NAB gets tough on staff bonuses

National Australia Bank’s top 400 managers are to have a larger share of their bonuses deferred for three years.

National Australia Bank’s top 400 managers will have a larger share of their bonus deferred for three years after the bank kicked off the process of overhauling its pay structure in response to a stinging investor rebuke.

The bank’s top 400 staff — but those below the executive leadership team — were informed of the changes in recent days that will see 40 per cent of their variable pay deferred for three years. That reflects a much tougher approach to bonus payments given the prior threshold was 25 per cent deferred for just one year.

The changes were confirmed by the bank after detailed questions were posed on the measures by The Australian.

Additionally, for NAB staff outside the top 400 who are awarded a bonus of $50,000 or above due to performance, 30 per cent will be deferred for two years.

“We are confident it [the changes] takes our reward practices in the direction shareholders would expect,” said NAB’s executive general manager of performance and reward, Lynda Dean.

“It feels right for us.”

But it was executive pay that largely raised the ire of investors.

The bank is also liaising with regulators and investors over a revised pay framework for its executive team, which Ms Dean said would probably be finalised after the release of guidelines from the prudential regulator in June.

The latest revision comes after NAB registered an unprecedented 88 per cent vote against its remuneration report in December, which was the outcome of a new framework unveiled by chairman Ken Henry.

Dr Henry told shareholders at the AGM that the bank would “try again” at coming up with an acceptable structure. “The board is hearing loud and clear that our new scheme is not right. We tried, but got it wrong. We will try again,” he said.

However, a lot has occurred at NAB since investors roasted the board over executive pay.

Dr Henry this month announced his intention to leave NAB once a new chief executive is appointed to replace outgoing Andrew Thorburn. NAB non-executive director Phil Chronican this week takes the CEO reins in the interim while global searches are conducted.

Dr Henry and Mr Thorburn decided to depart the bank following criticism in the Hayne royal commission’s final report, which lambasted them for not showing accountability for the bank’s string of scandals and poor culture.

“I was not persuaded NAB is willing to accept the necessary responsibility for deciding, for itself, what is the right thing to do, and then having its staff act accordingly,” commissioner Kenneth Hayne said in the report.

NAB’s rivals ANZ and Westpac also raised the ire of investors late last year and copped strikes against their pay reports, but NAB’s vote eclipsed the trio of bad results.

Ms Dean said the new pay structure for NAB managers sent a message about “performance assurance”, accountability for decisions and would also ­assist with staff retention.

The longer deferral period aligns with many large global investment banks that had their pay scrutinised heavily following the global financial crisis.

Ms Dean characterised this week’s change as “another step” in the broader process to improve the bank’s remuneration structures. Last year, NAB outlined a change to the pay of frontline staff, such as those in branches or call centres.

It saw other metrics added to the performance measurement besides financial outcomes. Customer advocacy and compliance are among the factors measured.