Banker Bonuses Face Crackdown in Australia After Scandals
Banker Bonus Rules to Be Tightened in Australia After Scandals
(Bloomberg) -- Bank executives in Australia may have to wait as long as seven years to receive their bonuses and face a greater emphasis on improving culture and governance, under regulatory proposals spurred by a string of scandals across the financial industry.
In other changes, financial measures will account for no more than 50% of bonus criteria, and companies will be able to claw back payments for up to four years, the Australian Prudential Regulation Authority said in a statement Tuesday.
The crackdown on banker pay comes after an inquiry into misconduct in Australia’s finance industry concluded remuneration and incentive structures were the root cause of years of wrongdoing, which ranged from charging customers for services they never received, to pushing people into poorly-performing funds to meet bonus targets.
“APRA has observed an over-emphasis on short-term financial performance and a lack of accountability when failures occur, especially among senior management,” Deputy Chairman John Lonsdale said in the statement. “This has contributed to a series of damaging incidents that have undermined trust in both individual institutions and the financial industry more broadly. These incidents have damaged not only institutions’ reputations, but also their financial positions.”
Commonwealth Bank of Australia, the nation’s largest lender, was last year lashed by the regulator, which said a pay framework with “little sting” for senior staff had contributed to a culture that led to systemic breaches of anti-money laundering laws.
The proposed changes “will encourage executives to put greater focus on non-financial risks, such as culture and governance,” Lonsdale said. “This remains a weak spot in many financial institutions.”
Bank pay is starting to creep up in Australia as troubled firms look offshore for executives to lead turnarounds. Troubled wealth manager AMP Ltd. hired Francesco De Ferrari from Credit Suisse Group AG on a maximum package of A$8.3 million ($5.8 million), including bonuses.
Ross McEwan, who was last week named as the next chief executive officer of National Australia Bank Ltd., will be paid a base salary of A$2.5 million a year, and be eligible for as much as A$7 million in short- and long-term bonuses. His predecessor, Andrew Thorburn, was paid a base salary of A$2.3 million, and total remuneration of A$4.4 million last financial year.
The regulator will now commence a three-month consultation process on the proposals, closing Oct. 22. It intends to release the final prudential standard before the end of 2019, with a view to it taking effect in 2021.
To contact the reporter on this story: Peter Vercoe in Sydney at pvercoe@bloomberg.net
To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net, Edward Johnson
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