ABA’s Anna Bligh: Banks on notice over pay incentives

ABA chief Anna Bligh has urged the banks to quickly adopt a proposed remuneration structure overhaul.

Australian Bankers’ Association CEO Anna Bligh. Picture: Stephen Cooper.

Anna Bligh, the new chief executive of the Australian Bankers’ Association, has put the sector on notice over past failures to heed independent reviews, as she urges lenders to quickly adopt a proposed remuneration structure overhaul.

An independent review by former Australian Public Service Commissioner Stephen Sedgwick delivered 21 recommendations on pay incentives, and has called on banks to ban sales-based bonuses to retail staff and scrap incentives based directly or solely on sales performance.

Other recommendations, which the big four banks and ABA have pledged to adopt, include ensuring mortgage brokers’ payments are not linked to loan sizes.

“Time is not on the industry’s side,” Ms Bligh said yesterday. “They’ve got a very clear blueprint. It’s up to banks to prove the sceptics wrong.

“Once upon a time they may well have been able to spend six months ruminating about this. Those times are gone; people want to see action.”

The former Queensland premier, who started with the ABA on April 3, said she would also “revisit” the industry’s response to lawyer Phil Khoury’s review of the Banking Code of Practice, which was released earlier this year.

“There is room for a more robust response on a number of the Khoury recommendations,” Ms Bligh said.

The Sedgwick review did not recommend completely banning rewards for sales, but suggested replacing them with measures where sales represent no more than one third of the consideration for incentive payments by 2020.

Mr Sedgwick said: “It remains my view that there is not sufficient evidence of significant systemic risks of poor outcomes for customers to support an outright ban on all product-based payments in retail banking. Nonetheless some current practices carry an unacceptable risk of promoting behaviour that is inconsistent with good customer outcomes and should be changed.”

Extending the proposed rules to cover the mortgage broking industry, where more than 50 per cent of home loans are written, will be more challenging and may ultimately require regulatory or legislative intervention.

“We will implement many of the recommendations by July 1, 2017 and will have all changes in place by the following financial year,” CBA chief executive Ian Narev said. Westpac consumer boss ­George Frazis said the bank “will implement all of Mr Sedgwick’s recommendations” by the 2020 deadline.

ANZ Australia chief Fred Ohlsson said the bank was “committed to implementing these recommendations as quickly as possible” and had already introduced a new incentive plan for its retail and call centre staff.

NAB committed to draft proposals in October last year and consumer banking boss Andrew Hagger said the bank’s “focus is to implement them well ahead of the 2020 deadline”.

Bendigo and Adelaide Bank boss Mike Hirst said the industry was finally waking up to a customer-centric culture. “The good news for our customers is that most of the recommendations reflect what we’ve been doing for a long time,” he said.

Bendigo removed incentives directly linked to products and sales targets in 2002.

“Payments shouldn’t be related to the size of the loan taken out because it encourages brokers to maximise the loan people take,” Mr Hirst said. “There shouldn’t be anything in the system that incentivises lending to people more than they need.”