NAB chief regrets delays in cuting bank executive bonuses

NAB chairman Ken Henry said the bank’s board should have cut executive bonuses earlier.

NAB chairman Ken Henry leaves the royal commission yesterday. Picture: David Geraghty

NAB chairman Ken Henry said the bank’s board should have cut executive bonuses earlier in response to a wave of scandal sweeping the bank that included charging fees to the dead.

The board made small cuts to the pay of bosses, including the then-head of the scandal-ridden wealth business, Andrew Hagger, in 2017, before returning in October this year to swing the axe through executive bonuses.

In an at-times torrid second day of evidence to the financial services royal commission yesterday, Dr Henry said NAB’s board gave senior executives their full bonuses in 2016 even though directors were unhappy about a rising tide of breaches that had turned its compliance audits into a sea of red.

Last month, the board slashed by 50 per cent the bonus of Mr Hagger, who had fallen on his sword the previous month following two disastrous appearances at the royal commission, and also cut the pay of two other executives with responsibility for its fee-for-no-service scandal, chief legal officer Sharon Cook and chief risk officer David Gall.

The board cut the bonus pool for employees to 80 per cent and the pool for executives to 70 per cent, and earlier this month canned deferred bonuses for some executives.

Directors of the bank rejected a smaller cut to bonuses recommended by chief executive Andrew Thorburn, Dr Henry told the commission.

Counsel assisting the commission, Rowena Orr QC, asked Dr Henry whether he thought “if the board had made similar adjustments in earlier years and more clearly signalled through those adjustments that the delays in resolving these issues were unacceptable, issues might have been resolved earlier?”.

“Yes, they might have,” Dr Henry said. “Yes, indeed.”

Asked whether NAB should have “made similar adjustments in earlier years”, Dr Henry replied: “We probably should have. We probably should have, yes.”

He said the cut was made because “we wanted to make an ­adjustment for risk matters, a kind of risk overlay adjustment, if you like”. Asked what kinds of risks he was referring to, Dr Henry said: “The ones we’ve been discussing all day.”

The commission heard that during 2016, the board’s risk committee heard for the first time about a fee-for-no-service scandal that was discovered two years earlier and involved hundreds of thousands of customers of its superannuation business.

At the time, NAB was taking fire from the Australian Securities and Investments Commission over the fee-for-no-service scandal, in which it charged at least $100m to more than 500,000 customers. ASIC this year sued NAB over the alleged rort and it is understood the regulator stands ready to launch additional legal action.

ASIC was also investigating NAB over alleged bank bill swap rate rigging and a foreign exchange breach. The Australian Prudential Regulation Authority demanded it improve its remuneration structure to embed control of risk in the bank’s culture. APRA wrote to NAB in mid-2016, telling the bank it had a “significantly higher number of breaches of prudential standards” than rivals.