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.

Sunday Star-Times - - News -

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

David Hisco, ANZ, $3.34m An­gela Men­tis, BNZ, $3.21m

David McLean, West­pac, $1.88m

Vit­to­ria Shortt, ASB, $2.88m

Newspapers in English

Newspapers from New Zealand

© PressReader. All rights reserved.