Gun-shy NAB tries an old approach for exec pay

Former NAB chairman Ken Henry Picture: Hollie Adams

After tying itself in knots over executive pay and earning a ­record 88 per cent vote against its 2018 remuneration report, ­National Australia Bank has returned to a tried technique in a bid to avoid a potential board spill at its December annual meeting.

NAB has been sounding out investors in recent weeks on a new remuneration framework that ­reverts to the old system of short-term and long-term incentives.

Outgoing chairman Ken Henry’s radical alternative, which featured a single variable reward based on performance, is dead, buried and cremated after a shelf life of 12 months.

As Henry said after last year’s disastrous annual meeting: “We tried but we got it wrong. We are listening to you. We will try again.”

Less than two months later, with royal commissioner Kenneth Hayne’s rebuke of his NAB stewardship ringing in his ears, Henry decided to bow out as well.

The bank’s new framework is not an exact replica of the model used before 2018.

There are tweaks and improvements, as you’d expect given that a single “no” vote above 25 per cent means a potential resolution to spill the board.

Phil Chronican, who remains acting chief executive until he succeeds Henry on November 15, will leave no stone unturned to avoid that outcome.

The framework, however, is one thing; the way it’s applied is quite another.

Under the Henry model, then-CEO Andrew Thorburn’s target reward was reduced by 11 per cent compared with 2017 and 18 per cent compared with 2016.

As a measure of accountability for the brand damage suffered by NAB and the scale of wrongdoing highlighted in the royal commission, it was nowhere near enough.

If ever there was a year to slash bonuses to zero, instead of merely reducing them, 2018 was it.

As NAB finetuned its pitch to investors, the three-month consultation period for APRA’s draft prudential standard to strengthen remuneration requirements closed on Wednesday.

The prudential regulator plans to release the final standard before the end of the year, ahead of taking effect in 2021.

The package of measures, which address recommendations from the royal commission, is much more prescriptive than the existing requirements, and will align Australia with better international practice.

Among the key reforms will be greater emphasis on management of non-financial risks, with financial performance measures to ­account for less than half of the performance criteria for variable pay outcomes.

Minimum deferral periods for variable remuneration of up to seven years will be introduced for senior executives in bigger, more complex entities, and boards will have to approve and actively oversee remuneration policies for all employees.

They will have to regularly confirm that the policies are being applied in practice to ensure proper accountability.

United we stood

Precious possessions are often sacrificed when the house is on fire, as AMP will attest.

In May, Goldman Sachs paid $US750m ($1.1bn) for the $US25bn registered investment adviser United Capital, in which AMP was a minority shareholder.

According to US media reports, AMP paid “tens of millions of dollars” in September 2017 for a less-than-10 per cent holding.

AMP was bleeding in May — new chief executive Francesco De Ferrari had only been in the job for six months — so the opportunity to bank several times the company’s initial investment in United would have been hard to resist.

The untold story, though, is that AMP spurned the opportunity to take a much bigger position in United, which it had spruiked as one of the fastest-growing financial life management businesses in the US “with a goals-based advice approach and philosophy similar to AMP”.

According to AMP’s top wealth executive Paul Sainsbury, who left the group in February, there was significant potential for synergies and to draw on United’s expertise as the company implemented its new wealth management operating system, which would offer personalised advice solutions based on a customer’s goals and financial circumstances.

Then-chief executive Craig Meller said the opportunity could be worth billions of dollars in ­revenue.

United founder Joe Duran, a Zimbabwe-born entrepreneur, was no less enthusiastic. Culturally, he said in a YouTube video, the two organisations were very similar — “obsessed with doing the right things by clients”.

Duran visited Australia in late November, with Meller doing the introductions to investors and analysts. It mightn’t have seemed that way at the time, but AMP would have seen a world full of strategic possibilities when the deal was struck.

The announcement of the Hayne royal commission was still several months away, and the AMP share price was hovering around $5 compared with its current level near $1.80.

Barely six months later, the commission would highlight the folly of Duran’s musings, with the full horror of AMP’s fees-for-no-service scandal exposed in a single day’s testimony.

Goldman came bearing gifts for shareholders in United, including AMP and venture capital firms Bessemer Venture Partners and Grail Partners, early this year.

The acquisition makes sense for the US investment bank, which is seeking to lower its cost of wholesale funding and grow its retail client base and deposits.

For AMP it’s now a case of what might have been.

[e-mail]

Twitter: @Gluyasr