined a range of measures designed to improve the banks’ dealings with its customers, including: requiring directors to be both shareholders and customers of the bank; holding board forums in regional centres such as Mildura, Toowoomba and Alice Springs where directors could hear feedback; and encouraging board members to get out of the boardroom and explore the bank.