The Commonwealth Bank’s board has announced a cut in executive bonuses and directors’ pay following the money laundering scandal that rocked the bank last week.
- CBA’s senior executives will not be paid short-term incentives for financial year 2017
- The move appears likely to cost Ian Narev roughly 20 per cent of his total remuneration
- CBA’s directors have also cut their fees by 20 per cent for the current financial year
Chief executive Ian Narev and his fellow senior executives will lose all of their short-term variable bonuses for the financial year just ended.
The board did not absolve itself from any responsibility for the scandal, cutting its own non-executive director fees by 20 per cent for the current financial year.
In the 2016 financial year, all of the directors who served the full year were paid above $300,000, except one who fell just short at $273,000. Then-chairman David Turner was paid $874,000.
For Mr Narev, it looks likely to be around a 20 per cent pay cut based on last year’s figures — in financial year 2016, he received $2.8 million in short-term variable pay out of a total pay packet of $12.3 million, which included some long-term bonuses from earlier years that vested that year.
Mr Narev’s “statutory” pay for financial year 2016 was listed at just shy of $8.8 million.
Full details of the bank’s 2017 executive and director remuneration will be released in its annual report next week.
CBA releases its financial year 2017 profit report tomorrow.
Narev ‘retains full confidence’
However, it appears that Mr Narev will keep his top job at the bank, with CBA chairman Catherine Livingstone saying, “Mr Narev retains the full confidence of the board.”
The move to cut executive and director pay follows a court case launched by the Federal Government’s anti-money laundering and terrorism financing body AUSTRAC, which alleged almost 54,000 breaches of the law.
Each breach carries a potential maximum penalty of $18 million, leading to a theoretical maximum penalty just short of a trillion dollars.
However, the Commonwealth Bank said it will argue that most of the breaches relate to one software coding error and therefore should be treated as a single violation of the law.
AUSTRAC is, though, also alleging that the Commonwealth Bank took three years to identify the coding mistake
It also argues that the bank did not conduct a risk analysis into the offending “intelligent deposit machines” for years after they were introduced and failed to provide timely cooperation with AUSTRAC and the Australian Federal Police in several money laundering investigations.
Bonus cut ‘nonsense’, criminal action ‘needs to go to the top’
The Commonwealth Bank’s move to cut executive and director pay does not appear to go far enough to appease many of its critics, however.
Ahead of the bank’s announcement, John Abernathy — the chief investment officer of CBA shareholder Clime Asset Management — said heads should roll, although not necessarily Mr Narev’s.
“Ultimate responsibility probably means that someone has to lose their job,” he told the ABC’s AM program.
“I think the bonus thing is nonsense, I think the banking sector as a whole has to start thinking about these pay scales.”
Banking and finance expert Professor Milind Sathye from the University of Canberra was also dismissive of the bonus cuts.
(The World Today)
He told The World Today that the bonuses will simply be reinstated next year when the controversy dies down and that even sacking the executives responsible may not go far enough.
“The only way it can stem this rot is to bring criminal proceedings and it needs to go right up to the top,” he said.
“This is not going to end unless CEOs, in particular, can see that this is going to personally harm me.”
It was a sentiment echoed by politicians who have been highly critical of the major banks.
Senator Nick Xenophon has maintained his calls for jailtime for executives when banks engage in such serious regulatory breaches.
“I don’t have a violin small enough to play for Commonwealth Bank executives missing out on their bonuses when their base pay could be in the millions of dollars,” he said.
“You need to have reverse onus of proof so that if bank executives are so slack in their systems, so recklessly indifferent when it comes to money laundering, then they should face jail terms.”
Opposition Leader Bill Shorten said the Commonwealth Bank’s inaction over money laundering added to the case for a banking royal commission.
“You had the CEO of [the] Commonwealth Bank telling Labor we should go back in the box, know our place and don’t have a royal commission and, in the meantime, his own operations seem to operating in a pretty loose fashion don’t they?” he said.