Royal commission: bonus culture still rife in Australian banks

Westpac bankers still receive bonuses largely based on selling financial products, the royal commission has heard.

Westpac bankers still receive bonuses largely based on selling financial products despite an industry-wide review that discouraged this, the financial services royal commission has heard.

As the commission yesterday focused on bonus schemes under which banks handed out as much as half again of base wages for hitting targets to bring money through the door, a senior ANZ executive also admitted that one such plan that encouraged bankers to “relentlessly” sell small business loans made little sense.

The admissions came as the commission had its first visit from a serving politician, with One Nation senator Pauline Hanson calling for the investigation to be broadened and suggesting jail terms should be looked at for misconduct that hurt customers.

Speaking outside the commission, she said consequences for bank executives would be up to the commissioner.

“Forged signatures, foreclosure on properties … there’s been suicides, there’s been deaths, you can never get that back,” Senator Hanson said.

The spotlight on bonuses forms part of a fortnight of commission hearings, running until the end of next week, dealing with bank lending to small business.

Yesterday, one Bank of Queensland customer told the commission she was “alarmed” to discover at the last moment that repayments had almost doubled on a prospective loan to buy a Wendy’s franchise, but felt it was too late to back out because the cooling-off period to cancel the deal had run out.

“I felt I was between a rock and a hard place,” Suzanne Riches said.

“I sort of felt I was in a no-win situation.”

The commission heard that in 2011 Westpac business bankers earned 20 per cent of their bonus by hitting a target of selling eight or more products to each ­customer.

This was the same target US bank Wells Fargo gave tellers who went on to open customer accounts without permission in a cross-selling scandal that in 2016 cost the bank its chief executive and $US185 million in fines.

In Australia, a review conducted by the Australian Banking Association last year found bankers should not get bonuses solely based on sales.

On Tuesday, NAB chairman Ken Henry said the bank would overhaul its incentive schemes so that remuneration was more closely tied to what was good for customers.

And yesterday, Westpac HR executive Carol Separovich told the commission the bank had changed the way it awarded bonuses between 2012 and 2017.

Bankers now had to meet certain standards of behaviour and compliance to be considered for a bonus, she said.

But Commissioner Kenneth Hayne noted that 50 per cent of a banker’s performance goals were still made up of financial metrics.

Ms Separovich said bonuses were a way for staff “to share in our business success”.

“Selling is, and supporting customer needs is, their role,” she said.

She said the bank wanted to “reward on a more holistic set of considerations” — a choice of words counsel assisting the commission, Michael Hodge, QC, said sounded to him “like management speak that doesn’t necessarily carry a lot of meaning”.

Earlier, ANZ’s bonus payments were in the spotlight, with an executive admitting the bank had changed a policy on performance targets that was mostly about financial metrics.

Kate Gibson, ANZ’s head of home lending but previously in charge of small business, denied there was a culture of sales pressure but accepted that one banker said he felt such pressure.

Performance reviews tendered to the commission showed this banker fell short on winning new business in the first half of 2014, while in the following six months he had focused on new business and was described as “a role model for the team”.

This banker made a $220,000 loan to a couple who wanted to open a gelato franchise in western Sydney.

Ms Gibson said the loan was not made with the care and skill of a prudent and diligent banker, as required by the ABA’s code of conduct.

The loan was made on the back of a generic business plan laden with clip-art that appeared to have been largely prepared by the New Zealand-based franchisor.

Internal ANZ documents presented to the commission show that at the time bankers could pocket a bonus of up to half their annual pay by meeting sales targets.

Meanwhile, Ms Riches, a primary school teacher for 42 years, spoke of her purchase of two Wendy’s franchises after her husband received an inheritance from his mother and wanted to secure his future.

She applied for a business loan with the Bank of Queensland and received a conditional letter of offer saying repayments would be $4420 a month. She signed the franchise agreement but was still waiting for the loan and eventually found out repayments would be $8696.89 a month. By this time she had missed the cooling off period and felt she had to proceed.

“I wasn’t at all happy with the way we were dealt with,” Ms Riches said.