The $2m club: bank bosses rolling in it
Market rates or unjustifiably bloated pay packets? Susan Edmunds looks at why top bankers get staggering salaries.
Three million dollars for a year’s hard slog. Nice work if you can get it?
Bank bosses have overseen a series of record profits in recent years, and that has led to increasingly large pay cheques for their own pockets.
Among the $2 million club profiled in Stuff’s series on chief executive pay are the big names leading New Zealand’s main banks.
The standout is ANZ boss David Hisco, who earned $3.34m last year.
ASB new recruit Vittoria Shortt arrived in February but was firmly over the $2m threshold in her role at parent bank CBA – earning $2.88m in the year to June.
BNZ chief executive Angela Mentis made a similar move to New Zealand, starting her job at the beginning of 2018. She was paid a total of $3.21m in the year to June.
Of the main four banks, only Westpac’s David McLean hovers under the $2m mark, earning $1.88m in the latest financial year. By comparison, Kiwibank paid just over $1.5m for its chief executive role in the past financial year – that position has recently been filled by Steve Jurkovich.
When this year’s round of salaries was revealed, First Union retail, finance and commerce division secretary Tali Williams said the situation was ‘‘outrageously imbalanced’’ compared to what frontline bank staff were paid.
‘‘The average bank chief executive receiving $2 million a year is on $960 an hour, that’s 48 times more than the average teller on around $20 an hour,’’ she said.
She said a cap was needed to keep chief executive salaries in line with what staff further down the ranks received.
Timothy Hazeldine, a professor of economics at the University of Auckland Business School, said the salaries were problematic. ‘‘They might be reasonable relative to what others pay but they’re unreasonable. What others pay is unreasonable.’’
Allowing for inflation and business size, chief executive salaries had doubled over the past 20 years while the rest of the country’s wages lifted about 50 per cent.
No one had been able to justify that, he said. ‘‘If you think they are being paid fairly now you’d have to say they were being heavily exploited 20 years ago when they got half as much. When you put it that way you have to think … really?
‘‘Also, if one of the arguments supporting very high bank chief executive salaries is the responsibility they must bear for stewardships of billions of dollars of people’s money, well, the minister of finance has stewardship of about $90 billion of people’s money every year, along with a few other important duties, and does all this for a salary somewhat less than that of the prime minister [around $400,000].’’
But banking expert Claire Matthews, of Massey University, said the pay was in line with what was offered in other businesses of comparable size.
‘‘What also needs to be remembered is that the role of the bank chief executive is slightly different to that of many other chief executive roles.
‘‘It is a much more public position and as chief executives of financial institutions they have additional responsibilities because people have entrusted their money to them, so there also needs to be compensation for these additional aspects of the position.’’
Bank chiefs are paid both a base salary and an array of variable incentives that can add millions to their take-home pay.
Hazledine said that was something that needed to be reviewed.
Short-term incentives had been blamed for encouraging people to chase short-term goals.
‘‘If a firm has a really good quarter or year then they get a big bonus, but if it drops, they don’t have to pay it back. It’s an incentive to engage in risky behaviour.’’
He said the incentives also seemed to erode trust in management, implying that chief executives might ‘‘stay at home and play golf’’ if they did not have a financial tempter to perform at work.
It is something that has registered as a concern for the Financial Markets Authority and Reserve Bank.
Their joint review of bank conduct found all banks linked a portion of chief executive pay to outcomes such as financial performance, risk management, strategy and customer relations.
At six of the 11 banks in New Zealand, about two-thirds of total pay was based on these variable components.
‘‘In some instances, incentives were linked only to short-term outcomes. This is likely to lead to short-term financial goals being prioritised over long-term customer outcomes. Even where chief executive remuneration was linked to long-term outcomes, the measures mainly related to financial performance or parent bank considerations rather than customer outcomes or the behaviour of bank staff.’’
The Financial Markets Authority has asked all banks to revise their incentives for all layers of staff, including management.
‘‘We expect banks to implement changes to their incentive schemes no later than the first performance year beginning after September 30, 2019.’’
New Zealand Bankers’ Association acting chief executive Antony Buick-Constable said the way pay was calculated would vary from one bank to the next.
‘‘As with most businesses, bank CEOs have levels of responsibility ordinary staff members wouldn’t have. In the New Zealand banking industry it includes responsibility for around 25,000 staff, over $13b in shareholders’ capital and over $300b in customer deposits,’’ he said.
‘‘They’re also responsible for complex financial and technology systems, and are accountable for their bank’s legislative and regulatory compliance.’’
‘‘If you think they are being paid fairly now you’d have to say they were being heavily exploited 20 years ago when they got half as much. When you put it that way you have to think … really?’’ Economics professor Timothy Hazeldine