Westpac Bank is on track to avoid pay ‘first strike’

Westpac Bank is on the way to avoiding a first strike against its remuneration report.

Incoming CBA chairwoman Catherine Livingstone. Picture: Aaron Francis

Westpac is on the way to avoiding a first strike on its remuneration report, with influential proxy ­advisory firm ISS Australia recommending a vote in favour of all resolutions at next month’s ­annual meeting despite some ­reservations.

ISS Australia was the leading proponent of a “no” vote against the Commonwealth Bank remuneration report and the grant of performance rights to CBA chief executive Ian Narev.

As a result, CBA became the first major bank to suffer a first strike, in the year that chairman David Turner will hand over to his successor, the ex-Telstra chair and Business Council of Australia president Catherine Livingstone.

Westpac last year received a 16.1 per cent vote against its remuneration report, against the 25 per cent threshold for a first strike.

This has led to speculation that the bank faced a possible strike on December 9, particularly with chief executive Brian Hartzer’s $2.69 million in fixed pay exceeding that of his CEO peers at the three other major banks.

But heavyweight super funds, including UniSuper, are understood to be backing Westpac.

ISS Australia is similarly minded, although its support is far from resounding. It commended the bank for the financial performance hurdles in the short-term bonus structure, which enabled a better assessment of the level of performance and comparison between years. Also, the STI bonuses were again lower in the 2016 financial year, reflecting the bank’s lower financial results and higher impairments.

Finally, the long-term incentive used transparent hurdles based on relative total shareholder return (share price growth plus dividends) and earnings per share, with a new return on equity target to be introduced next year.

But there were weaknesses in the remuneration structure. First, the quantum of pay was relatively high, including the value of the long-term incentive for Mr Hartzer, which was 30 per cent above peers when measured on a similar basis. There was no disclosure of the STI hurdles, or the EPS growth hurdle for the LTI, and there was the potential for misalignment with actual statutory results because the incentives were based on cash earnings.

ISS Australia recommended support for the proposed grant of rights to Mr Hartzer, based on EPS and return-on-equity targets. This was despite an ROE target range of 13.5-14.5 per cent against a consensus broker forecast already in that range at 13.7 per cent.

Shareholders were also advised to consider the clawback provisions available to the board relating to previous executive bonuses. The provisions could come into play in the event of findings against the bank in relation to the corporate watchdog’s Federal Court allegations that traders had manipulated key benchmark interest rate the bank bill swap rate.