Westpac faces investor ire over exec pay

Westpac will face investor fury, and potentially a first strike, as proxy advisors told investors to vote against its pay report.

Westpac facing a strike over its remuneration report. Picture: Hollie Adams

Westpac is set to face investor fury, and potentially a first strike, after three proxy advisory firms told investors to vote against its remuneration report.

Westpac will test the waters at its annual general meeting on December 12, ahead of its rivals ANZ and National Australia Bank who will also face pressure at their respective meetings the following week. Commonwealth Bank has a June 30 year end.

The Australian understands advisory firm Ownership Matters is telling institutional investors to vote against Westpac’s pay report and also recommend against the re-election of non-executive director and former AMP chief Craig Dunn.

“The performance over the past decade, and the royal commission process, have highlighted the poor outcomes the company has delivered to shareholders and many customers, including poor shareholder returns during Dunn’s tenure as CEO,” the Ownership Matters report said.

“No (Westpac) executive received less than 50 per cent of their target bonus for the 2018 financial year, and only three executives received less than 80 per cent of target.”

Institutional Shareholder Services is also taking a hardline approach against Westpac, and is said to be telling investors to vote against the bank’s remuneration report and the granting of shares and performance rights to chief executive Brian Hartzer.

At the same time, the country’s biggest investor group — the Australian Council of Superannuation Investors — confirmed it will recommend super fund members vote against the remuneration reports of three of the four major banks.

ACSI, with 33 mostly industry fund members controlling $647 billion, said executives at ANZ, National Australia Bank and Westpac should been held to account for the damage done to the banks’ reputations and to customers and shareholders from their conduct and received no bonuses.

ACSI chief executive Louise Davidson said investors had been taken aback by the board’s decisions to award bonuses this year, even if they were reduced.

“The signal that it sends about how high risk behaviours are viewed in an organisation is really terrible,” Ms Davidson told The Australian. “What do you have to do to get no bonus?”

The recommendation by ACSI to its members raises the extraordinary prospect that all three banks would receive a first strike — which is no votes from 25 per cent or more of the shares — in the one year. ACSI’s members typically hold a combined 10-15 per cent of the shares of most companies in the S&P/ASX 200 index.

The annual meeting season has already been one of the most dramatic since the two strikes policy — which can trigger a board spill if a company receives 25 per cent “no” votes for its pay report in consecutive years — since it was introduced in 2011.

Shareholders in Telstra and collapsed contractor RCR Tomlinson delivered outright defeats on pay reports, with more than 50 per cent against, while companies including Harvey Norman, Goodman Group, Tabcorp, Healthscope and Mineral Resources also recorded first strikes.

Ms Davidson said she would be surprised if other shareholders did not share ACSI’s view on bonus payments and cast votes against the bank’s pay reports.

She said ANZ, Westpac and NAB should have followed the example of CBA, which cut $100 million from the bonuses of up to 400 executives, including chief executive Matt Comyn, in response to a series of scandals that plagued the bank and resulted in a $1.1 billion provision against profits in 2017. CBA’s pay report avoided a strike this year.

ACSI, whose members include the $140bn AustralianSuper — the country’s biggest fund — Cbus, UniSuper, the Qantas and Telstra super funds and the giant CalPERS fund from the US, said it did not recommend a vote against the CBA remuneration report earlier this year.

But NAB, Westpac and ANZ reduced the bonuses of executives and introduced new pay schemes that blended previously distinct short and long term incentive schemes. NAB chief executive Andrew Thorburn was paid a $2.1m bonus or 46 per cent of the potential, while Westpac chief executive Brian Hartzer received 77 per cent of his potential maximum bonus and ANZ’s Shayne Elliott received $1.7m, or 60 per cent of the potential maximum.

A Westpac spokesman declined to comment directly on the recommendations but pointed to the bank’s annual report and noted remuneration consequences this year.

Mr Hartzer suffered a 9.3 per cent fall in his realised pay from $5.5m to $4.9m in the year ended September 30, partly reflecting a cut in his short-term bonus. Other Westpac executives including wealth boss Brad Cooper and retail boss George Frazis had their short-term bonus cut.

The royal commission heard that CBA chairman David Turner had spent just 10 minutes to approve bonuses for CBA executives, while NAB chairman Ken Henry had accepted executives recommendations that bonuses be reduced instead of being cut altogether — because of scandals at the bank.

Ms Davidson said companies including the banks treated short term bonuses as part of fixed pay rather than at risk because it was never withheld.

Analysts at Citi said that 2018 was a year of “small changes” in bank pay, excluding NAB, which introduced a new scheme merging short and long term incentive schemes.

Pay was reduced and disclosure improved across the board, boosting transparency, but there was likely to be continuing pressure on boards to cut absolute pay levels. “Over time, we will expect a greater focus to be placed on absolutes, and on stakeholders other than investors,” the analysts said.

Citi said investors should be cautious in comparing accountability across the banks and keep the severity of conduct failures in mind.

“Furthermore, we think accountability is likely to remain a vexatious issue in bank remuneration, not in the least thanks to a likely difference of opinion regarding the role of STIs (short-term incentives) across investors and boards.”