The “dilemma” of pleasing both customers and institutional shareholders as a listed bank have been explored by the royal commission this week.
On Thursday (29 November), Bendigo and Adelaide Bank chairman Robert Johanson spent a short amount of time in Hayne’s witness box where he was mostly used as an example of how banks should be remunerating their staff.
Unlike the big four, Bendigo bankers are paid a higher proportion of their remuneration in a base salary, with a smaller proportion linked to short-term incentives. Part of the long-term incentives are linked to the bank’s Net Promoter Score (NPS) and other customer centric measures.
Mr Johanson told the commission that shareholders have generally supported the bank’s remuneration model, which he admitted was different to its peers.
However, counsel assisting Rowena Orr submitted into evidence a report by proxy advisers ISS Governance relating to Bendigo’s 2018 AGM, which advised shareholders to vote against a resolution approving performance rights and a deferment of shares to the bank’s managing director, Marnie Baker.
The report noted that one reason for the recommendation was the increased weighting given to the “customer hurdle” in Ms Baker’s long-term incentives. The proxy advisers believed this “had no direct link to shareholder wealth outcomes”, and that “customer-centric measures should be “considered and assessed as part of a banking executive’s day job”.
Mr Johanson said he believes, to the contrary of the ISS recommendation, that customer centricity is linked to the long-term viability and profitability of the bank.
“The ‘day job’ as is were includes thinking about how all parts of the remuneration package are working together to achieve common outcomes,” he said.
“The proxy advisers of course are employed by institutions. It provides a pretty rigorous way for large numbers of institutions to get to grips with these questions when historically they haven’t been that interested in them.
“But the people who pay the proxy advisers themselves are assessed typically on short-term financial outcomes. So it’s no surprise that a fund manager is interested in short-term financial outcomes because we all as investors, through our superannuation funds, are concerned about whether our fund has done well over the last six months or not.
“There is a dilemma in all this.”
Mr Hayne suggested the process was “reducing some quite complex problems to binary outcomes”.
Approximately 40 per cent of Bendigo and Adelaide Bank is held by institutions.