Commonwealth Bank hit with 21% protest vote on pay but avoids first strike

Commonwealth Bank has been hit with a big protest vote against its pay report, narrowly sidestepping a strike on remuneration.

Commonwealth Bank CEO Matt Comyn during the bank's first virtual annual general meeting. Picture: Supplied.

Commonwealth Bank was hit with a large protest vote against its pay report and a share grant to chief executive Matt Comyn, as investors sent a signal on its pay structures and the bank narrowly sidestepped a strike on remuneration.

In evidence that shareholders are keeping the pressure on banks over pay, about 79 per cent of those voting at and ahead of CBA’s virtual annual general meeting on Tuesday were in favour of the remuneration report. That reflected a sizeable protest vote of about 21 per cent against pay, and was just shy of the 25 per cent that would trigger a strike.

If an ASX company receives two consecutive strikes against its pay report, investors vote on a motion to spill the board.

CBA also endured a meaningful protest vote on a controversial $1.6m equity grant to Mr Comyn. While the resolution was approved, about 21 per cent of votes were lodged against the grant of restricted share units.

CBA’s chairman Catherine Livingstone defended the bank’s pay practices when fielding AGM questions, saying the board took feedback “very seriously”.

She said despite the equity grant to Mr Comyn his potential maximum remuneration and that of senior executives — when including short and long-term incentives — had been reduced 19 per cent as part of a new pay framework.

“We have shown as a board that we are committed to restraint in executive remuneration,” Ms Livingstone said, noting that Mr Comyn was the second-lowest paid of his major bank CEO peers.

“There is a greater degree of line of sight in the framework to long-term outcomes, but the trade-off for that better line of sight has been that overall reduction in … maximum potential remuneration.”

She added that CBA was revising its pay structures ahead of the banking regulator’s reforms, which are expected to more evenly split an emphasis on non-financial metrics such as culture and governance with financial ones such as returns and earnings growth.

Mr Comyn’s proposed pay in 2021 includes $2.3m in fixed ­remuneration, up to $2.16m in variable short-term pay, up to $1.6m in restricted share units and a similar amount in performance rights.

Proxy adviser ISS had urged shareholders to vote against Mr Comyn’s share grant, comparing the award with recent enterprise agreement negotiations with the Finance Sector Union for rank and file employees. CBA is offering staff earning less than $75,000 a year a 2 per cent pay increase for two years, those earning more than $75,000 would get a 1.5 per cent rise, while staff on more than $110,000 would be subject to a pay freeze in the first year.

Many CBA staff members — who are also shareholders — quizzed Ms Livingstone on the bank’s approach to pay via AGM questions.

Regal Funds Management portfolio manager Mark Nathan said the big banks were “very aware” of community expectations and would give additional regard to feedback on remuneration votes.

“I’m not expecting large numbers of (home and business) foreclosures in the next 12 months because the banks will be quite cautious on their social licence,” he said, noting that prior to the Hayne royal commission he would have expected banks to take a “harder line” on repayments and foreclosures.

Mr Nathan said CBA was making “reasonable progress” in getting borrowers to resume loan repayments, but it was still early days.

“It is all positive but we are yet to see what happens when some of the (government) support is reduced. We also don’t know how many people (borrowers on repayment deferrals) have moved from principal and interest to interest only.”

Responding to questions at the AGM, Ms Livingstone said it was CBA’s intention to “act fairly” when dealing with borrowers in periods of stress, but in some instances “difficult decisions” would need to be made.

On the challenging economic backdrop, Ms Livingstone told shareholders CBA was in a strong position and had a “resilient balance sheet” to face into the COVID-19 turmoil.

She said in cutting the bank’s final dividend to 98c per share, CBA was adhering to guidance given by the Australian Prudential Regulation Authority as it sought to ensure banks could navigate the pandemic crisis and keep lending.

Ms Livingstone said CBA remained committed to resuming dividends, under its targeted earnings payout ratio, when the external situation warranted and would next consider dividends in February.

CBA’s shares climbed 1.1 per cent to $69.38 on Tuesday.

Ms Livingstone used her AGM speech to say the bank was making good progress on improving governance, after paying a $700m penalty to Austrac in 2018 and enduring issues raised in the royal commission.

She highlighted 387 approaches to the bank via its “SpeakUp” and whistleblower programs.

“We are very focused on conduct and misconduct,” Ms Livingstone added.

Non-executive CBA director Rob Whitfield was overwhelmingly re-elected to board, with 98.9 per cent of investor votes cast in favour.

Mr Comyn’s speech to shareholders highlighted that CBA was prepared for a range of economic scenarios, as Australia endures its first recession in almost 30 years.

“The bank’s strong capital position means we remain well positioned and well prepared for a range of economic scenarios.”

Mr Comyn also mentioned the bank’s divestment spree, which this year saw it agree to sell a controlling stake in wealth unit Colonial First State to KKR & Co.

“By divesting and exiting our wealth management businesses we have been reducing risk and complexity, and supporting reinvestment.”

On Monday, CBA released data showing the number of its customers with loan repayment pauses continued to fall sharply.

CBA’s September figures revealed a total of 129,000 loan repayment deferral arrangements — down from 174,000 in August and 210,000 in June. Balances fell to $42bn, down from $59bn in August and $67bn in June.

CBA has approved more than $875m in loans to small and medium businesses through the first phase of the government’s Coronavirus SME Guarantee Scheme. Under that scheme, the federal government guarantees 50 per cent of the loan.