ANZ’s Shayne Elliott baulks at Hayne’s pay regime for senior execs

ANZ boss Shayne Elliott backs royal commissioner Ken Hayne on corporate remuneration — up to a point.

NAB chairman Ken Henry. Illustration: Sturt Krygsman

Royal commissioner Ken Hayne has made clear he wants two things on corporate remuneration: less variable pay for frontline staff and more disclosure and accountability on senior executive pay.

ANZ boss Shayne Elliott provided clear support for the first recommendation, but was reluctant to concede ground on the second, arguing he risked unnecessarily shaming executives.

Hayne has made clear there is virtue in showing staff and the community that executive pay was slashed because performance had suffered — and what the nature of that shortfall was.

Elliott says that is fine at a group executive level but not at the individual level and to go further carried risks of unintended consequences.

It seems ANZ will have no choice going forward because Hayne seems intent on putting in place a regime which helps to minimise the snafus on record throughout the public hearings.

The bank has also widened its use of clawbacks of past executive pay, which is another Hayne favourite, and Elliott disclosed that last year five past executives suffered the 23 per cent cut in long-term deferred shares along with the present executives.

No names were revealed but the list no doubt included former chief risk officer Nigel Williams and former deputy Graham Hodges who both left last year.

Elliott confided he told chairman David Gonski his pay should be docked along with the rest of executives, but still picked up $5.3 million, so the rent is safe.

More good news from Elliott was his disclosure that a second round of branch trials had shown there was widespread support for more group-level pay than for individual bonuses based on superior sales figures.

The results show while competition will always exist, the team preferred the concept of group pay and were more likely to refer people to a colleague who had better expertise on an issue than keep the client to themself to maximise a bonus.

This is exactly what is meant to happen and if the trial proceeds to plan ANZ will roll out the measure across more branches next year.

The key to staff performance, Elliott said, was the relationship with the team leader and the bank would devote more time to ensuring these people have the right skills.

Roundtable on fund

Treasurer Josh Frydenberg will host a full-day roundtable with the banks on his misconceived proposal for a $2 billion “Business Growth Fund”.

ANZ has declined to attend, in part because like the other banks it thinks it’s a dumb idea — but NAB, Westpac, CBA, HSBC, Macquarie, Australian Super and UniSuper will join Reserve Bank boss Phil Lowe and APRA deputy John Lonsdale at the December 6 roundtable.

Henry loses the plot

NAB chair Ken Henry is as smart as a tree full of owls but on board duty he has lost the plot and needs to learn his role as a company leader.

Henry told the banking royal commission that the board’s duty is wider than simply to shareholders. What a load of nonsense.

Milton Friedman has put the issue clearly: “There is one and only one social responsibility of business: to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game …”

The point being Henry is right to say there are wider stakeholders but engaging with them is part of the process of managing for shareholders, not some extra responsibility.

If you are charging customers for services you don’t provide, that is going to destroy profitability, as is evident in the industry this year.

Ben Butler was correct in his comments here yesterday about Henry and as one commentator put it “Ken Henry says it will take 10 years to change NAB’s culture — if he stays it will take 100 years.”

Henry went on to say the NAB board has a duty to the community, regulators etc, which is all true.

The point is that if the board does that bit well then it is serving shareholders well, by providing a sustainable future for their company. Yes, a board needs to provide oversight and set strategy, but if it is to serve shareholders well then it should engage with wider stakeholders.

The same goes with pay. Shareholders want long-term performance, which means executives should get turn-up-to-work pay and long-term bonuses which vest over five years or more to align with long-term shareholder gains.

Somewhere in the testimony of both Henry and chief executive Andrew Thorburn the concept that shareholders want long-term performance was lost. More to the point, their role in leading that long-term performance was lost.

Henry’s disappointing testimony at the commission was clouded with intellectual nonsense at a time when the industry is trying to get back to simplicity, which revolves around serving customers well. Is there a reason Apple why is the most valued company in the world today? Yes, it has engaged with and served its customers. That is what banks should do as well.

Questions for AMP

Look no further than the AMP, which has compounded the issue over the years by buying at the top of the market and selling at the bottom, as it is doing now with its life insurance business. The $3.5bn sale to Bermuda based Resolution Group of its life insurance business is unarguably a fundamental change in the company. And when new boss Francesco De Ferrari starts work next Monday he will face a long list of shareholder questions about the deal.

The highly regarded De Ferrari was said to be supportive of the deal, which raises the prospect that maybe his task is to break up the company further in an organised fire sale. His background is more private banking than life insurance, banking or infrastructure.

There are several potential pitfalls before the deal proceeds, starting with the need to get APRA, FIRB and the Treasurer’s approval for the deal. Given Chinese assets are also involved the deal is subject to Chinese approval.

The deal, unveiled in October, resulted in a 22 per cent fall in the company’s stock price, which compares to the 2 per cent gain on average posted by ASX 100 companies after asset sales totalling 10 per cent or more of the company.

AMP, backed extraordinarily by the ASX, has refused to hold a shareholder meeting to consider the deal. Shareholders including Lazard, Allan Gray and Merlon have publicly opposed the deal and called for more information.

These three own over 5 per cent of the capital so could force an extraordinary meeting to potentially roll the board. This of itself may not stop the deal, but any new directors voted in may take a different view on disclosure.

This works two ways because arguably post the deal AMP will have excess capital to actually hand back to shareholders. The last company disclosed net tangible assets figure was $3.4bn but market sources put this at closer to $4.1bn, with corporate debt at $1.2bn, compared to $1.9bn in the company’s figures.

Given the backdrop of the royal commission, the question is why David Murray and the AMP board are proceeding without taking shareholders with it through full disclosure.