Westpac chairman Lindsay Maxsted has vowed to continue to consult with shareholders about executive remuneration after the bank received its first “strike”, concluding a “particularly challenging” year marked by the royal commission.
Addressing shareholders at the bank’s annual general meeting in Perth today, Mr Maxsted said based on votes already received, more than half would be against the remuneration report, resulting in Westpac becoming the latest major company to receive a strike in recent months.
“This sends a strong message to the board,” he said.
“Given the many concerns expressed we will continue to meet with shareholders this year to fully capture and understand your views. In the year ahead we will continue the work we have already started to review our reward frameworks, with particular consideration of the concerns raised.”
Under the “two-strikes” rule legislated in 2011, a resolution to spill a board is put to shareholders if more than 25 per cent of votes cast are against the remuneration report two years in a row. Several large companies have received a strike in recent months, including Telstra, Myer, Harvey Norman, Mineral Resources, Computershare and Goodman Group.
Despite noting executive remuneration was always of great interest to shareholders, Mr Maxsted said this year had been “particularly complex given the environment and the back-drop of the royal commission with its impact on community expectations”.
While shareholders had raised concerns around short term incentives, Mr Maxsted said the board took account of overall outcomes for the year, including flat earnings and falling short in financial advice and managing customer complaints, but also better than expected performance across balance sheet strength, customer growth and employee satisfaction. Executive scorecard outcomes were also reduced to reflect collective accountability for risk and reputation matters, while no long term incentives vested.
Short term variable rewards for chief executive Brian Hartzer and his most senior team of group executives in Australia were 25 per cent lower than last year.
In a note to employees, Mr Maxsted added that while investors remained supportive overall of Westpac, they felt the bank hadn’t markedly differentiated itself from peers on community expectations or financial performance.
“In the year ahead, we will continue to review our reward frameworks, reflecting on our shareholders' concerns. At the same time, it will be important for us all to focus on delivering a strong customer and financial performance,” he said.
For the year to September 30, Westpac’s cash earnings of $8.1 billion were little changed on the prior year, weighed down by higher funding costs in the second half and provisions for customer refunds, and regulatory and litigation costs. The full year dividend of 188 cents per share was unchanged from 2017.
Mr Maxsted told shareholders the year had been “particularly challenging” for financial services entities amid intense scrutiny from government, regulators, the media and community, and as the royal commission impacted sentiment. Just weeks after the conclusion of the seventh and final round of the commission’s public hearings, Mr Maxsted summarised four key lessons, including issues with some employee remuneration arrangements and a lack of focus on customer complaints.
But he said the bank had taken several steps in recent years to address issues, shored up resources, systems and related reporting, and accelerated customer remediation to restore the standards expected by shareholders, the community and customers.
“Your board is here to represent shareholders and we shall unashamedly continue to do so, including striving to provide you with the best possible returns on your equity over the long-term. We understand that for a well-run bank, or indeed any commercial organisation, this will not, and cannot be, at the expense of the customer,” he said.
Mr Hartzer said while the short-term outlook for banks was challenging, the economy remained positive and the bank’s service revolution strategy would help drive long-term returns. In the past year, Australian banking customers surpassed 11 million for the first time as new digital solutions were rolled out. The core of the bank’s new technology infrastructure, the Customer Service Hub, was also turned on last week.
He added that given the impact of the bank levy, higher funding costs and a lift in compliance spending, last year’s result was “arguably not a bad result” in a challenging environment and several businesses performed well, such as the Business Bank which grew profits 8 per cent and New Zealand.
“While 2018 was a challenging year, and 2019 no doubt will continue to bring its own challenges, I believe Westpac is very much on the right path,” he said.