Shayne Elliott’s appearance before a parliamentary inquiry revealed the difficulties of balancing a profit-making enterprise while motivating staff without sales targets.
One of the key areas of concern for the House of Representatives standing committee has been banker remuneration, which is being overhauled in response to recommendations made by the Sedgwick review.
On Friday (12 October), ANZ chief executive Shayne Elliott was asked if the bank had implemented Sedgwick the reforms, which have a June 2020 deadline.
“We believe we will have them embedded and fully implemented by the middle of next year,” Mr Elliott said.
The interim report of the Hayne royal commission, released last month, explained that ANZ has used a ‘balanced scorecard’ since April 2017. The report also noted the complexity of this remuneration structure. It reads: “But despite the scorecard’s complexity, sales lie at its heart and the chief purpose of the whole incentive program remains to enhance the bank’s overall results.”
One MP on the committee challenged Mr Elliott on this and asked him whether this approach was appropriate for removing “perverse” sales incentives: “Why is there this half-baked approach? This is an issue we raised with you back in 2016. [Hayne’s interim report] is talking about your 2017 incentive management process. We have had Sedgwick come out in that time as well. But as you said, you are still working towards an implementation of that for next year. Other banks have already implemented Sedgwick for this current financial year,” the MP said.
“With all due respect to you,” Mr Elliott replied, “There should be a definition around what ‘implementation’ means…it is not possible to implement all of it [this year]. But we are on the path to reform.”
“I take your point, but it is about balance,” The ANZ CEO continued. “We are a commercial enterprise and we do have a responsibility to generate a profit. Without that we fail to meet our regulatory obligations around capital and other things and we would not be able to operate.”
ANZ profitability has fallen ‘dramatically’
Later in the inquiry, Mr Elliott was challenged by a member of the committee who believed “the banks have been able to increase their profitability at a time when they are operating below community standards”.
However, Mr Elliott explained that ANZ’s profitability over the period has actually gone down, not up.
“The reality is that the sector, including ANZ – our return on equity has fallen from 17 or 18 per cent to 11 per cent. We have been punished. ANZ’s profitability is dramatically lower than it was three years ago, five years ago and ten years ago. Dramatically,” he said.
“You put it to me that the banks had been increasing their profitability during that period. When you look at the profitability, the return we get on our shareholders’ money is actually dramatically lower.
“We earn less for every dollar we deploy than at any time in the last twenty or thirty years.”