The prudential regulator has supported the inclusion of non-financial performance bonuses in the remuneration of Australian bank chief executives.
Appearing before a Senate Economics Legislation Committee hearing yesterday, APRA chairman Wayne Byres was asked about the remuneration practices of the major banks.
Greens senator Peter Whish-Wilson asked Mr Byres whether a sales culture and vertically integrated business model "flows through" from the fixed bonuses of bank chief executives.
"There’s no doubt the financial industry has gone through various stages. There was deregulation, and then Australia banks were going to take over the world – that didn’t end too well," Mr Byres said.
"Then there was a phase they’ve just gone through – modelling themselves on retailers – where they were there to 'sell'," Mr Byres said.
But more recently there was been a "recognition" from the major banks that the "balance hasn't been quite right" when it comes to remuneration, he said.
"Part of our work is to look at [these issues] – what are people being incentivised to do at the top of the organisation, and what are they going to prioritise?" Mr Byres said.
"We have seen one bank receive criticism recently because it has proposed to adjust its chief executive and senior executive scorecard to give more regard to culture and corporate governance."
CBA, the bank in question, recently added a "people and community" benchmark to chief executive Ian Narev's performance targets.
The move was criticised by the Australian Shareholders' Association, which said the changed bonus structure would make it "easier for Mr Narev and his successors to continue to receive large payouts in the future".
But Mr Byres said the direction CBA has proposed to go in is "the right one".
The APRA chairman also said the regulator has not considered caps to chief executive remuneration in Australia.
"As a regulator we try very hard to avoid interfering in the affairs of consenting adults where individuals are paid and remunerated," Mr Byres said.
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