CBA slapped with ‘first strike’ on executive pay

CBA has become the first of the big four to suffer a successful shareholder revolt on executive pay.

Ian Narev (left) and David Turner current Chairman chat at Commonwealth Bank's AGM in Perth today. Picture: AAP.

Commonwealth Bank has suffered an official “strike” against lucrative executive payments-- the first dealt to a big four lender — after shareholders staged a revolt at today’s annual meeting.

Following deep criticism and concerns surrounding changes to the bank’s pay structures, more than half of proxy votes cast ahead of the AGM in Perth opposed CBA’s remuneration report.

There were 325.7m in favour, versus 329.25m against, with the final result to be revealed later this afternoon.

The protest vote marks the first strike — which occur when more than 25 per cent vote down a company’s remuneration report — against a big four bank, after National Australia Bank in 2012 narrowly avoided the same fate.

If CBA receives another strike next year, the board can be spilt.

CBA shares endured a rollercoaster session, along with the rest of the market, but 1.64 per cent lower at $70.89, outperforming the other three major banks and the benchmarket index.

Shares in Australia’s biggest listed company (by market capitalisation) traded in a whopping range today as they rose as much as 2.4 per cent in the morning and found themselves as much as 3.4 per cent in the red this afternoon.

Several governance and proxy advisory companies — including Institutional Shareholder Services and Ownership Matters — recommended investors vote against CBA’s remuneration report and performance rights proposed to be granted to chief Ian Narev, whose last year took home $12.3 million.

ISS claimed CBA’s changes, where a larger proportion of bonuses will be measured against performance on non-financial measures such as diversity and culture, were “essentially HR policies” that were part of executives’ and Mr Narev’s day job.

Ownership Matters revised its recommendation to “against” after CBA was recently caught up in the Australian Securities & Investments Commission’s damning findings into wealth companies’ charging of advice fees for services not provided.

In a twist ahead of the AGM, CBA this morning pulled the motion to award Mr Narev up to 55,443 fresh reward rights based on the new performance measures. Instead, the bank will issue the rewards on the same basis previously approved by shareholders in 2015.

Outgoing chairman David Turner said the board had acknowledged the concerns about the proposed long term reward plan and the “lack of clear targets and metrics”, plus the “lack of clarity of the short term incentive plan targets and how the board exercises its discretion”.

“We will be engaging with shareholders over the next 12 months on all of these issues,” he told shareholders today.

“While we have heard shareholders’ concerns relating to our proposed long term incentive plan, we still believe a balanced set of measures between financial, customer, people and community will enable the business to continue to achieve both superior and sustainable value over the long term.”

The move to pull Mr Narev’s rewards — which was flagged by The Australian — came after several large superaauation funds, including heavyweights Australian Super and UniSuper, opted to vote against both the remuneration report and the grant to the CEO.

After a review, CBA’s board proposed to revise the leadership reward plan to incorporate “people and the community”, weighted at 25 per cent, while total shareholder return and customer satisfaction performance were to make up 50 per cent and 25 per cent, respectively. Previously, long-term incentives were measured across four years of performance, based on a relative TSR hurdle, weighted at 75 per cent, while customer satisfaction was 25 per cent.

The board planned to revise executives’ short term incentive “balanced performance scorecards” to include an “assessment of exemplary leadership and exceptional personal demonstration of the group’s vision and values”.

Rather than align Mr Narev with shareholders, ISS claimed bonuses would be paid “less for financial results and more for essentially non-financial and unquantifiable performance measures, which are essentially HR policies”.

Mr Narev last year received $12.3m, up more than 50 per cent, including $6.6m of deferred equity awards that were unlikely to be repeated this year. His executive team took home $32.5m in a year where cash profit rose 3 per cent to $9.45bn, but went backwards in the second half.

ISS took issue with “at risk” short term incentive payments, claiming they did not have “any discernible alignment with financial results”, citing last year’s earnings growth, negative TSR, lower return on equity and weaker earnings per share.

However, rival proxy advisory group CGI Glass Lewis backed CBA’s remuneration report and the grants to Mr Narev.

Mr Narev’s total statutory pay package for full-year 2016 rose 5.4 per cent to $8.8m.